Frontiers of change: collaborative finance for climate resilience

The way finance flows – or indeed does not flow – is central to addressing global challenges. This is perhaps most evident in frontier market contexts, home to over a billion people, where climate shocks, systemic fragility and economic inequities come together at a devastating intersection.

The numbers tell a sobering story. Over the last half-century, 69% of worldwide deaths caused by climate-related disasters occurred in a critical subset of frontier market contexts – least developed countries (LDCs). Approximately 244 million people in these contexts are undernourished, 466 million lack access to electricity, 665 million do not have safely managed drinking water, and 874 million live without clean fuels and cooking technologies.

These are regions where the impacts of climate adaptation and sustainable development investments could be transformative. Yet despite having barely contributed to climate change, they stand on the frontlines of the crisis, receiving only 3% of global climate finance.

The schism is widening at a time when the stakes could not be higher. Climate adaptation alone requires $2.4 trillion annually through 2030, well beyond the capacity of Official Development Assistance (ODA). Simultaneously, development budgets are increasingly under pressure from rising humanitarian needs, shifting politics and rising scepticism, cost-of-living crises and increasing defence spending.

In the face of these pressures, innovations and new partnerships are required to mobilize finance in the right forms to better respond to intersecting crises in frontier contexts. We must fundamentally reimagine the systems that underpin development finance flows.

Frontier markets face a distinct set of barriers that deter investment. High perceived risks, fragmented ecosystems and transaction sizes that fall below the thresholds of institutional investors have created a bottleneck. For instance, in LDCs, most SMEs require investments starting at €0.5 million or less, which is unviable for most Development Finance Institutions (DFIs).

With a lack of collaborative approaches around the sharing of knowledge, relationships, investment opportunities and aggregator approaches, grant-based modes continue to be the default in lieu of small-ticket size investments.

Deeper and more intentional collaboration requires de-flagging (less entity-centric emphasis), which would serve to de-fragment a crowded development ecosystem (too many competing actors) and, in turn, contribute to de-risking investment.

To this end, there needs to be greater sharing of information, opportunities and relationships along an Impact Capital Continuum. This comprises different forms and tranches of financing, from catalytic grants to blended finance, early-stage investing, venture capital and impact investing, DFI loans and beyond. This would also help in freeing up increasingly constrained grant monies for more fragile, protracted crises environments beyond the risk/return thresholds of investments seeking financial returns.

If this is the way forward, then a scattershot approach to deal-making does little to help. Instead, investments can focus on building resilient markets that increase production, diversify economies and enhance wages.

There is a need to shift from incentive structures that prioritize deal volume to those that enable strategic, catalytic investments, ensuring continuity across the Impact Capital Continuum: aligning investors with tailored, investment-ready pipelines that can contribute to addressing the interconnected challenges of fragility, climate change and systemic inequities.

Similarly, blended finance tools such as first-loss guarantees and results-based financing can help de-risk investments, catalyse private capital, and make them more accessible to frontier markets.

At SNV, we have seen first-hand what innovative approaches can achieve. Consider SokoFresh in Kenya, a company providing solar-powered, mobile cold storage units to reduce post-harvest losses in the horticulture sector. With a €236,000 grant from the Dutch Fund for Climate and Development (DFCD) and the provision of technical assistance, SokoFresh implemented a pay-as-you-store model that increased smallholder farmers’ incomes by 18% within three years.

This can become a blueprint for how blended finance can catalyse sustainable, scalable solutions.

At the heart of SokoFresh’s success is also trust. Trust between investors, smallholder farmers, consumers and other market actors Building this trust requires addressing the imbalances and inequities that have long characterized development finance. Too often, decision-making power remains concentrated in the hands of the global minority, perpetuating frameworks that prioritize donor incentives over local needs.

Beyond mobilizing more money, sustainable change is about transforming the systems that dictate how money flows; challenging the inertia of existing frameworks to embrace new models of collaboration that prioritize equity, resilience and long-term impact.

A promising initiative was established in 2018, when the G20 Eminent Persons Group and the OECD called for country platforms in fragile states to align and coordinate investments. These platforms, bringing together DFIs, donors and other stakeholders, however, remain an exception rather than the rule.

Initiatives like the European Union’s Global Gateway and the Team Europe approach offer additional opportunities to strengthen local value creation and ensure the benefits of investment are more equitably distributed. Establishing such frameworks is essential to deploying resources collaboratively and amplifying their impact.

It is clear, then, that the tools available are plentiful but scattered, and collaboration pathways are numerous but unmapped. No single organization or initiative can drive this transformation or bring these solutions together alone.

To bridge this gap and streamline solutions, SNV supports the World Economic Forum’s Humanitarian and Resilience Investing (HRI) Initiative in calling for a coalition of investors, development organizations, donors and foundations. Such a coalition can collectively address the systemic barriers that hold back frontier markets by aligning resources, sharing pipelines and ensuring finance flows to where it is needed most.

Eventually, sustainable development requires more than addressing basic needs – it requires equipping communities with the tools to withstand economic shocks, natural disasters and conflict. Resilience-building must become the cornerstone of investment strategies, creating secure, sustainable livelihoods that empower individuals and communities.

So, as global leaders gather at Davos to discuss the scale of current global challenges, the question now is not whether radical collaboration is needed, but how bold and innovative we’re willing to be in forging it. The challenges facing frontier markets are interconnected, and so must be the solutions.