Stakeholders and Their Roles in Blended Finance
Stakeholders and Their Modes of Participation
Blended finance is, by nature, based on collaboration among a wide range of actors—government, philanthropy, institutional investors, and financial institutions and corporates—each bringing different motivations, unique capabilities, and varying levels of risk tolerance. Understanding the distinct contribution and incentives of each stakeholder is essential for structuring successful transactions and mobilising capital at scale.
Impact Economy
An economic system in which impact considerations are an integral part of decision-making by businesses, investors, governments, and consumers. Economic success is thus measured not only by profit but also by contribution to society and the environment—a true paradigm shift.
See the glossary for definitions of the terms used in this figure.
Impact Economy
An economic system in which impact considerations are an integral part of decision-making by businesses, investors, governments, and consumers. Economic success is thus measured not only by profit but also by contribution to society and the environment—a true paradigm shift.
Intentionality
A core principle of impact investing: a clear and explicit intention to generate social or environmental impact as an integral part of the investment objectives, rather than as a by-product.
Levels of Operation in Blended Finance
Blended finance combines different types of capital across three levels: a single project or company, a dedicated blended-finance fund, and a wholesale fund. In this document, we focus primarily on dedicated blended-finance funds.
Each level, aligned with operational needs, represents a distinct mechanism for mobilizing investment and defining areas of activity, yet in all of them public and philanthropic capital plays a catalytic role—creating the conditions that attract private and institutional capital to investment opportunities.
Single-Project Level: At the project level, blended finance can remove specific financing barriers for a project with clear social or environmental value, even when investors perceive it as high-risk or of uncertain economic feasibility.
Sector-Specific Fund: A sector-specific fund is a dedicated investment vehicle focused on one field or on several closely related fields (such as renewable energy or sustainable agriculture). It is designed to provide a systematic response to market failures within a particular domain by cultivating expertise, accumulating knowledge, and managing risk across a portfolio of similar investments in a clearly defined focus area. Sector-specific funds thus aim to develop and strengthen a professional ecosystem that builds trust and cooperation among all stakeholders involved.
Wholesale Fund: A wholesale fund provides a cross-sector solution and serves as a catalyst for developing the foundations for a broad, functioning blended-finance ecosystem. In doing so, it enables the establishment of additional funds and contributes to the expansion and deepening of the market. The distinctive value of a wholesale fund lies in its capacity to diversify risk across sectors, regions, and investment types, using complex capital structures. Wholesale funds typically involve stakeholders from the public sector and multilateral institutions—governments, development banks, and international financial institutions—who play a central role in the fund’s establishment and financing, helping to build trust, attract further capital, and strengthen the fund’s financial architecture.
Blended-Finance Tools
The success of blended-finance funds depends largely on their ability to align the motivations and assets of different stakeholders—government, philanthropy, and institutional and private investors. Achieving this requires a deep understanding of the needs and market failures that the fund is intended to address. In this way, the value of blended finance tools extends beyond providing capital: they also offer professional support, capacity-building, and sustained infrastructure. Well-designed financial and organisational structures maximise social and environmental value, support long-term sustainability, and enable capital mobilisation at scale.
At the core of blended finance are three principal tools that enable investment and expand the capital base for targeted social and environmental priorities:
Catalytic Capital
Catalytic capital is a layer of capital designed to take on higher risk or accept lower returns in order to enable the participation of additional investors under standard market terms. It may take the form of subordinated debt, a first-loss tranche that reduces risk for private capital, or a philanthropic grant with no expectation of return. Its central purpose is to unlock commercial capital by mitigating risk and increasing the attractiveness of the transaction for the wider market.
Concessional Funding
Concessional funding refers to financial instruments provided on terms more favourable than those available on the market, such as lower interest rates, longer grace periods, or repayment contingent on success. Its aim is to structure capital in a way that meets the needs of investee organisations and projects, to enable business models with limited near-term profitability, and to reduce the overall cost of capital for the initiative. In this way, concessional funding can offer the stability needed to achieve both financial and social/environmental benefits without requiring short-term financial performance, as is typical in investments focused solely on commercial return.
Technical Assistance
Technical Assistance
Grants used to provide a support package of complementary services to beneficiaries or conveners. This support may include professional training, regulatory advice, strengthening managerial capabilities, or specialist services. Its purpose is to increase the likelihood of success and reduce risk, particularly for entrepreneurs or small and medium-sized enterprises.
Social and Environmental Objectives in Blended-Finance Funds
Blended-finance funds differ from traditional funds in that their success is measured through a combination of financial, social, and environmental criteria—and it is this combined assessment that determines the fund’s performance. Their purpose is to channel investment to market failures or challenges whose resolution advances social and environmental outcomes.
Accordingly, in blended-finance models, social and environmental metrics constitute an integral part of the fund’s decision-making processes—from defining success, through pre-investment due diligence, to post-investment performance evaluation. A key principle is the alignment between these metrics and the fund’s financial objectives, both at the fund level and across its investment portfolio.
- Examples of Social Metrics: Number of new jobs created, Number of individuals from minority groups employed, Number of affordable housing units built or renovated, Number of participants who successfully complete an educational program.
- Examples of Environmental Metrics: Carbon-emission reductions (tonnes per year), Renewable energy generated by the project (kWh), Expansion of sustainable agricultural land (hectares), Increased access to clean water (number of people).
Naturally, these metrics should be defined according to the fund’s areas of activity, objectives, and intended impact.
Impact-Linked Compensation (ILC)
Another important concept in this context is impact-linked compensation – performance-based incentives linked to social and environmental outcomes. These models ensure that social and environmental objectives are embedded in the fund’s decision-making processes and constitute an integral part of its success. While measurement frameworks provide the data needed to quantify the social and environmental value of the fund’s investments, the incentive system directly links this data to the remuneration of investment managers. Such incentives are based on achieving social and environmental KPIs and are typically implemented through profit sharing mechanisms, bonuses for fund managers or staff, or hybrid models combining the two[7].
- A common version of the financing spectrum, adapted to the roles of the players in Israel, can be seen in Appendix No. 1 of the full report.
- Navon, A (2023). From social business to impact nation: Frames, networks, and systemic power in an emerging issue field (Doctoral dissertation, The Hebrew University of Jerusalem). Jerusalem, Israel.
- ImpactLinked Finance. (n.d.). Homepage. Retrieved September 16, 2025.