As countries work to close the biodiversity finance gap, blended finance has emerged as one of the most promising approaches for attracting investment into nature-positive businesses and projects.

But blended finance is often misunderstood. It is not simply about combining public and private money. Designing successful blended finance mechanisms requires a clear understanding of investment challenges, market conditions, and the role governments can play in making nature-positive investments more attractive.

Gaurav Gupta, Senior Nature Investments Advisor at UNDP BIOFIN, outlines four principles that governments and practitioners should keep in mind when designing blended finance solutions for biodiversity.

1. Start with the problem, not the financing instrument

Every blended finance solution should begin with a clear understanding of the problem it is trying to solve.

Nature-positive enterprises often operate in sectors that deliver significant environmental benefits but struggle to access commercial finance. These may include ecotourism businesses, sustainable agriculture, sustainable non-timber forest product value chains, or initiatives that help reduce human-wildlife conflict.

Rather than asking "How can we use blended finance?", governments and development partners should first ask "What financing challenge are we trying to solve?"

Clearly defining the problem helps determine whether blended finance is the right approach and what type of financial mechanism is most appropriate.

2. Blended finance is still finance

One of the most important reminders is that blended finance remains, at its core, finance.

Private investors still expect financial returns, and every investment comes with risks. While many nature-positive businesses generate valuable environmental and social outcomes, these benefits alone are often not enough to attract commercial investment.

Many biodiversity-related enterprises face common barriers, including:

• lower or less predictable financial returns;
• higher perceived investment risks;
• limited investment track records; and
• uncertainty around future markets.

Unless these barriers are addressed, private investment is unlikely to flow at the scale needed to support biodiversity goals.

3. Governments play a critical role in creating enabling conditions

Blended finance succeeds when governments create an environment that gives investors greater confidence.

According to Gupta, one of the most effective ways governments can support investment is by making future revenues more predictable.

This can include establishing carbon credit or biodiversity credit frameworks, creating markets for sustainable agricultural products, or strengthening markets for sustainable non-timber forest products. These types of policy and market reforms provide greater certainty for businesses and investors, making nature-positive investments more financially viable.

Rather than replacing private finance, governments help create the conditions that allow private investment to participate.

4. Reducing risk is just as important as improving returns

Even when investment opportunities exist, risks may remain too high for commercial investors.

This is where public finance can play a catalytic role.

Governments can establish guarantee schemes and other risk-sharing mechanisms that reduce potential losses for investors. By sharing part of the financial risk, public institutions can encourage greater private sector participation in biodiversity-related investments.

UNDP BIOFIN is supporting countries across Asia, Africa, and Latin America in developing these types of mechanisms, helping governments design financial solutions that unlock investment while supporting national biodiversity priorities.

There is no one-size-fits-all solution

While blended finance offers significant potential, Gaurav Gupta emphasizes that it is not a universal solution.

Every country has its own environmental priorities, financial markets, institutional capacity, and investment landscape. A mechanism that works well in one country may not be appropriate in another.

For this reason, successful blended finance approaches must be tailored to national contexts and designed around local needs rather than applying a single model everywhere.

This country-driven approach is at the heart of UNDP BIOFIN's work. By helping governments identify investment barriers, strengthen enabling conditions, and develop fit-for-purpose financial mechanisms, BIOFIN supports countries in mobilizing greater investment for biodiversity while contributing to sustainable economic development.

Watch the full interview

This article summarizes the main messages from our conversation with Gaurav Gupta, Senior Nature Investments Advisor at UNDP BIOFIN.

Watch the full interview to hear his insights on designing blended finance mechanisms that can help mobilize investment for nature and sustainable development.