The Cost The Cost Capital: Lowering the Cost of Capital for Climate and SDG Finance in Emerging Markets and Developing Economies

Abstract

Today, some of the world's fastest-growing economies face some of the highest borrowing costs—even for clean energy and development projects with strong fundamentals. This is not a function of global capital scarcity. Trillions are available. The problem lies in systemic barriers that prevent capital from flowing to where it’s most urgently needed. The high cost of capital in EMDEs not only undermines critical financing for the energy transition and sustainable development; it also limits the ability for US- and EU-based financial institutions to invest in and finance projects in EMDEs, despite institutional and stakeholder appetite and interest for transition finance.

This paper provides a holistic diagnosis of the structural forces inflating the cost of capital in EMDEs—including sovereign credit ratings, investor risk perceptions, development finance mandates, and regulatory norms – and it outlines ten actionable solutions to unlock long-term, affordable finance for climate and sustainable development—at the speed and scale required by both global goals and national ambitions.

Keywords: development finance, capital, EMDEs, EMDE, climate finance, sustainable development, investment barriers, clean energy