1. Introduction

It is imperative for the Asia-Pacific region to accelerate the adoption of modern and emerging technologies to enhance economic competitiveness and accelerate growth. Certain emerging technologies, particularly green technologies, not only support economic growth but also create public goods that benefit the buyers and sellers of these technologies. For example, shifting from combustion vehicles to renewable energy-powered three-wheeled EVs (Electric Vehicles) can not only offer financial benefits to the buyers and sellers, but also help reduce greenhouse gas emissions, noise and air pollution. Similarly, shifting from diesel-powered generators to hybrid renewable energy (e.g., solar plus battery) for electricity offers similar benefits. The adoption of green technologies also supports countries’ climate mitigation and adaptation plans. However, the adoption of green technologies is accelerating (at a less-than-desired pace), which is absolutely necessary to mitigate and adapt to climate change. According to the International Energy Agency, global renewable energy capacity must reach 11 TW by 2030, but the agency estimates it will be 9.5 TW (IEA, 2025). Similarly, India needs to add ~45 GW of renewable energy capacity per year over FY2025 to FY2030, yet the average annual addition was between 20 GW and 30 GW in FY2025 – far lower than the requirement (IISD, 2026). Although the adoption of green technologies is slower than desired in most countries, it is even slower in many Asia-Pacific countries. The former has the structural, institutional, and financial prowess to drive green adoption when backed by political will and social acceptance, whereas the latter region lacks these capacities and finds it challenging to adopt these technologies even when there is political will. The limited availability and higher cost of capital make it challenging for most of the Asia-Pacific region, where capital is scarce. Since several green technologies are not fully commercialized or are in the early adoption stage, they need public capital support; otherwise, their adoption will not grow at the desired pace. For example, green hydrogen and long-duration battery energy storage systems are still not commercially viable (Selänniemi et al., 2025; Anisha et al., 2026), so they would need public finance support until full commercialization. However, several countries in the region lack the fiscal muscle to deploy large amounts of public capital to accelerate the adoption of green technologies.

The rapid adoption of green technologies needs both non-financial and financial policy interventions. While the former addresses challenges related to market failure, the latter concerns providing market incentives to adopt green technologies. The essence of financial policies is to design financial mechanisms and models that incentivize suppliers and users of green technologies, as well as capital providers.

Financial innovation enabled corporations to raise capital for business expansion but also allowed households and business consumers to buy technologies and services that were not previously possible (Laeven et al., 2015). A vast capital requirement to construct a massive railway network in the 19th and 20th centuries led to the development of specialized financial intermediaries and accounting systems to raise capital from investors far away from the real assets (Baskin and Miranti, 2010). Modern venture capital funds were established to screen and provide capital to early-stage information technology companies (Laeven et al., 2015). Similarly, the government also used innovative financial mechanisms to meet public expenditure. This article examines a range of innovative financial models and instruments that can be deployed in Asia-Pacific to mobilize capital for the rapid adoption of green technologies. It offers insights on how to make public capital more catalytic in financing the adoption of emerging technologies, particularly green technologies, in the Asia-Pacific.

2. Blended Finance

Blended financing addresses market failure by allocating public and private capital to create public goods, ensuring no consumers are left out of essential goods (International Development Club, 2019). It financially incentivizes businesses to generate positive externalities, thereby making them profitable while supporting policy objectives, such as reducing carbon emissions. Blended financing always aims to leverage public capital as much as possible to attract private capital (IFC, 2018). Mustapha et al. (2014) define blending as the complementary use of grants and non-grant financing from private and/or public sources to provide financing on terms that would make projects financially feasible and/or sustainable. The novelty of a blended finance structure lies in its flexibility, which enables differentiated financial outcomes.

