Leveraging Blended Finance to Drive Sustainable Investment: In Conversation with Barclays

Marco DeBenedictis Head of Sustainable Finance, Barclays UK Corporate Bank

Michael Figg Head of Social Housing, Barclays UK Corporate Bank

In 2019, the UK set a legally binding target to achieve net-zero carbon emissions by 20501.

The built environment has been identified as a critical sector for decarbonisation2, with the UK housing stock accounting for approximately 15% of the total greenhouse gas emissions across the UK3. Estimates compiled by BEIS suggest that direct emissions from public sector buildings account for around 2% of total UK emissions4. To meet this target, the private sector was called upon to play a crucial role by mobilising funding through various innovative means, including partnerships with the Government.

In this interview, Marco DeBenedictis, Head of Sustainable Finance and Michael Figg, Head of Social Housing at Barclays UK Corporate Bank, provide valuable insights on how blended finance can unlock sustainable and transition financing, with a focus on social housing in the UK.

1. What is blended finance and how can it unlock future opportunities in sustainable finance?

Marco DeBenedictis:

Blended finance is like a symphony of different types of investors and lenders, with developed markets adopting a model taken from emerging markets, often across public and private sectors. The structure has potential to accelerate investment into varying risk-return profiles to contribute towards development or infrastructure goals, creating a powerful force for change. In sectors like social housing, where funding often comes through a mix of grants, debt, equity, and collaborative ventures between Registered Providers (RPs) and developers, blended finance proves particularly effective.

As the spotlight shifts to more recent times, blended finance has increasingly focused on use of proceeds financing, directing capital to specific impact areas. Banks play a pivotal role in this ecosystem, leveraging their close client relationships to identify emerging needs and trends. In the third quarter of 2024, 65% of new facilities for RPs were provided by banks.

The potential of blended finance to mobilise investment is immense. For UK social housing, the challenge is substantial, with Inside Housing initially estimating £104 billion of investment needed to retrofit all stock to zero-carbon standards. The newly elected Labour government has emphasised the critical role that public finance can play in catalysing private investment, notably through the National Wealth Fund (NWF). The initiatives proposed by the NWF aim to provide the certainty required for large capital investments, enabling RPs to upgrade existing housing stock while continuing to develop new homes.

By bridging funding gaps and aligning diverse stakeholders, blended finance offers a powerful tool to accelerate the transition to a sustainable, net-zero future.

1. Department for Business, Energy & Industrial Strategy. 2019 2. The UK Green Building Council. 2025 3. Climate Change Committee, 2022 Progress Report to Parliament. 2022 4.Department for Business, Energy & Industrial Strategy, Measuring and reporting public sector greenhouse gas emissions. 2022 5. Regulator of Social Housing, Q3 2024 Quarterly Survey. 2024

2. Why is social housing so important, what challenges does the sector face, and why did a blended finance approach make sense?

Michael Figg:

Around 60% of British homes have an Energy Performance Certificate (EPC) rating below C6, prompting the ambition from the social housing regulator to improve energy efficiency to a minimum standard of EPC C by 2030. This effort was supported through the Social Housing Decarbonisation Fund and aligns with the Labour government’s ambition to make 'Britain a clean energy superpower' where the Autumn 2024 Budget outlays an initial £3.4bn commitment over the next three years to upgrade homes across the UK.

However, the sector faces several structural and operational barriers, including under-developed infrastructure, supply chain constraints, skills shortages, and the high cost of electricity. Other pressures include higher interest rates, ongoing concerns and investment for fire safety, damp and mould, and the need to balance retrofit efforts with commitments to new housing developments. It is also important to remember that social housing is a not-for-profit sector, with no established model for generating financial returns from retrofit investments.

Despite these challenges, the social housing sector is leading the way in energy efficiency, with only 30% of homes rated EPC C or below, compared with 55% in the private sector7. Social housing is approximately 16% of the housing stock in England and Wales8, offering an opportunity to upgrade a significant proportion of the UK's homes. The centralised ownership structure also enables procurement at scale versus the fragmented private housing market.

