This white paper builds on a joint UZH-R20 event on Blended Finance at the World Austrian Summit in 2019. We combine literature review, original empirical and analytical work, and the consolidation of over 20 interviews with experts in the field to provide a balanced view on blended finance approaches to fill the investment gap towards sustainability objectives.There is growing interest among DFIs, MDBs and in particular the Green Climate Fund for blended finance solution aimed at sub-national middle size sustainability infrastructures. There is a perception among practitioners that this is a relatively untapped market and it could represent a game changer towards achieving SDGs and Climate Action in particular. A number of commercial banks currently look with interest at long-term green finance investment opportunities for their institutional clients. The post-COVID era could reinforce the importance of the long-term and resilience dimensions in investments. According to many practitioners, appropriate finance vehicles for this purpose are lacking and a natural candidate to fill this gap are investment solutions based on blended finance, which are examined in this study. This study has been carried out in in the background of a very dynamic market and policy landscape, marked in particular by the COVID-19 pandemics. Going forward, the risk and opportunities analysed in this paper can inform the discussion in key events of 2021 featuring sessions devoted to blended finance initiatives, such as the World Economic Forum in January 2020, the 2020 IUCN congress (Marseille, June 2021), the UNFCCC COP 26 (Glasgow, November 2021).Since many sustainability projects (e.g. in the electricity) represent small-medium size investments, bundling projects together in securitized financial products can in principle support the objective of scaling up investments. However, the lessons learnt on securitization from the 2008 financial crisis impose prudence. The idea of combining de-risking with securitization thus poses new challenges. Combining blended finance with securitization can be a solution for scaling up investments only under the condition of a well-designed governance structure between the public and private, and a transparent and science-based assessment of risks.A broader set of instruments, beyond the pure financial de-risking, could improve the scale and efficiency of blended finance. This includes climate-related policies and regulations that create enabling conditions for the projects, make the business environment less volatile in the renewable energy sectors, as well as signalling (which is zero or low cost) their commitment to the low-carbon transition. Indeed, industrial policy, institutional setting and regulatory guidelines can offer vital support at regional, sectoral and project level for sustainable development at a large scale. Their role seems critical for the scaling up of investments at the global level
