Funding Mechanisms Toolkit
The diverse instruments channeling capital to climate solutions
Your Progress
Section 2 of 5Five Pathways for Climate Capital
Climate finance flows through multiple channels, each with distinct characteristics, risk profiles, and use cases:
🎛️ Financing Mechanism Selector
🎁
Grants & Concessional Finance
Risk: LowReturns: Below market / Zero
Non-repayable funds or highly subsidized loans for public goods
✓ Strengths
- •Funds non-commercial projects
- •Catalyzes innovation
- •Reaches vulnerable communities
⚠ Limitations
- •Limited scalability
- •Donor dependency
- •Slow disbursement
Examples:
Green Climate Fund • Adaptation Fund • GEF grants
Best For:
Early-stage R&D, adaptation in LDCs, capacity building
🎯 Find Your Fit
5/10
ConservativeAggressive
5/10
Impact-firstMarket-rate
Recommended Mechanism:
🔄 Blended Finance
The Risk-Return Spectrum
Grants
Lowest Risk
Debt
Low Risk
Blended
Medium Risk
Market
Variable Risk
Equity
Highest Risk
← Public Goods FocusCommercial Viability →
🌍 Case Study: Financing a Solar Farm in Kenya
🎁
Grants (5%): Feasibility study, community engagement funded by development agency
💳
Concessional Debt (30%): Below-market loan from Green Climate Fund for grid connection
🔄
Blended Finance (25%): DFI first-loss guarantee de-risks commercial lenders
💳
Commercial Debt (30%): Local bank loan at market rates for equipment
📈
Equity (10%): Impact investor takes ownership stake, exits after 7 years
Outcome: Layering mechanisms reduced overall capital cost, made project viable, and distributed risk appropriately.