Climate-resilient infrastructure needs blended finance: BCG

Less than 4% of global climate financing currently goes to infrastructure adaptation and resilience.

Blended finance could help close the funding gap for climate-resilient infrastructure as extreme weather risks put existing and future assets under growing pressure, according to Boston Consulting Group (BCG).

In a report prepared in collaboration with the Coalition for Disaster Resilient Infrastructure (CDRI), BCG said traditional infrastructure funding models rarely account for resilience to geoclimatic events, even as climate risks accelerate.

Extreme weather could generate economic losses of up to 19% of global GDP by 2050, affecting both existing infrastructure and assets yet to be built.

Low- and middle-income countries are particularly exposed. BCG cited CDRI data showing that these markets face annual infrastructure-related losses of US$127b, or about 14% of global annual average losses.

The report said around US$9.2t in annual investment is needed to meet current infrastructure needs, achieve the United Nations Sustainable Development Goals, and reach net-zero emissions by 2050. Of this amount, US$2.76t must be invested in low- and middle-income countries up to 2050.

Despite the scale of the need, less than 4% of total global climate financing currently goes to infrastructure adaptation and resilience, BCG said.

BCG said resilient infrastructure investments can help manage climate risks whilst supporting long-term value and stability. However, resilience-related components of infrastructure transactions are often not commercially viable on their own.

The firm said blending commercial finance with concessional capital can help make these projects more bankable by improving returns, offering downside protection, managing liquidity and volatility, lowering insurance and financing costs, and increasing terminal value.

BCG and CDRI outlined three possible blended-finance structures for resilient infrastructure: a dual-window mechanism, a special-purpose-vehicle-based fund, and a platform hub-and-spoke model.

The dual-window mechanism would finance both new and existing infrastructure assets within a single fund, using concessional junior capital, senior tranches, and targeted de-risking instruments. However, BCG said the model may be difficult to apply in fragile and underserved markets where risks vary sharply by sector and geography.

The SPV-based fund would aggregate projects under multiple sector-, regional-, or project-specific vehicles within a common blended-finance structure. BCG said this could work well for fragile contexts and early-stage resilience investments, but may be transaction-heavy and less scalable.

The hub-and-spoke model pools assets from several investment vehicles into a central vehicle. BCG said this structure is designed for scalability and bankability, with common resilience standards, subordinated capital, and standardised de-risking instruments to attract private capital at scale.

To unlock more stable capital flows, BCG said investors, governments, concessional capital providers, corporations, and regulators must work together to make resilient infrastructure more investable.

The report identified key actions such as developing standardised investment vehicles, expanding risk-mitigation tools, building stronger project pipelines, linking financing terms to resilience outcomes, scaling blended public-private partnerships, and improving access to finance through better regulation and diversified capital sources.

BCG said decisions made now on capital allocation, risk-sharing, and project design will determine whether future infrastructure can withstand climate volatility or worsen its effects.