Opinion: To get more investment in emerging markets, we must redefine risk

As the global development finance gap reaches an estimated $4 trillion per year, it is increasingly evident that public finance alone cannot close this gap. Private capital mobilization may hold the key to achieving development goals, but for investment to flow, we must change risk perceptions. The Fourth International Conference on Financing for Development, or FfD4, recently concluded, marking a critical moment for global cooperation on development finance. Held once a decade, this gathering of world leaders tackled some of the most urgent global challenges, ranging from inequality and poverty to climate change, health care, and peacebuilding. Against the backdrop of declining aid budgets, growing scepticism toward multilateralism, and escalating geopolitical tensions, the stakes were higher than ever — emphasizing an urgency to rethink our approach to financing sustainable development. What made this year’s conference particularly significant was the explicit emphasis on private capital mobilization. Historically, the conference has focused on public commitments and broader policy frameworks, but this year marked a turning point: A recognition that collaboration between public and private financing is essential. Yet mobilizing private finance comes with its own challenges: Perceptions around risks in emerging markets and developing economies, or EMDEs, continue to stifle the flow of capital to regions where it is needed the most. Investment opportunities in EMDEs often go unfunded due to outdated or overestimated views of risk. Moreover, EMDEs are often held to a higher standard than their advanced economy counterparts when thinking of political and macroeconomic stability, despite evidence of comparatively more stability through periods of crises. Finally, the financing structures designed to support private investment, such as blended finance, which uses public or philanthropic capital to attract private investment into high-impact but higher-risk projects, are often too complex, bespoke, and costly to replicate at scale. As a result, capital remains stuck in familiar markets, which deepens misperceptions and limits the development of a robust evidence base in EMDEs. Efforts to mobilize private finance for sustainable infrastructure continue to be hindered by a disconnect between perceived and actual risks. Recent insights — reflected in work from the University of Cambridge’s Institute for Sustainability Leadership — draw on insights from institutional investors, development banks, credit agencies, and guarantee providers to shed light on the underlying challenges. These include systemic constraints such as fragmented pipelines, limited data transparency, unclear stakeholder roles, and complex deal structures. Yet promising developments and solutions are emerging, including project aggregation platforms, enhanced local capacity building, targeted investor education, and innovative, replicable risk-sharing tools. The key takeaway is clear: changing risk perceptions requires coordinated, structural reforms. Perceptions around risks continue to distort capital flows, keeping private investment out of the very markets where it is needed most. To unlock the full potential of blended finance, we must go beyond isolated actions and address the underlying systemic constraints. Five key action areas include: 1. Strengthening market infrastructure and transparency so that investors can better assess actual risks, beyond perceived risks. 2. Building local capacity and partnerships to ensure that institutions on the ground have the tools and support to access and deploy capital effectively. 3. Addressing information gaps and giving investors access to real transaction data, instead of proxies. 4. Aligning policy frameworks and investment mandates is equally vital, helping public and private actors work toward shared outcomes. 5. Promoting greater standardization and certification to streamline deal-making and lower transaction costs. These five enablers lay the foundation of a more functional, just, and resilient financial framework for scaling development finance. However, none of this will happen without stronger coordination, clearer incentives, and deeper trust across the ecosystem. Blended finance is not the silver bullet. But if designed and deployed with scale and simplicity in mind, it can play a critical role in bridging the capital divide and accelerating finance where it is needed most. FfD4 sent a strong signal: The global community is ready to rethink how we finance sustainable development. Now, that momentum must be matched with action — beginning with how we perceive and price risks in emerging markets. By addressing misperceptions and working towards the five structural enablers identified in this report, we can begin to shift the narrative, bridge the capital divide, and mobilise investment at the speed and scale the world urgently needs.