Risk to Reward 2025

Mobilizing domestic resources at scale is no longer optional, given the risk of relying on external flows. OECD data shows that monthly portfolio flows to EMDEs remain volatile, with sharp outflows during tightening cycles. High foreign currency debt further amplifies vulnerability: in some lower- income EMDEs, 40% of outstanding debt is foreign currency-denominated, raising servicing costs during depreciation episodes. India’s recent experience highlights the potential for domestic capital to stabilize markets and underpin long-term investment. In 2025, India’s domestic institutional investors (DIIs) overtook foreign institutional investors (FIIs) in ownership and net inflows.56 This structural shift has helped reduce exposure to volatile external flows while creating a more reliable capital base for financing long-term, climate-aligned projects. However, across most EMDEs, much of the available domestic capital continues to concentrate in sovereign debt markets, with domestic and foreign investors financing government borrowing rather than directly mobilizing capital into productive climate- aligned sectors. While sovereign issuance plays an important role in building benchmarks, it does not equate to the mobilization of institutional savings into clean energy, infrastructure or resilience projects. There is potential to unlock greater pools of local capital for climate-aligned investments in Africa. For example, one of Africa’s largest asset managers, the Public Investment Corporation (PIC), has recently committed capital to green hydrogen development through a landmark investment partnership (see Box 9). Research by Africa Finance Corporation (AFC) estimates Africa’s domestic capital pools at over $4 trillion, comprising $1.1 trillion in institutional capital, $2.5 trillion in commercial banking assets and more than $435 billion in external reserves.57 Of the climate finance tracked within Africa, 87% originates from international sources. Domestic contributions remain limited at just 10% of total investment, with three-quarters of that amount provided by private actors.58 $4 trillion opportunity to mobilize African capital FIGURE 12 Domestic contributions to climate finance in Africa remain limited at just 10% of total investment Banking Commercial banks $2,500 bn PDBs, $250 bnPensions, $455 bnInsurance, $320 bn SWFs, $150 bnFX, $435 bnInstitutional/non-banking Reserves Notes: PDBs = public development banks, SWFs = sovereign wealth funds, FX = foreign exchange, “non-banking” refers to financial entities that provide banking services but do not hold a full banking licence (e.g. insurance companies, pension funds, hedge funds, private equity firms). Source: Africa Finance Corporation (AFC).59 We underestimate the amount of local capital in Africa. I believe we’re in the midst of a transition, where blended finance structures are attracting local capital into intermediaries focused on earlier stage investment. Africa’s institutional investors, high net-worth investors and family offices remain largely untapped for climate finance. CJ Fonzi, Chief Operating Officer, Africa Climate VenturesMobilize local capital PRIORITY 3 From Risk to Reward: Unlocking Private Capital for Climate and Growth 29