Emerging markets and developing economies (EMDEs) are central to achieving the Paris Agreement goals. They represent 25% of global GDP, yet attract just 14% of climate finance flows. Private finance to EMDEs is even more limited — only around US$30 billion annually, while the need is closer to US$450–550 billion each year by 2030.

A new ICC policy brief shows how reforms to the Basel III prudential framework could unlock significantly more private capital for climate-aligned projects in EMDEs. Current rules unintentionally discourage bank lending to these regions, despite strong data showing that project finance in EMDEs often outperforms corporate loans with lower-than-expected default rates and higher recovery rates.

Key barriers identified:

• Limited recognition of risk mitigation tools: Guarantees and blended finance structures used by multilateral development banks (MDBs) and development finance institutions (DFIs) are often excluded from capital relief.

• Overly conservative treatment of project finance: Risk weights do not reflect proven performance and embedded protections.

• Country risk ceilings: Sovereign credit ratings inflate perceived risks, even for high-quality, co-financed projects, raising the cost of capital.

  
  

The way forward

ICC proposes a two-step approach:

1. Technical clarifications – small adjustments to Basel rules that could immediately unlock more capital, such as recognising partial guarantees, timely payouts under MDB/DFI instruments, and borrower-level mitigants like FX hedging.

2. Structural reforms – longer-term changes, including treating project finance as a distinct asset class, refining country risk treatment, and introducing a scaling factor for high-quality, climate-related EMDE investments (similar to the SME Supporting Factor in the EU).

If implemented, these reforms could increase the bank capital available for climate projects in emerging markets by 3–4 times, without compromising financial stability.

As the official voice of business in the UNFCCC process, ICC will take these recommendations into the COP30 negotiations in Belém, Brazil, calling for a structured dialogue with regulators and the Basel Committee to ensure climate finance reaches the regions that need it most.