Risk to Reward 2025

Executive summary Climate finance – the mobilization of public and private capital to support both mitigation (emissions reduction) and adaptation (resilience building) – continues to fall short of global needs. This shortfall is especially stark in emerging markets and developing economies (EMDEs), where funding for adaptation trails behind that for mitigation, leaving the most vulnerable countries with limited resources to address increasing climate risks. Achieving climate targets will require EMDEs to mobilize $2.4 trillion per year by 2030, including $1 trillion in external finance,1 most of which will need to come from private sources, given fiscal constraints and cuts to development finance. Despite the urgency, global efforts to close this gap – such as the New Collective Quantified Goal (NCQG)2 – have yet to deliver transformative results. Climate funds remain severely under-resourced and current flows are a fraction of what is needed. At the same time, there is growing recognition, particularly in EMDEs, that climate is no longer just an environmental concern but a systemic financial risk – one that directly shapes sovereign credit ratings, investor behaviour and capital flows. Yet many global and domestic private investors still allocate only a small portion of their portfolios to climate-aligned investments in EMDEs. In this context, the role of the private sector is not optional – it is essential. Mobilizing large-scale, long-term finance and embedding climate risk into core financial decision-making are critical to closing the funding gap and unlocking the potential for low- carbon, climate-resilient growth in EMDEs. However, structural barriers persist: underdeveloped local capital markets, political and foreign exchange risks, limited visibility of bankable projects, data and capacity gaps, and complex de-risking mechanisms that can add to transaction costs and complicate deal structuring. To overcome these hurdles, public and private actors must collaborate more strategically, concentrating resources where they are most needed rather than duplicating efforts or inadvertently crowding-out investment. This paper sets out practical, targeted solutions to these investment barriers, drawing on insights from policy-makers, multilateral development banks (MDBs), development finance institutions (DFIs), private investors and climate finance experts. Crucially, the paper reflects input from a diverse range of private investors – including those with varying investment strategies, risk appetites and business expansion goals. Based on these findings, the paper identifies six priority areas and 16 clear, stakeholder-specific actions to support the next wave of strategic pilots and initiatives for unlocking private climate finance in EMDEs at scale (see Table 1).Six priority action areas can scale up private capital for climate-aligned growth in emerging markets. Achieving climate targets will require EMDEs to mobilize $2.4 trillion per year by 2030, including $1 trillion in external finance. Six priority areas for action TABLE 1 Improve access to bankable project pipelinesSupport countries with strengthening public–private collaboration through climate innovation funds, developing demand aggregation platforms, expanding syndicated loans between private investors and MDBs, and embedding climate adaptation layers into public infrastructure. Increase data transparency and local market intelligenceAddress information asymmetries by scaling-up national climate investment data platforms, adopting digital credit analytics tools and brokering partnerships between local businesses and global investors. Mobilize local capital Redirect domestic capital pools towards climate activities by deploying local credit guarantees and promoting local currency instruments. Streamline risk- sharing mechanismsSimplify and standardize de-risking approaches (e.g. blended finance tools, first-loss capital) including through AI-enabled platforms and expanded climate insurance. Improve policy and regulatory certaintySupport investable nationally determined contributions (NDCs) with clear roadmaps and improve country platform access to give private investors predictable policy frameworks. Scale up equity investment structuresAlign equity flows with opportunities by scaling-up DFI platform investments, aggregating fragmented projects and using catalytic equity to crowd-in broader equity pools. From Risk to Reward: Unlocking Private Capital for Climate and Growth 4