Viewpoint: Amid the ESG retreat, MDBs can unlock sustainable investment at scale

Multinational development banks play a growing and crucial role in unlocking investment for sustainable development in emerging markets, but private capital should step up, write ILX Management’s Manfred Schepers and Luz Martinez.

As geopolitical fault lines widen and ESG and climate commitments wane across key financial markets, the global asset owner community faces a stark choice: retreat with the shifting tide or stay the course. Despite the changing rhetoric, the world’s most pressing challenges – climate change and social, economic inequality – demand long-term investment strategies resilient to the ebb and flow of ESG commitments. 

As many leading asset managers roll back their ambitions and donor countries in the US and Europe cut their aid budgets, financing for development and climate transition in emerging markets, where the need is greatest, is increasingly falling on the broad shoulders of the multilateral development banks (MDBs). These institutions are playing a growing, central and critical role in unlocking investment in countries where long-term private capital remains scarce. 

The urgency is mounting. At the COP29 in Baku, developed nations pledged to triple core climate finance for emerging markets to $300bn (€264bn) annually by 2035 and committed to mobilising another $1.3tr per year from all sources. The ambition is to pin down that pathway at COP30 in Belem, Brazil, later this year, by working ‘with all actors’. 

Yet, the latest figures from 2022 paint a sobering picture: developed nations provided just $116bn to emerging markets for climate action, of which only $22bn came from private capital mobilised by development banks, according to OECD figures. The overwhelming reliance on public funds highlights the wide gap in private sector investment. 

To bridge this gap, MDBs need to accelerate their shift to an ‘originate-to-share’ model— leveraging their experience, status and resources to create investment opportunities that can attract global private capital at scale. Two key factors support this transition. 

First, the data now publicly available from the Global Emerging Markets Risk Database demonstrates that the development finance loans consistently outperformed comparable high-yield and emerging market debt bonds in terms of risk-adjusted returns. Second, MDB-backed projects deliver direct and measurable social and climate outcomes, making the development finance private credit asset class a uniquely effective, high impact, sustainable investment strategy.

The upcoming 4th International Conference on Financing for Development (FfD4) in Seville and COP30 in Belem, provide the opportunity to reset global financing objectives, putting the spotlight squarely on how to effectively mobilise private capital at scale. Considering the geopolitical headwinds, these key summits need to go beyond the usual rearranging of the deckchairs, and deliver tangible MDB and institutional investor commitments. 

We remain committed to deliver the SDG and the climate agendas. Since 2022, our team has deployed well over $1bn on behalf of European pension funds across more than 20 emerging market countries, in 60 MDB co-investments in renewable energy, sustainable infrastructure, industry, financial institutions and agribusiness. 

As others retreat from net-zero pledges and initiatives like the Net Zero Asset Managers Alliance suspend accountability functions under political and commercial pressure, we are deepening our climate alignment. Our recently approved net-zero strategy sets out clear interim targets and is underpinned by an engagement-led approach, enabled through our MDB partnerships. These institutions work directly with portfolio companies to assess climate risks and opportunities, and to develop credible, forward-looking transition plans. 

The road to FfD4 and COP30 is not just about policy reform, it should be about a fundamental shift in the global financial architecture and the role, responsibility and ambition of the MDBs and development finance.

Instead of scaling back, private capital should step up, bridging the financing gap, unlocking investment opportunities across emerging markets, and ensuring a just transition to low-carbon, high growth economies. The strong risk-adjusted returns of development finance loan assets and the direct, measurable SDG and climate outcomes of MDB projects, underscore the unique value proposition of this asset class. 

As financial markets become increasingly rudderless in their ESG and climate commitments, now is the time to embrace the impact, diversification, stable returns, reliability and scale that the MDB development finance asset class has to offer. 

Manfred Schepers is CEO and Luz Martinez is head of sustainability at Amsterdam-based, emerging market private credit asset management ILX Management.