1. Introduction

The report assesses how to scale green investment in the Global South amid an estimated annual SDG financing gap of around US$4 trillion, more than half linked to the energy transition. It argues that Agenda 2030 and the Paris Agreement cannot be achieved without stronger domestic financial resource mobilisation and improved access to patient international capital.

Between 2004 and 2023, emerging markets and developing economies (EMDEs), excluding China, accumulated US$15.5 trillion in foreign and reserve assets. This reflects domestic savings invested abroad rather than in local climate and development priorities.

2. Billions to trillions? The limits of blended finance and project-based de-risking

The report critiques the “billions to trillions” narrative that limited public finance can catalyse large-scale private investment. Evidence shows blended finance has delivered modest volumes relative to needs, and private climate finance remains concentrated in advanced economies.

In 2021/22, private actors provided 49% of global climate finance (around US$625 billion), but most flows went to developed markets. The report concludes that project-based de-risking alone is insufficient to close EMDE financing gaps and calls for systemic approaches that address capital market structures.

3. Wrong direction! Why too much capital is flowing uphill

Capital is flowing from capital-scarce to capital-abundant economies. Net foreign assets acquired by EMDEs (excluding China) rose by US$11.8 trillion between 2004 and 2023, while reserves increased by US$3.7 trillion.

Excluding offshore centres, 82 EMDEs accumulated foreign and reserve assets exceeding 3% of GDP annually; 28 exceeded 7.5%. In Cambodia, average annual foreign and reserve asset accumulation of 7.5% of GDP nearly matches its estimated 8.1% SDG financing gap.

Drivers include precautionary reserve accumulation, limited safe domestic assets, underdeveloped capital markets, and foreign currency risk. The report highlights structural constraints that incentivise investment in low-yielding hard-currency assets abroad.

4. Strengthening domestic financial resource mobilisation

This chapter argues that sustained development has historically required mobilisation of domestic savings. Dependence on foreign currency borrowing raises the cost of capital and heightens vulnerability.

Developing local currency bond markets is identified as central. Creating safe domestic assets can retain savings and reduce exchange rate risk. The report references East Asian experiences and initiatives such as regional bond market development and local currency bond funds.

National development banks (NDBs) are positioned as pivotal intermediaries. With strengthened governance and capital bases, NDBs can mobilise domestic savings and finance sustainable infrastructure. Multilateral development banks (MDBs) and development finance institutions (DFIs) are encouraged to provide equity, callable capital, subordinated debt and guarantees to enhance NDB leverage.

Digital solutions are presented as complementary tools. Tokenised local-currency SDG or sustainability-linked bonds could aggregate retail savings and diaspora capital. Distributed ledger platforms may broaden investor bases, lower transaction costs and improve transparency.

5. Mobilising international patient capital

The report supports accelerating the MDB reform agenda. MDBs can leverage shareholder capital through balance sheet optimisation, hybrid capital and capital increases to expand lending. Greater issuance of local currency debt by MDBs is recommended to develop domestic bond markets and reduce foreign exchange risk.

A proposed Finance Facility Against Climate Change (F2C2) would raise US$1 trillion via green bonds backed by advanced economies’ future official development assistance commitments. The facility would frontload climate finance for low-income and lower-middle-income countries while limiting short-term fiscal pressures on donors.

Diaspora bonds are also discussed as a means to tap expatriate savings for sustainable investment.

6. Conclusions and recommendations

The report concludes that mobilising domestic savings is essential to lowering the cost of capital and financing green transitions. It emphasises strengthening local currency capital markets, empowering NDBs, reforming MDBs, and deploying digital financial innovations.

There are no single solutions, but coordinated domestic reforms and international support can redirect substantial EMDE savings towards climate and development priorities.