This brief reconsiders the current strategy for mobilising institutional capital towards climate and development friendly investments in emerging and developing economies. The existing approach, which focuses primarily on why investors ‘should’ care about issues such as Development and climate goals and dangles subsidies via various blending vehicles, addresses the issue at the margin. It has failed to achieve investments envisioned by the ‘billions to trillions’ agenda.
Policymakers and advocates for mobilisation should shift their focus towards highlighting the higher prospective returns and risk reduction via diversification available to institutional investors from reallocating significant proportions of their portfolios towards developing economies. These regions offer better growth prospects and are structurally different from the rich economies where current portfolios are concentrated. Key measures include educating investors on the growth potential of emerging markets, minimising regulatory biases that currently favour developed economies investments and strengthening the governance of institutional investors.
This brief shows how growth is increasingly concentrated in developing economies, driven by favourable demographics and rising productivity, which contrasts with the stagnation in advanced economies. It shows how, for institutional investors seeking higher returns and reduced portfolio risk, reallocating capital towards developing economies is a financial imperative, independent of where they stand on climate or the SDGs.
The brief calls for enhanced coordination among EU regulatory bodies to facilitate this shift. Additionally, it advocates for making a more rigorous risk-return case for developing economies as an investment destination, with the the current focus on blended finance mechanisms, climate imperative and SDGs-related impacts taking a back seat role.
Download Higher Returns and Lower Portfolio Risks : Attracting Institutional Capital for Development and Climate HERE.
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