Risk to Reward 2025

To address the risks of investing in EMDEs (e.g. related to currency, politics and corruption), effective risk-sharing and mitigation mechanisms are required. While blended finance, guarantees and concessional capital are recognized as effective risk-mitigation mechanisms, many investors reported that these instruments tend to be bespoke, difficult to access and unaligned with market needs. Tools such as political risk insurance, currency hedging and first-loss capital are known to be effective. However, they are often deployed reactively, on a deal-by-deal basis, rather than as part of a pre-arranged structure. This issue is particularly acute in EMDEs, where such complexity is compounded by macroeconomic volatility and institutional limitations. Survey results reinforce this barrier. As shown in Figure 13, the most popular recommendation for improving the mobilization of private finance through DFIs and MDBs was to simplify access to guarantees and blended finance tools. This option proved twice as popular as other options, such as expanding frontier market presence or offering direct equity stakes. Strong calls for speed and standardization Investor feedback, gathered through surveys and interviews, points to the need for simplified and streamlined de-risking instruments, including insurance. The complexity of existing mechanisms, coupled with a lack of standardized offerings, makes it difficult for many investors to effectively use insurance as part of their risk management strategy. There is growing expectation that MDBs and DFIs must speed up transactions so that private investors are not spending years on a deal that might end up falling through. This includes establishing clear eligibility criteria and simplifying risk-sharing mechanisms that reduce the time needed for bilateral negotiations. As one respondent noted, expanding access to Multilateral Investment Guarantee Agency (MIGA) guarantees and broadening risk appetite beyond traditional investment-grade assets (e.g. to BBB-)68 would significantly improve the catalytic role of these institutions. Ultimately, if DFIs and MDBs are to deliver on their mandate to crowd-in private capital, they must lower the friction involved in engaging with their instruments. Complexity is a barrier, not just to efficiency, but to scale-up.Most effective mechanisms to improve mobilization of private finance through DFIs and MDBs (% survey respondents)FIGURE 13 Simplifying access to guarantees and blended finance tools Expanding presence in frontier markets More concessional DFI instruments Prioritizing creditworthiness over impact Offering direct equity stakes Other0 5 10 15 20 25 3024%Investors view simplifying access to guarantees and blended finance through DFIs and MDBs as the most important risk-sharing mechanism to mobilize private climate finance to EMDEs 12% 12% 12% 10% 10% Source: KPMG analysis based on World Economic Forum survey.Streamline risk-sharing mechanisms PRIORITY 4 From Risk to Reward: Unlocking Private Capital for Climate and Growth 32