Public financiers such as foundations, governments, and multilateral agencies can provide grants to corporations engaged in green technologies with no return expectation and capital with below-market returns. Global Climate Funds, such as the Green Climate Fund (GCF) and the Global Environment Facility (GEF), are established to provide concessional capital for climate projects in developing countries (Meltzer, 2018). The Rockefeller Foundation, in collaboration with other foundations, has established the Zero Gap Fund, which provides flexible, risky, and patient capital to projects that create global public goods. Access to capital at lower rates nudges corporations and manufacturers to adopt green technologies on a larger scale. Since several green projects are risky due to demand uncertainty and a lack of performance records, blended financing can provide capital to these projects and mitigate demand uncertainty and performance risk. For example, if the project incurs a loss, a blended financing mechanism can reduce project risk by taking the first loss position in the capital structure (One Planet Lab & Grantham Research Institute on Climate Change and the Environment, 2021). Besides, blended financing can be used at the early stages of projects to cover soft costs, enabling green project developers to attract private capital when the project is ready (World Economic Forum, 2015). For example, rooftop solar adoption in the Micro, Small and Medium Enterprises (MSME) segment in India is limited due to a lack of project pipelines, credit risk, and high transaction costs. The blended financing instrument can provide grants to develop bankable projects and cover transaction costs until the market finds ways to reduce them, and to reduce the cost of rooftop solar installation through production and supply chain efficiency. At the same time, a blended financing facility can also serve as a debt capital provider, enabling MSMEs to access debt at a reasonable rate to finance rooftop solar installations.

Venture Fund

Since green technologies at an early stage (e.g., battery recycling, green ammonia, sustainable aviation fuel) take a long time, likely 15 to 25 years (Rissman et al., 2020), to become commercially viable, they are often beyond the horizons of most financiers. Private equity and venture capital usually have a medium-term (5-7 years) investment horizon, so they can exit from their investment. If a subsequent round of funding is not available, technology development collapses. A public-financier-backed venture fund would be well-suited to green technologies. Asia-Pacific countries can not only be the technology adopters but also the technology developers. Breakthrough Energy Ventures is a specialized $1 billion fund focused on bridging the valley of death in clean energy technologies, such as nuclear fission, large-capacity batteries, green hydrogen, and next-generation biofuels (Majumdar et al., 2021). ADB Ventures' Equity Fund provides equity capital to scale climate technologies. Asia-Pacific countries can set up similar funds, either jointly or alone, potentially through public-private partnerships, with governments taking an active role.

Climate Fund

An investment fund (pure debt, equity, or a combination of debt and equity) is an attractive channel for intermediating capital from capital providers to users. Many financiers do not have the willingness or capacity to invest directly in green technologies at the individual or company level due to the small size of transactions (Pailman et al., 2025); they prefer to invest through funds. For example, energy efficiency technologies in the MSME segment are small at the individual project level, but their size increases when aggregated. The investment fund can serve this segment not only by providing capital but also by improving market efficiency through the development of standardized tools (e.g., sustainable investment index and indicators, GHG calculation protocol) and a track record that will enable private investors to participate in subsequent stages. An investment fund structure can be attractive to private financiers, whereas a development finance institution can provide first-loss protection. The fund can invest in projects as an equity or debt investor, depending on the fund's mandate and the expected returns for investors. Climate Finance Lab’s “Financing Low-Carbon Auto” financing instrument, in the form of a fund sourcing capital from commercial and public financiers to provide debt capital to auto-rickshaw drivers at a lower rate and without collateral, is a catalytic instrument where borrowers struggle to raise debt capital from mainstream financiers (Climate Finance Lab, 2018).

Concessional Debt, but Monetization of Green/Carbon Credit

Concessional debt capital from public financiers can support green technologies, providing necessary financing that is not accessible from mainstream financiers (e.g., commercial banks) at reasonable rates, as these technologies are highly risky. It also rewards early investors who took significant risks during the technology development stage (Beck, 2019). Kreditanstalt für Wiederaufbau (KfW) Development Bank offered concessional debt financing to local banks to lend for solar photovoltaic (PV) projects in Germany, but withdrew when private financiers were ready to finance (Geddes et al., 2018). For example, the Indian Renewable Energy Development Agency (IREDA) provided concessional debt for renewable energy projects from 2011 to 2018, resulting in accelerated deployment of RE projects in India (Sarangi, 2018). The US Department of Energy’s Loan Guarantee Program for innovative clean energy technology is another example of public capital used to drive climate impact (Geddes et al., 2018). This program provides much-needed loans and loan guarantees for low-carbon technologies until these technologies can attract commercial debt financiers (Anadon et al., 2016).

