EMDEs are grappling with an escalating debt crisis that hampers their capacity to invest in sustainable development and climate resilience. Between 2010 and 2018, EMDEs’ debt-to-GDP ratio surged by 54 percentage points to 168%, marking the most rapid and extensive debt accumulation in nearly five decades.76 This financial strain is exacerbated by rising borrowing costs and limited access to capital markets, leaving EMDEs vulnerable to economic shocks and impeding their ability to meet climate goals.Equity remains scarce in EMDEs Equity capital in EMDEs is significantly scarcer than debt financing, both in climate investments and the broader economy. Pension funds in many EDMEs, especially across Africa, are heavily concentrated in sovereign debt, with limited exposure to equity or infrastructure investments.77 In 2023, climate finance from both public and private sources in EMDEs was 65% debt and only 30% equity. This imbalance stems not from a lack of capital, but from structural and operational barriers that make equity less attractive. Calls for more patient equity capital One of the most-cited challenges for equity investors is the lack of reliable exit options. Equity investors typically seek liquidity via initial public offerings, mergers or secondary sales. However, many EMDEs have shallow capital markets, low acquisition activity and limited institutional buyers. Without clear exit pathways and fund structures, investors face indefinite holding periods and uncertain returns. Traditional private equity models favour high-growth, scalable businesses. In contrast, climate projects in EMDEs – such as small-scale renewables or water infrastructure – are asset-heavy, slow-yielding and localized. These characteristics misalign with investors’ expectations for returns and fund timelines, especially where ticket sizes are small and project structuring costs are high. Currency risk also affects equity. Even with long- term views, FX volatility can erode earnings and exit values. High interest rates further constrain equity by reducing asset valuations and delaying exits. To address these challenges, there is a growing need for patient equity capital – investors willing to accept longer holding periods and delayed returns. This type of capital is essential to sustain climate investments and navigate extended timelines and market volatility in EMDEs.Borrowing remains essential for development, but for many developing countries, it is no longer effective. Currently, over two-thirds of low-income countries are either in debt distress or at high risk of becoming so. Mahmoud Mohieldin, United Nations Special Envoy on Financing the 2030 Agenda for Sustainable Development Scale up equity investment structures PRIORITY 6 From Risk to Reward: Unlocking Private Capital for Climate and Growth 39

Risk to Reward 2025