Social housing is particularly well placed for blended finance where its centralised ownership and relatively uniform housing stock allow for procurement and delivery at scale - making it more efficient to deploy capital.

6. UK Finance, Net Zero homes: Time for a reset. 2022 7. Department for Energy Security & Net Zero, 2025 8. House of Commons Library, 2024

3. How can we support the labour market and the wider supply chain?

Michael Figg:

Barclays has supported social housing providers for over 30 years and has expanded its range and diversity of product offerings to help these clients decarbonise.

Drawing on client insights, the needs of the sector and the UK government focus on social housing support and decarbonisation, we worked with the NWF to develop a £500m lending commitment to RPs, to retrofit existing properties. This aligns with our ambitions to facilitate $1 trillion in sustainable and transition finance by 2030 and supports the NWF's goal of decarbonising the UK economy by addressing underfunded challenges.

A key insight was understanding not all our clients had access to the capital markets, so the lack of longer-dated funding at a competitive cost was a barrier to investment. The Social Housing Retrofit Loan offered by Barclays has a 5-year availability period while retrofit is being completed, and a tenor of 10 to 15 years depending on the structure. It is focused on specific retrofit measures rather than prescribing a fixed project plan, allowing providers to adapt over the 5-year investment period to meet the needs of their residents and portfolio.

This loan enables the sector to continue momentum in retrofit and aims to boost the skills and supply chain needed to tackle the UK’s broader decarbonisation challenge among privately owned residential – either for individual or commercial investors.

There is encouraging momentum that is being evidenced in the UK market and the banking industry has an important role to play in building this momentum. There has also been a spark in client interest regarding funding for retrofitting. A Barclays specific recent financing example is a £50m loan arrangement entered into by VIVID. The loan is the largest that can be issued under the guarantee scheme, with a 70% guarantee from the NWF. VIVID will use the funds to enable the retrofitting of over 2,000 homes, aimed at supporting more than 4,000 people living in social housing.

The 70% guarantee from the NWF was instrumental to delivering this financing, working with Barclays who provided sector expertise to help maximise impact.

4. How should we approach future challenges, and how can the market familiarise itself with this kind of technology?

Marco DeBenedictis:

Meeting the scale and certainty required to tackle complex challenges – like district heating and decarbonisation – exceeds the capacity of any single lending institution. Imagine a world where a blended finance approach acts as a powerful catalyst for investment, particularly where a scaled solution is feasible. This often happens when there is a combination of concentrated ownership, relatively homogenous assets, or a clear need for investment to catalyse change. Barclays and other banks across the market are already active in this space through internal sustainability teams, securitisation programmes, and strategic partnerships with organisations such as the NWF.

Blended finance can be a key solution, where a retrofit supply chain, including an adequately trained labour pool, is essential to delivery. This becomes particularly important given current funding approaches, such as The Social Housing Decarbonisation Fund and The Warm Homes Local Grant, which can create periods of competition for the same suppliers. To help create the labour force needed in the short term, Barclays and other banks in the market are working to bring together housing associations and private housebuilders to collaborate with charities that specialise in upskilling unemployed youth, an initiative built around delivering retrofit whilst aiming to deliver a positive social outcome.

Trade associations like the LMA play a valuable role in helping the market stay informed about developments in sustainable finance and contribute to standardising the market to standardise lending principles, such as the work in the use of proceeds space that has been done on the Green and Social Loan Principles.

This article is designed to be thought leadership content, to offer big picture views and analysis of interesting issues and trends that matter to our clients and the world in which we live. It is not designed to be taken as expert advice, investment advice or a recommendation and any reference to specific companies is therefore not an opinion as to their present or future value or broader Sustainable Finance credentials. Reliance upon any of the information in this article is at the sole discretion of the reader. Some of the views and issues discussed in this article may derive from third-party research or data which is relied upon by Barclays and may not have been validated. Such research and data are made available as additional information for the reader where appropriate.