Why Blended Finance Struggles to Deliver Social Impact at Scale
The climate transition is accelerating—but not everyone is being brought along. Funding for green technologies and emissions reductions is flowing fast. Yet, financing the social equity elements of that transition—job access, community impact, inclusion—is lagging far behind. In addition, the decline in official development assistance means we all need to do more with less. No longer can we think of addressing climate and social objectives in isolation. We need an integrated approach. This is what efforts to finance a “just” transition address.
BCG has been on a multi-year journey to help solve the challenges of financing the just transition (JT) through dynamic engagements with key partners, for example the World Economic Forum’s Equitable Transition initiative, and via close involvement in COP28 in Dubai, COP29 in Baku and COP 30 in Belem. Since 2024, we have been partnering with the World Business Council for Sustainable Development, the Council for Inclusive Capitalism, alongside other stakeholders from the finance, development, philanthropy, and public sectors.
Together, we've explored mechanisms to define a framework that outlines different pathways for financing the JT (see our report Framework for Financing the "Just" in Just Transition). One that emerged quickly is Blended Finance (BF)—which enables those financiers that want to focus on the social elements of the transition to provide technical assistance and/or concessional capital into structures that are also solving climate mitigation and/or adaptation challenges. However, there are several challenges to using BF in a JT context:
BF structures for JT are inherently more complex than those focused on climate alone.
They often require more concessionality due to non-revenue-generating social elements.
Investor interest is dampened by a lack of standardized metrics, proven success cases, and alignment across capital providers.
Traditional philanthropic capital is often too constrained or inflexible to support innovative structures.
The result: an ecosystem of vehicles that are fragmented, difficult to scale, and often ineffective at delivering measurable social outcomes.
Designing Solutions That Break the Trade-Offs in Just Transition Finance
BCG’s work has focused on exposing and understanding the design trade-offs that plague BF for JT—and designing solutions to resolve them. Drawing on deep stakeholder input and a review of 35 nominally JT-linked BF vehicles, BCG has identified a structural triad of three highly influential dimensions integral to the BF/JT issue:
Scalability: The ambition to expand across markets and sectors, mobilizing significant capital
Simplicity: The need for clarity, manageability, and ease of use for all parties
Effectiveness: The requirement to deliver measurable, inclusive, and lasting impact that is appropriate to any investment situation
Yet improving one often compromises another:
- Scaling introduces new investors with diverging needs—reducing simplicity
- Ensuring effectiveness in impact goals and measurement adds layers of complexity and challenges scalability
- Simplifying design can dilute social targeting—weakening effectiveness
Source: https://www.bcg.com/publications/2026/unlocking-capital-for-a-just-transition
