What Constraint Does This Dollar Remove?
Climate finance has built an unusually precise vocabulary for describing capital — concessional, catalytic, blended, first-loss, results-based, risk-sharing. Each term describes a distinct financing approach, and those distinctions matter. But the terminology tells us how capital is structured, not necessarily why that structure is needed. We talk constantly about “unlocking” private capital. Less often do we explain what was keeping that capital locked in the first place.
I came to the finance side of the climate industry after years in communications across cleantech and renewable energy. Learning more about the financing behind the projects and technologies I had spent years communicating about made that gap increasingly apparent to me. Climate finance describes its instruments precisely. It is not always as precise about the constraints they were built to remove.
A financing announcement will typically tell us the size of a facility, the institutions involved, the instruments deployed, the private capital expected to be mobilized or the impact it will have. All of this is useful information, but the question remains: why was the intervention necessary in the first place? Why wasn’t commercial capital available prior to the intervention?
The answer is usually concrete. A commercial lender won’t provide the tenor an asset requires. A project earns in local currency, while financing in hard currency creates foreign-exchange risk that neither the borrower nor investor can comfortably absorb. Developers often struggle to carry the cost of getting a project from concept to bankability. The cost of capital is too high for the underlying economics of the project. A lender won’t take the full credit or offtaker risk. A project is too small to absorb normal transaction costs. A new market or business model has too little performance history for a commercial institution to price the risk confidently.
These are financing problems more than they are climate problems. And they point to a useful question to ask of any piece of concessional or catalytic capital: what constraint does this dollar remove?
This is not a communications principle imposed on finance from the outside; rather, it is already embedded in how donors and development finance institutions (DFIs) decide when concessional capital is warranted. IFC describes blended finance as a means of addressing specific market barriers and investment risks so that projects unable to proceed on strictly commercial terms can move forward. In its discussion paper The Why and How of Blended Finance (2020), IFC recommends that the instrument of concessionality be closely aligned with the underlying reason it is needed.
The same logic sits behind the concept of additionality: would the investment, or its effects, have happened without the intervention? The OECD’s 2021 working paper Evaluating Financial and Development Additionality in Blended Finance Operations examines how additionality is defined and assessed and argues that it should be evaluated both before and after an intervention. The more recent OECD DAC Blended Finance Guidance 2025 goes further on transparency, noting that assessments of additionality — particularly financial additionality — and the methodologies behind them are not always disclosed. The OECD argues that this makes it harder to determine whether interventions are genuinely additional and has hindered accountability, learning and private-investor participation.
There are understandable reasons the structure travels more easily than the rationale behind it. Facility size, instrument, partners and expected impact or leverage are standardized indicators that fit readily into reporting and communications; the binding constraint is deal-specific and often requires more explanation. It may also be commercially sensitive, or understood differently by the DFI, lender, developer and donor. And by the time a transaction reaches communications, the people who spent months structuring it may understandably regard the problem they solved as self-evident. Institutions are very good at preserving the outputs of the investment process; the reasoning that produced them is easier to lose.
Working from the communications side, the practical response is relatively modest. Communications teams do not need to sit inside the investment process or become specialists in structuring transactions. A communications brief could simply answer two additional questions: What specific constraint was this financing designed to address? What changed because of it? The investment team has usually already done the work required to answer them. The challenge is making sure those answers remain part of the story as the transaction moves into public communication.
That matters for more than producing better financing announcements. Blended finance is intended to bring private investors into transactions and markets where capital would not otherwise go. But those investors are not necessarily specialists in blended finance. A 2024 report from Columbia University’s Sustainable Investing Research Initiative found that many investors remain unfamiliar with blended finance and, more strikingly, that as the complexity of a deal structure increases, the likelihood of convincing investment committees decreases. Simplicity, standardization and scalability were identified as important for mobilizing institutional capital. The OECD similarly describes blended finance as still largely a “cottage industry” of bespoke and fragmented interventions that has not mobilized private finance at the scale hoped for.
That makes the quality of the explanation relevant to the investment case itself. Clear communication cannot make an inherently complex transaction simple. But it can make the reason for that complexity intelligible. If a guarantee, concessional tranche or risk-sharing mechanism is necessary, an investor should be able to understand what problem that additional machinery is solving.
There is a communications cost when we stop at the terminology. We say that blended finance “unlocks” capital, but an unlocking story is incomplete if it doesn’t explain what was keeping the capital locked in the first place. Without that context, the reader sees the instrument but not the reason it had to be deployed.
For a field trying to bring more commercial capital into unfamiliar markets, that distinction is key. Technical precision is necessary, but it should illuminate the investment logic rather than stand in for it. The structure tells us what was built; the constraint tells us why it had to be built in the first place.
Sources: IFC/World Bank Group, The Why and How of Blended Finance (2020); OECD, Evaluating Financial and Development Additionality in Blended Finance Operations, OECD Development Co-operation Working Paper No. 91 (2021); OECD, OECD DAC Blended Finance Guidance 2025 (2025); Columbia University Sustainable Investing Research Initiative, Blended Finance Conference Summary Report (2024).