To effectively finance climate transition projects with risk-mitigating solutions, the European Banking Federation is urging that a report published to this end has identified major weaknesses in the transition to green growth of small and medium-sized enterprises and households.

A key idea is that in order to allow the funds to reach the end user, the EU should create a centralised digital platform for blended finance, bringing together in a single place funding options from European, national, and private sources. At the same time, the creation of a better and more guiding information tool on available funding is essential.

A recent report finds that the main challenge in green financing isn’t a lack of capital, but rather the absence of viable business models. Without clear demand signals, stable policy frameworks, and effective risk-mitigation tools, many transition projects are seen by banks as too risky to finance. Public authorities have a key role to play: they need to help absorb investment risks, align policy frameworks, and promote sustainability as a core strategy to make transition projects more attractive to investors.

Key Recommendations from the Report

1. Boost demand through long-term and stable policy incentives.
2. Improve the blended finance ecosystem by standardizing tools and encouraging the public sector to take on more risk.
3. Support SMEs and households through micro-scale blended finance and the development of a digital European funding platform.
4. Simplify reporting requirements to reduce administrative burden.
5. Use international best practices to ensure projects can be scaled and have a greater impact.

Small enterprises and households are lagging in the green transition. The report highlights several key issues in these groups:

Limited Awareness and Capabilities

Many SMEs and households aren’t aware of the public support available to them. Smaller businesses often lack the technical skills to properly assess the risk and return of energy-efficiency investments. And many of these investments are limited to quick-payback projects.

Complex Application Processes

Both SMEs and households often find it difficult to navigate the complicated criteria for funding. Many SMEs don’t have the legal or financial expertise in-house to prepare proposals that meet strict technical requirements. Households, especially those in lower-income or rural areas, struggle with limited information, complex bureaucracy, and fragmented resources.

Heavy Reporting Burdens

One major barrier is the excessive reporting requirements. Standardizing reporting frameworks for blended finance tools could greatly reduce the administrative load. For example, many farmers lack access to the climate or environmental data needed to fulfill documentation requirements.

High Transaction Costs

Small-scale projects are often not profitable due to administrative and financing costs. Energy-efficiency investments are typically too small to attract investors, making transaction costs disproportionately high. In addition, the cost of technical documentation adds to the burden.

Example:
Investments in soil health are often too small for banks to consider. It’s difficult to gather enough volume to access existing blended finance tools.

Limited Availability of Products

Blended finance options for households remain insufficient, even though they are crucial—for example, to help with the upfront cost of home renovations or to improve energy efficiency.

Making Small-Scale Financing Work

To make blended finance viable for SMEs and households, administrative costs need to be reduced. Products should be available and appealing even for smaller amounts. The high administrative burden on small-scale projects must be addressed effectively.

A “Blended” Solution

Banks are already using several public programs to support sustainable lending. These initiatives aim to expand green lending by reducing borrowing costs for environmentally sustainable projects across the EU. These programs, often targeted at borrowers but also supporting bank financing, may include:

• Preferential loan terms
• Loan guarantees
• Grants
• Subsidies
• Tax incentives

Blended financing—combining public and private funds—is seen as one of the most efficient ways to overcome barriers and scale up green investments, especially where risk is high and returns are long-term.