Private Finance and Climate Investment Needs: An Analytical Framework

Achieving climate-related commitments and mitigating related risks to macroeconomic and financial stability require improving the conditions for private investment. Raising sufficient private finance is however challenging, particularly for emerging markets and developing economies. This paper develops an analytical framework to assess how reforms shape private climate finance. Key dimensions include macrostructural reforms to lower capital costs, measures to incentivise financing for climate-related investments, and blended financing that leverages public resources to attract private investment. To the extent the resulting externally-financed investments are resilience- and growth-enhancing, these can also support strengthening of the longer-term balance of payments position. Effective implementation may require international support, especially for developing economies