The Climate Investment Fund’s two funds, the Clean Technology Fund (CTF) and Strategic Climate Fund (SCF), offer a variety of financing, including debt, equity, and grants, to demonstrate and deploy climate technologies in low- and middle-income countries. The Asian Catalytic Green Finance Facility is managed by the Asian Development Bank (ADB) and funded by its development partners, including Agence Française de Développement (AFD), Asian Infrastructure Investment Bank (AIIB), and European Investment Bank (EIB). The facility has a dual approach to de-risking projects to attract private investors: originating and preparing green infrastructure projects through technical assistance and covering the project's upfront costs. Often, origination and project preparation are resource-intensive exercises that private investors avoid. The coverage of this cost can attract private investors.

Front-loaded Financing Support

Since several green technologies, some of which are mentioned earlier, are capital-intensive and not bankable (Aguila et al., 2026), users have limited or no incentives to adopt them. Even if some of these technologies provide bankable access to capital, it is also an additional challenge for users; for example, MSMEs struggle to raise debt capital at a reasonable rate to install rooftop solar due to the lack of availability of debt financing at a reasonable rate, even though this technology is financially beneficial (Kumar et al., 2024). Hence, green technologies require capital support from public financiers until these technologies become bankable.

The feed-in tariff for solar technologies in the early 2000s, along with government-funded incentives, particularly in China and Germany, accelerated solar adoption, thereby drastically reducing the manufacturing costs of solar PV panels (Ma et al., 2021). The one-time stimulus funding expired in the first term of the Obama administration in the US. Public funding for demonstration projects fell by over 90 per cent. The US-India Clean Energy Finance (USICEF), a grant facility funded by donors and the Governments of India and the United States, supported distributed solar projects by providing preparation support to small and medium-sized companies in India, thereby enabling them to raise large-scale debt capital (USICEF, 2022).

Result-based Financing

At several points, the success of adopting green technologies depends on recipients' willingness to utilize concessional capital and on the performance of the technologies themselves, factors that public financiers often have limited visibility into. Results-based financing also enables more effective risk-sharing between financiers and capital users. For example, the solarization of the agricultural sector depends on government policy and farmers, whereas the adoption of rooftop solar depends heavily on users and the government’s electricity policy. Similarly, energy-efficiency manufacturers are best positioned to assess the performance of energy-efficiency technologies. A result-based financing mechanism funded by public financial institutions can be created to support users in adopting green technologies. For example, an energy-efficiency product manufacturer will receive a financial incentive based on the energy efficiency realized from the technology. For example, concessional capital from a Multilateral Development Bank (MDB) to governments can be linked to capacity addition in the rooftop solar sector and the solarization of agriculture. An MDB (e.g., World Bank, Asian Development Bank) or Domestic Development Bank (DDB), or a bilateral financial institution, can provide result-based financing to countries at better terms if certain results are achieved, for example, a low-cost credit line from an MDB to a government linked with 10 GW of additional rooftop solar capacity addition.

Partial Credit Guarantee to Banks

A partial credit guarantee will be immensely beneficial for the adoption of green technologies in the Micro, Small and Medium Enterprises (MSME) segment, where credit risk is high, real or perceived. A third party, a credit guarantee trust (guarantor), creates a credit guarantee scheme that provides partial risk coverage in the event of borrowers' (MSMEs) default. In return, the guarantor charges the lender a guarantee fee for providing capital to the borrower. The partial or full default risk coverage of the loan reduces the lender's credit loss exposure, even if there is no change in the amount or probability of default. Credit-loss risk coverage acts as default insurance for lenders. The decrease in expected credit losses provides lenders with greater flexibility to reduce collateral requirements. Moreover, the scheme encourages creditors to lend to companies that would not get credit without a credit guarantee. With credit risk coverage, users of green technologies can access debt capital on preferred terms, such as lower interest rates, longer maturities, and higher loan amounts.

