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Trillions or billions? Reassessing the potential for European institutional investment in emerging markets and developing economies

Working paper

Written by Samantha Attridge, Bianca Getzel, Neil Gregory

Hero image description: Cityscape image showing skyscraper building in Canary Wharf, London with the sun setting in the sky. Image credit:Bit Cloud/ Unsplash

Now, more than ever, we need to accelerate efforts to harness the booming interest in sustainable finance and shift private capital at scale toward better supporting the needs of people and the planet. Nowhere is this need more acute than in emerging markets and developing economies (EMDEs), where $4 trillion is needed annually to achieve the Sustainable Development Goals (SDGs).

Meanwhile, assets held by private investors worldwide have surpassed $100 trillion, over a quarter of which are concentrated in Europe alone. At first glance it seems that even shifting a small share of this capital could make a big contribution to financing critical investments. Yet since the establishment of the SDGs in 2015 progress has been slow. Little additional capital has flowed towards EMDEs from institutional investors – and in some areas, net capital allocations are now lower. Over the same period, there have been substantial changes in national and European investment regulations alongside significant shifts in financial market conditions. Given this changed context, how big a contribution can we expect European institutional investors to make toward the investment needs of EMDEs?

This working paper answers this question by providing an updated and granular understanding by investor type and market to anchor expectation and inform better policy making. It focuses on five European countries that are home to Europe’s largest insurance companies and pension funds (ICPFs): France, Germany, the Netherlands, Switzerland, and the United Kingdom. Collectively, ICPFs in these countries manage $17.56 trillion in assets.

The mobilisation potential in these markets is assessed across three key dimensions: (1) changes in stakeholder expectation; (2) changes in financial market conditions, performance and cost; and (3) changes in legal and regulatory frameworks.