Financing Development Can't Wait: Tackling the Cost of Capital in Emerging Markets

🌍 Financing Development Can't Wait: Tackling the Cost of Capital in Emerging Markets

The cost of capital in emerging markets and developing economies (EMDEs) remains one of the biggest barriers to financing climate action and sustainable development.

It isn't that the world lacks money. Global savings hover around $30 trillion each year. The problem is that this capital rarely flows to the countries that need it most. Instead, EMDEs face some of the steepest borrowing costs in the world—even for clean energy projects with solid fundamentals.

A new report by the Columbia Center on Sustainable Investment (CCSI), Lowering the Cost of Capital for Climate and SDG Finance in EMDEs (April 2025), highlights the systemic flaws behind this problem.

The challenge

Countries like India, despite rapid growth and strong fundamentals, pay higher interest rates on sovereign borrowing than highly indebted economies such as Italy or Japan.

Credit ratings are systematically biased toward high-income countries, penalizing low- and middle-income countries regardless of their growth potential.

For renewable energy, where upfront capital costs dominate, financing conditions can make or break projects. While solar may be the cheapest source of electricity globally, in parts of Africa the cost of capital exceeds 18%, compared to less than 5% in Europe or the U.S. That financing gap alone makes clean energy unaffordable where it's most urgently needed.

The opportunity

Paradoxically, EMDEs also represent the greatest growth potential. With investments in education, infrastructure, and health, many countries could sustain growth rates of 6–7% annually for decades. Credit rating methodologies and global financing norms currently ignore this long-term potential.

What can be done

The CCSI report lays out ten actionable pathways to reduce the cost of capital, including:

• Reforming sovereign credit rating methodologies
• Extending debt maturities beyond short-term bonds that invite rollover crises
• Expanding the role of multilateral development banks and blended finance
• Creating stronger guarantees and preferential treatment for climate-aligned investments

Together, these steps could unlock trillions in affordable finance, at the speed required to meet both global climate goals and national development ambitions.

Looking ahead

At ClimateAligned, we're proud to support global institutions, including development banks, asset managers, and commercial lenders, in closing this financing gap. Faster access to reliable data can lower friction and help capital flow where it's needed most.

As global leaders prepare for the Fourth International Conference on Financing for Development in Seville this June, the urgency couldn't be clearer: lowering the cost of capital is not just an economic issue—it's a climate and development imperative.

📑 Read the full CCSI report here: Lowering the Cost of Capital for Climate and SDG Finance in EMDEs