An MDB or DDB can sponsor a loan portfolio guarantee program for local banks and financial institutions lending to rooftop solar in the MSME segment. It is important to identify institutions that have a mandate to expand green loans, maintain low levels of non-performing assets, and have a strong presence in the MSME segment. The MDB/DDB must design a mechanism to create financial additionality and encourage MSMEs to borrow at reasonable rates to adopt green technologies.

Sustainability-linked Bonds or Loans

Sustainability-linked Bonds (SLBs) and Sustainability-linked Loans (SLLs) are sustainable finance instruments in which the proceeds are general corporate financing, not earmarked for specific environmental projects, and the coupon is linked to the issuer's future sustainability performance. The instrument is often associated with a step-up in the coupon if the issuer does not achieve Sustainability Performance Targets (SPTs), such as reductions in emissions, energy efficiency gains, or ESG improvements. These instruments are immensely useful for companies where the rapid transition to renewable energy is financially and technically infeasible, but gradual carbon reduction is possible. The application of SLBs and SLLs can be similar to result-based financing, in which a coupon is linked to a performance target. For example, banks can set variable interest rates for MSMEs based on their environmental performance (e.g., carbon reduction through energy efficiency or solar). Similarly, the issuer of SLBs can reduce its interest rate by investing capital proceeds in green technologies over time. These two financial instruments can nudge companies to invest in green technologies to gain the benefits of lower interest rates and mitigate environmental performance-related reputation risk. It is important that companies availing themselves of concessional capital must have ambitious green standards, exceeding industry standards, to avoid greenwashing risk. Capital providers, particularly short-term capital providers, have limited incentives to provide capital at a lower interest rate; the government can bear the cost of interest rate benefits passed on to the user of capital, as sustainable development is a policy objective. For example, reducing Greenhouse Gas (GHG) emissions is a national policy objective of many countries.

Co-lending and Loan-syndication

MDBs can originate loans and invite other lenders to serve as co-lenders for green projects. It will reduce the transaction cost of private lenders. A mix of public and private capital can be used in this transaction. A lending portfolio program is similar to the Managed Co-lending Portfolio Program of the International Finance Corporation, where the MDBs will provide first-loss protection to private investors in the event of default. MDBs have a higher risk appetite and mandate to decarbonize the economy, so this kind of structure aligns with their investment strategy. The utility-scale green project, including solar, wind, and transmission lines, requires long-term financing; MDB participation as co-financiers can instill confidence among private financiers.

Credit Enhancements on Corporate Bonds

Green companies in several developing countries in the Asia-Pacific region rely heavily on banks for debt financing (OECD, 2025). Banks in these countries are exposed to long-term assets, which compromise their asset-liability management policies and regulations. Banks have limited operational capacity to offer long-term financing due to maturity mismatches. In this context, a bond is a better financial instrument to raise long-term debt financing. Bonds are also a preferred asset class for institutional investors such as pension funds and insurance companies, as they prefer liquid instruments. Corporations (borrowers) can list these securities on the stock exchanges of developed markets to raise capital from international investors. Public financiers, including the government and MDBs, can offer credit enhancement to these bonds so that their rating would be good enough to raise capital from these low-risk-seeking investors. Credit enhancement, such as a first-loss guarantee or a partial credit guarantee, can improve bond ratings, thereby enhancing their credit profiles and attracting large institutional investors.

3. Role of Development Finance Institutions (DFIs) and MDBs

DFIs and MDBs provide critical capital, manage risks, share knowledge, and build institutional capacity and partnerships for green projects in the Asia-Pacific region. They can offer grants to green technology projects that are unable to attract commercial financing for a variety of reasons; grants can improve the risk-adjusted rate of return for private investors, thereby attracting commercial financiers. DFIs and MDBs must ensure that undue grants are not given to projects where risk is duly shared among DFIs, MDBs, and private financiers.

They can provide necessary technical assistance to countries where the adoption of green technologies is at an early stage, or to specific segments of the green sector (e.g., solar irrigation) that need support to scale up. Green project developers in several countries in the Asia-Pacific region have limited financial resources (Peimani, 2018); domestic capital is scarce in these countries, and the terms of capital are not attractive, which discourages project developers. Here, DFIs and MDBs can provide patient capital to develop project pipelines before mainstream financiers show interest.

