The future of energy isn’t playing out in Silicon Valley or Wall Street. The decisive battleground is in the fast-growing, so-called emerging economies.
This broad term covers more than 150 nations ranging from industrial powerhouses like India, Brazil and Indonesia to frontier markets in Africa, Southeast Asia, Latin America and the Middle East. While each is at a distinct point in its economic and energy transition, what unites them is scale and momentum. These are the countries where the demand for power will soar, where emissions will either spike or fall and where climate ambition and economic ambition converge.
Yet institutional investors are underinvesting in emerging economies, despite the central role these markets play in the global energy future. The result is a persistent gap between where climate capital is most needed, where it is most productive and where it is actually being deployed.
While global clean-energy investment topped $2 trillion in 2024 and 2025, less than 15% of that flowed to emerging and developing economies outside China — despite rapid capacity growth across these markets, which account for roughly one-third of new renewable additions. In short, the regions driving global growth and energy demand are receiving a fraction of the capital required to shape that growth sustainably.
This gap is not explained by fundamentals. It reflects perception, structural frictions, and institutional familiarity – not underlying risk or economic viability. For institutional investors, this represents one of the largest structural mispricing opportunities in global markets today.
This mispricing is neither inevitable nor permanent. The barriers that institutional investors often cite — currency risk, a high cost of capital and limited pipeline — are more surmountable than ever. For institutional investors, clean-energy investments in emerging markets offer an attractive risk/return profile and the opportunity to shape a more sustainable future.
Climate investment as economic strategy
In emerging markets, clean energy investment is a core economic strategy.
Renewables reduce exposure to volatile fossil-fuel imports, stabilize public finances, strengthen energy security, and anchor domestic manufacturing and job creation. Grid expansion, electrification and industrial decarbonization are directly linked to productivity and competitiveness. For many governments, these investments carry political and macroeconomic significance long before carbon metrics enter the equation.
Yet much institutional capital still approaches emerging markets using a developed-market playbook, with dollar-denominated financing, short time horizons, fragmented project underwriting and limited engagement with public development finance institutions. The result is predictable — slow deployment and under-allocation — despite strong underlying demand and attractive risk/return profiles.
Traditional barriers are falling
Institutional investors typically cite three barriers to investing in emerging markets: cost of capital, currency risk and lack of credible pipelines. Each remains real, but none is insurmountable, and all are being addressed in practice by leading institutional investors.
Cost of capital remains the most visible constraint. However, sovereign-backed instruments are now demonstrating how targeted public finance can lower financing costs without distorting markets.
Brazil’s EcoInvest program, for example, channels public capital through commercial banks to reduce interest rates and extend tenors for climate-aligned projects, while maintaining clear exclusion criteria and robust reporting standards. The objective is not concessional finance, but catalytic deployment – using limited public capital to crowd in significantly larger volumes of private investment.
Currency risk, long treated as a deal-breaker, is increasingly being managed rather than avoided. Mechanisms that reduce the cost of hedging — rather than eliminate foreign exchange risk exposure entirely — are improving risk-adjusted returns while preserving market discipline. For long-duration infrastructure assets with local revenue streams, foreign exchange volatility is increasingly comparable to other risks that global investors already price routinely.
EcoInvest again provides a useful template, incorporating cost-reduction mechanisms to hedge against foreign exchange risk directly into its financing lines. By lowering the cost of hedging rather than eliminating currency exposure outright, the program preserves market discipline while materially improving risk-adjusted returns.
Pipeline credibility is perhaps the most misunderstood constraint. The issue is not a shortage of projects, but a shortage of aggregation. Platform-based investment models are proving to be decisive. By backing operating platforms rather than individual assets, investors can deploy capital efficiently across hundreds of projects, standardize governance and reduce transaction friction, making growth markets compatible with large institutional allocations.
- With its transition strategies, the investment firm Brookfield, for example, typically invests through operating platforms rather than individual assets, allowing capital to be deployed efficiently across large portfolios of smaller projects in multiple countries, using standardized investment frameworks and empowered local teams.
- The climate investment fund Altérra, backed by a roughly $30 billion sovereign commitment from the UAE and targeting the mobilization of up to $250 billion by 2030, is structured as a platform designed to crowd in large-scale private capital. Its Transformation Fund deploys catalytic capital selectively to de-risk investors — rather than individual projects — enabling institutional participation at scale while preserving commercial underwriting and governance discipline.
- TPG’s Global South Initiative is designed to apply mainstream private-equity discipline to climate-relevant sectors, integrating growth-market exposure into core investment strategies rather than isolating it within impact-only allocations.
Across these models, the lesson is consistent: Scale follows structure. Institutional capital needs platforms that can absorb billions, not bespoke transactions that consume disproportionate time and resources.
Language and Framing Matters
None of this will scale without a narrative shift.
The term “emerging markets” subtly reinforces hesitation. It suggests immaturity, instability and waiting. “Growth markets” by contrast, reflects economic momentum, scale and upside – concepts investors instinctively understand and pursue.
Language influences allocation decisions. It shapes internal risk models, investment committee debates, and ultimately the cost of capital. And, where capital flows consistently, risk premiums fall, financial innovation accelerates and pipelines deepen.
Treating growth markets as core allocation
Over the past decade, emerging economies contributed nearly two-thirds of global GDP growth, yet they continue to be treated as structurally high-risk by many global investors. Long-term default data tells a different story: Across credit cycles, investment risk in these markets has been broadly comparable to the higher-yield corporate exposures that investors routinely underwrite in developed markets, highlighting a persistent gap between perceived and actual risk.
Growth markets offer diversification benefits, structural demand tailwinds and exposure to the fastest-growing segments of the global economy. Treating them as peripheral risks, rather than core opportunities, increasingly looks like a mispricing problem.
Some asset owners have already made the pivot. La Caisse, one of the world’s largest pension investors, has embraced growth markets not as a niche impact allocation, but as a strategic pillar of long-term portfolio construction.
La Caisse’s approach is notable for its integration. Rather than siloing emerging economies, it embeds growth-market exposure across infrastructure, private equity and real assets, often through long-term partnerships with local operators and governments. The strategy emphasizes on-the-ground presence, disciplined underwriting and alignment with domestic development priorities – precisely the factors that reduce risk while improving returns.
The tools to deploy climate capital at scale in growth markets now exist. The pipelines are forming. The returns are competitive. What remains is a willingness among institutional investors to move beyond legacy assumptions and view these markets as core to long-term portfolio construction.
The next phase of the climate transition will be defined by where capital is deployed. And on that test, growth markets will determine both the success of the transition and the relevance of long-term investment strategies.
_____________________________________________________________________________________
Dazzle Bhujwala is Senior Director of the Ceres Investor Network at the sustainability nonprofit Ceres.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
