Q: What changes are required to encourage more private investment?
A: One of the first shifts that should take place is perceptual. There is a historic perception that emerging markets and developing economies are high risk, leading to prohibitive costs of capital.12 However, the data suggests that default rates in developing economies are comparable to those in advanced economies.13
Deloitte Global’s analysis highlights that public finance can help change this perception and catalyze private investment through mechanisms that help mitigate risk, such as guarantees and first‑loss tranches.14 By absorbing risks that private capital is typically less able to bear, public financing can reduce the weighted average cost of capital by up to 25% for energy‑transition projects.15
There also may be a misunderstanding around the role of philanthropic capital (primarily nongovernmental capital) and concessional capital (public or publicly backed finance), which are not intended to generate market-rate returns.16 Rather, they often play a catalytic role in supporting early‑stage innovation and helping projects reach commercial viability.
Deloitte Global’s analysis indicates that philanthropic contributions to international climate finance toward emerging markets and developing economies could rise to as much as US$6.2 billion by 2035.17 In the context of infrastructure and other capital‑intensive investments, returns are typically characterized by stable, long‑term yields rather than high‑growth margins.
But reaching this level of investment would require reforms to the enabling environment and looking at ways to make the system more efficient, such as policy certainty, a transparent rule of law, and currency-hedging mechanisms. That’s why Deloitte Global’s analysis emphasizes that mobilization requires not just capital injections, but systemic interventions like regulatory frameworks and investable project pipelines. These strategies can help build investors’ trust, improve project bankability, and reduce perceived risk.
As an example, public finance has historically mobilized private capital at a ratio of roughly 0.2 to 0.4. This means that for every dollar invested by the public sector, the private sector invests US$0.20 to US$0.40. But to bridge this gap, the leverage needs to increase to around 1.2.18 This means for every US$1 of public capital invested, US$1.20 of private capital would be mobilized. This could transform climate finance from a budgetary challenge for governments to an investment class for pension funds and sovereign wealth funds.
