Mobilizing local capital is an essential component of effective and sustainable climate finance. As the global climate finance gap continues to widen, relying solely on international funding sources is no longer sufficient to meet the scale of investment required for climate mitigation and adaptation. Global reductions in official development assistance (ODA) and macroeconomic volatility are contributing to reduced cross-border flows, making the traditional sources of capital underpinning climate finance at risk of declining. In this context, maximizing local investment is critical.
Local capital from domestic public budgets, private sector actors, and financial institutions can play a catalytic role in bridging this gap. Increasing local investment towards climate finance can bring distinct advantages:
- Local actors have a deeper understanding of the local investment landscapes and can align climate finance with more long-term objectives and local needs,
- Local actors invest in local currency, reducing the need for hedging costs, and
- Local actors can build a track record and create a demonstration effect for others to invest in climate-aligned sectors.
Based on a detailed analysis of each country’s enabling environments, various opportunities were identified for increased domestic capital mobilization in Indonesia, the Philippines, and Vietnam. The report emphasizes the critical role that blended finance can play in enhancing financial additionality and addressing market failures to ultimately encourage local investment into climate action.