MDBs and DFIs have a mandate to invest in riskier and more impactful sectors (e.g., health care, renewable energy) and countries, so they need to take risks and be open to investing through various financial instruments to create financial and developmental additionality. DFIs and MDBs should increase their risk-taking capacity and provide risk-mitigation support to attract private financiers, where financial additionality is highest compared to investing directly through debt or equity. In risk-mitigating instruments, DFIs and MDBs do not have to disburse capital immediately, unlike in debt or equity investments; capital is disbursed only when a risk event is triggered.

MDBs and DFIs can take government risk guarantees (such as political risk) on financing for green projects; they have some leverage to influence governments (Koh, 2018) to mitigate contractual and regulatory risks.

MDBs can also play an important role in partnership mobilization. They can set up a financial intermediary that connects financiers and projects. Since MDBs have extensive experience in Asia-Pacific countries, they can originate and conduct the necessary due diligence on behalf of private investors, particularly those with no or limited experience investing directly in these countries. Besides, the financial intermediary can design a financial structure tailored to the needs of projects and investors. Green finance performance is poorly tracked from both private and public financiers' perspectives (Ahmad et al., 2025). MDBs, as public institutions, can track their green financing record. An MDB-led tracking of green finance will bring transparency and confidence among stakeholders regarding its effectiveness and efficiency.

Donor and Philanthropist Investors

Donors and philanthropic investors can play a similar role to DFIs or MDBs, but their scale of support is comparatively small. Small-scale green projects or certain segments of the green sector at a very early stage do not attract DFIs and MDBs. Here, donors/philanthropic investors can play a catalytic role in taking the project to the stage where DFIs and MDBs can support it.

Given the high risk of failure at an early stage, grants can serve as an incentive to attract private financiers. Grants can be used in combination with private capital (corporate or venture capital) to support early-stage innovations and proof-of-concept for green projects in the Asia-Pacific region. For example, distributed solar, solar water pumps, and battery storage are at a very early stage in most Asia-Pacific countries. Donors' grant funding and philanthropic investors' concessional capital can be blended with DFIs' capital to increase the risk capital size for green projects. In addition, donors can review non-bankable green projects and finance them through grants to make them attractive to both DFIs and private financiers.

4. Assessing the Effectiveness and Efficiency of Innovative Financing Instruments

These financial instruments can improve the risk-reward ratio for the private sector in several ways. High perceived and actual risk in green projects makes them commercially unviable. On the one hand, these innovative financial instruments can reduce the cost of capital, thereby generating higher returns for private investors in green projects; on the other hand, they can take on risks, thereby reducing the riskiness of these projects. Through these financial models/instruments, public capital can be applied smartly to mobilize additional private capital to achieve certain policy objectives.

Leverage is one of the key metrics for assessing the effectiveness of these instruments, as it indicates additional private capital mobilized by public capital intervention. For example, if the size of public capital was $1, which enabled attracting $5 in funding through the instrument, then the leverage would be 5X. The higher the leverage, the greater the effectiveness and efficiency of these instruments. Besides, these instruments must also be assessed from a public policy objectives lens. For example, if the policy objective of the instrument is to support achieving 500 GW of solar in the next 5 years, the instrument can be assessed for its contribution to that objective.

5. Conclusion

The Asia-Pacific region stands at a pivotal point in the green transition – on one side, it needs to invest in green technologies to meet its climate ambitions, and on the other, green technologies must support its growth and development ambitions. However, financing green technologies remains a key challenge for countries in the region seeking to adopt these technologies. Innovative financing technologies – such as blended finance, government-sponsored venture capital fund and facility, and result-based financing, SLLs/SLBs and PCGs – can be deployed effectively by both the government and the private sector to attract large-scale capital for green technologies. The key enablers for deploying these financing instruments at scale hinge on the appetite of MDBs, Domestic Development Banks, and financial institutions; cooperation between different institutions in countries and regions; and policy and regulatory reforms. All ecosystem players in the Asia-Pacific region must break their respective institutional shackles and introduce innovations in their practices to attract large-scale capital to the green sector, which is crucial for their rapid economic growth, competitiveness, and sustainable development.