This report outlines the need for institutions to invest more capital towards climate infrastructure in emerging markets. A comprehensive exploration of the opportunities considers where catalytic financing can be most effectually employed, primarily focusing on downstream financing opportunities. Despite the need for investment funds outpacing actual funds, non-development finance institutions (DFI) providers have expressed interest in supporting climate finance at scale.

Emerging market climate infrastructure finance

This report identifies impediments discouraging private investment and institutional capital into climate infrastructure in these markets. It analyses the use of catalytic financing structures to stimulate institutional capital towards climate investment across a wide range of stakeholders and actors; these conversations identify four critical themes specific to the deployment of catalytic capital. These are targeting, speed, support, and analysis, functioning as a basis for the roadmap for directing institutional capital to climate infrastructure financing.

Catalytic capital landscape and themes for deployment

The report finds that the development of blended finance vehicles is most appropriate for institutional investors and requires catalytic capital to support them. Institutional investors’ primary risks in climate investments include local currency exposure, demand/price volatility, technological obsolescence, inadequate returns owing to high transaction costs, performance risks and the low profitability of business models. The report identifies target, accelerate, support, and analyse as priorities to increase the quantum of catalytic capital across the risk spectrum in society and among local markets.

Recommendations

The report ultimately recommends taking a multifaceted approach when addressing climate challenges through targeted catalytic interventions. Such an approach will need to be shaped by ongoing dialogue that maintains its focus on the four critical themes for deploying catalytic capital. Other significant topics include improving infrastructure-related data and the alignment of climate and SDG goals with infrastructure-implementing agencies. Animal agriculture and forestry remain primary ESG issues requiring attention, and nature-based solutions and natural capital could further enhance planning, stewardship, and risk reduction outcomes.