Mobilizing private finance and reducing the cost of capital

International private capital is essential to financing climate and nature investments in emerging markets and developing economies (EMDEs), but high costs, limited bankable projects, and risk constraints restrict its reach. Public and concessional finance can help develop investable pipelines, provide catalytic equity and guarantees, manage currency risks and recycle mature assets into larger capital markets. Connecting these interventions can attract more long-term private investment.

Status

International private climate finance is growing, but remains insufficient and unevenly distributed. Domestic private investment far outweighs cross-border flows in EMDEs (excluding China), while low-income countries, adaptation, and nature remain underserved. Project preparation, catalytic equity, guarantees, and securitization are providing more financing options, but these instruments remain fragmented and often transaction-specific. Shortages of early-stage capital, currency-risk solutions and finance-ready projects constrain scale and speed. Initial securitization deals demonstrate capacity for recycling finance, but their contribution to additional climate investment and sustained reductions in financing costs is not yet established.

Action fronts

Climate finance reform advances on five fronts, from replenishing the funds that already exist to reshaping how the whole system works. These are the fronts where Mobilizing private finance and reducing the cost of capital is making headway.

Re-channeling
Reshaping

The Path Forward

The next step is to link project origination, risk-sharing, and capital recycling through repeatable financing channels.

Governments and country platforms should involve investors and developers early, strengthen domestic preparation capacity, and connect pipelines to subsequent financing. MDBs, DFIs, climate funds and philanthropic providers should expand catalytic equity, guarantees, and currency-risk tools targeted at identifiable barriers. Standardized portfolio securitization and regular issuance can free lending capacity and help institutional investors access diversified assets. Stronger credit-performance data, including GEMs and EMInvest, should inform allocation decisions, and data shared back transparently when possible. Success should be tracked through financial close, additional investment, lower financing costs, and better access to underserved markets.