Opinion: In Sevilla, a moment to bridge the development finance chasm

With world leaders and development experts gathered this week for the Fourth International Conference on Financing for Development, or FfD4, in Sevilla, Spain, the stakes could not be higher. The Sustainable Development Goals remain a distant horizon for the world, and the gap between ambition and action persists. Yet, amid these challenges, European Development Finance Institutions, or EDFI, stand out as vital bridges — spanning divides between public and private sectors, European capital and local innovation, and policy intent and on-the-ground impact. In the development finance world, bridging capital and impact is not for the faint of heart. It’s arduous work to channel investment into impactful business models across low- and middle-income countries. The consolidated portfolio of European DFIs in emerging markets and developing economies, or EMDE, grew by about 6% annually between 2016 and 2024, reaching over €60 billion in 2024. Their unique position links the risk appetite, financial power, and know-how of the private sector with the development objectives and safeguards of public institutions, making them indispensable in the quest to achieve the SDGs. However, the promise of “billions to trillions” — aka an acceleration of private finance mobilization — made in Addis Ababa at the previous Financing for Development conference a decade ago has not materialized. Mobilization of finance for sustainable development proves to be hard in an increasingly complex geopolitical, financial, and regulatory landscape. Individual success stories abound, but these have not led to much replication and thus have failed to provide a substantial boost to private finance for sustainable development. In Sevilla, however, we face a pivotal moment. At the FfD4 conference, the global community needs to start exploring new breakthroughs to scale up development finance that help address several so-called wicked problems, such as the chronic lack of investable projects, regulatory complexity, and a lack of derisking instruments and structures. EDFI members, through their development banking expertise, long history in EMDEs and strong connections to the concessional finance sources of their shareholders, are well-placed to narrow the chasm between available finance and investable projects, with a proven track record in project preparation, technical assistance, and blended finance — tools that help transform promising ideas into bankable ventures. This is especially important in the world’s frontier markets, where private finance can contribute to stability and the prevention of costly conflicts. However, these tools can only be deployed with the help of public finance. De-risking and regulatory reform can also buttress a DFI and provide the strength and agility to move deeper into developing economies. This means making emerging markets more attractive by using guarantees and de-risking mechanisms, ensuring that risk-return profiles are competitive with traditional investments in mature markets. Barriers of regulatory complexity and data scarcity must be dismantled. Adjusting regulations to the transition aspects of emerging markets, improving data transparency, and recognizing the unique realities of low- and middle-income countries are essential steps. The ongoing review of capital charges via banking regulatory framework Basel III, the relevance of European insurance rules known as Solvency II, and calls for differentiated prudential regulations for green and inclusive investments are all moves in the right direction — but much more is needed, and Sevilla is an opportunity to provide momentum. Europe can play a substantial role here. Europe’s leadership position in global sustainable investment will be strengthened if its sustainable finance regulatory frameworks are in line with global standards, which would both facilitate investment in emerging markets and allow it to push for national regulatory frameworks in those markets. Increasingly complex rules from advanced democracies and markets, while well-intentioned, can stifle investment in low- and middle-income countries, contribute further to market fragmentation, and lead to an acceleration in predatory finance. And while this is a particular danger for Europe, it has the power to take a collaborative approach — to value the voices of investees and investors in low- and middle-income countries, and to adapt international standards to local contexts. Deeper cooperation between advanced and developing economies will help transfer knowledge, stimulate mobilization of private finance, and ensure that sustainable finance frameworks can underpin an increase in sustainable investment. Private finance mobilization for sustainable development is needed more than ever, given an increasingly complex geopolitical landscape. DFIs in Europe can bring strategic depth to Europe’s geoeconomic policy, as they are capable and experienced in linking European private capital to investment opportunities and local capital markets in emerging markets. As FfD4 unfolds, policymakers must recognize the indispensable role of EDFIs and empower them to build stronger, wider bridges to facilitate investments in sustainable development — ensuring that no country is left stranded in the arms of predatory financiers.