Here’s a number that stopped us mid-coffee this week: $5.6 billion. That’s how much blended finance deals put into climate adaptation in 2025. In other words, climate adaptation finance jumped 133% in a single year, up from $2.4 billion in 2024. And it happened while aid budgets were shrinking fast.
The figures come from Convergence, a network that tracks blended finance deals around the world. Its new State of Blended Finance 2026 report landed last week, and honestly, it’s a mixed bag. Some parts are great news. Other parts should make you a little uneasy.
So what actually happened?
First, a quick refresher. Blended finance means public or charity money takes on extra risk so private investors feel safe enough to join a deal. If you want the longer version, we wrote a full explainer on blended finance.
Now the headline numbers. The whole market reached $25.8 billion across 181 deals in 2025, according to Pioneers Post. That’s basically flat, since it was $25.7 billion in 2024. So the market didn’t grow. But it didn’t shrink either, and that matters more than it sounds.
Why? Because official aid fell 23% in real terms in 2025, the worst drop on record, as ImpactAlpha reports. The closure of USAID and cuts by several rich countries hit the main source of cheap, patient money. Yet the market held its ground.
Joan Larrea, the CEO of Convergence, put it neatly: “But resilience is not the same as scale.” We agree with her. Holding steady is nice, but it isn’t growth.
Why climate adaptation finance suddenly took off
Here’s the twist. While adaptation money surged, mitigation money fell. Mitigation means cutting emissions, for example with solar or wind power. Adaptation means coping with the climate change that’s already here, like flood defences or farming that can survive a drought.
According to ImpactAlpha’s read of the report, mitigation financing dropped 26% to $9.9 billion. It’s still the biggest climate theme by volume. But the energy clearly shifted toward adaptation, which had its strongest annual jump in a decade.
So what pushed it? The report doesn’t hand us one neat reason, and we won’t pretend it does. Still, a few trends point the same way. Guarantees nearly doubled, from $2.8 billion to $5.6 billion. A guarantee is a promise to cover losses if a deal goes bad. In other words, nobody hands over cash unless something breaks.
Local lenders also stepped up. Commercial bank financing grew from $4.3 billion to $7 billion, mostly from local banks lending from their own balance sheets. Overall, private sector money rose 27%. Each dollar of cheap public money pulled in $2.57 of private investment, up from $2.16 in 2024.
Okay, but where did the money go?
This is where it gets uncomfortable. For the first time in a decade, Sub-Saharan Africa isn’t the top region for blended finance. Financing there fell 46% to $4.6 billion, Pioneers Post reports. ImpactAlpha puts Africa’s overall share at 19%, down from 34%.
Meanwhile, Latin America climbed, mostly thanks to one program. Brazil’s Eco Invest platform closed 33 deals worth $2.67 billion in 2025. Convergence’s Claudia Velimirovic said that without Brazil, “the headline market numbers would have looked considerably weaker.”
Then there’s our own neighbourhood. Eastern Europe and Central Asia became the largest region by volume, at $6.7 billion. That’s our part of the world, so yes, we’re paying close attention.
The part that should bug you a little
Money tends to flow where the risk looks lowest. Larrea said it plainly: “In a capital-constrained world, investment will flow where it meets the least resistance.”
The data backs her up. Upper-middle-income countries received 42% of activity, while low-income countries got just 13%. The median project size also nearly doubled, to $194 million from $100 million. Honestly, bigger tickets usually favour bigger, safer markets.
Then there’s currency risk. About 80% of lending happens in hard currency, like dollars or euros, while projects earn money in local currency. So if the local currency drops, the borrower’s debt feels heavier overnight. Anyone who’s watched the dram swing against the dollar knows that feeling.
Andrew Wainer, director of market insights at Convergence, warned that “persistent risk can leave lower-income countries behind.” And next year may not help much. The OECD projects aid to low-income countries will fall a further 10.9% in 2026.
What climate adaptation finance means for you (and Armenia)
So, should you care? If you invest, work in development or run a climate-related business, yes. Here’s our honest take.
First, adaptation isn’t the poor cousin of climate investing anymore. Money is moving toward projects that help people live with heat, drought and floods. For smaller economies in our region, that’s a door worth knocking on.
Next, guarantees and local banks are doing more of the heavy lifting. That model fits markets where big foreign funds rarely show up. In fact, we think it’s a more realistic path for places like ours than waiting for a mega-fund to arrive.
Finally, the forecast is wide open. Convergence sees blended deals reaching $53 billion by 2028 if private money steps up, or slipping to $24.7 billion if today’s pressures stick around. That’s a huge gap, and it’ll depend on choices made in the next two years.
If you’d like more background, we’ve also covered how green bonds fund climate projects and how development finance works. But here’s the question we keep coming back to: if climate adaptation finance can grow 133% in a terrible year for aid, what could it do in a good one?