Local capital markets in emerging markets and developing economies (EMDEs) are critical to closing the growing investment gap for sustainable development, climate action and biodiversity protection. This policy brief explores the structural barriers and untapped opportunities to strengthen capital markets in EMDEs. It identifies acute financing challenges for the climate transition with a potential cumulative shortfall of over USD 10 trillion in investment by 2050.
It also highlights eight priority areas for reform: corporate governance, sovereign bond market development, state ownership practices, institutional investor mobilisation, responsible financial innovation (e.g. AI and fintech), financial consumer protection, supporting access to financing for MSMEs, and strengthening domestic sustainable financial markets. Strengthening these areas can increase investor confidence, improve capital allocation, and enhance debt sustainability by reducing reliance on foreign-currency debt.
