Unlocking Just Transition finance in emerging economies: From policy to actionable investment

The International Monetary Fund, in a 2024 report, estimates that Emerging Markets and Developing Economies (EMDEs) in Asia-Pacific require at least US$1.1 trillion (Rs94 trillion) annually for climate mitigation and adaptation. However, actual investments fall short by more than US$800 billion (Rs68.7 trillion) every year. 

With fiscal space constrained by public debt accumulated during the global pandemic and other geopolitical factors, mobilising private capital for climate action is critical to bridge the financing gap in emerging economies. At the same time, there is growing recognition that the energy transition must be rooted in principles of justice, equity, and fairness, underling the importance of a Just Transition.

While private investors are expected to fund “hard” assets like clean energy infrastructure, managing the socio-economic impacts of the transition, such as job losses and community resilience, will primarily need to be addressed through public financing. 

A Just Transition in emerging markets will therefore require a “co-investment” approach that channels capital towards both physical infrastructure and social priorities. This capital must be mobilised from a diverse set of capital providers with varying mandates, capital structures, and risk-return expectations. It must include contributions from both public and private sources, concessional as well as commercial, so as to reduce reliance on government budgets.

Governments must actively facilitate investments

Since the Paris Agreement in 2015, many EMDEs, such as South Africa, India and Indonesia, have introduced supportive policies to move towards low-carbon pathways. In recent years, their energy and climate policies have increasingly prioritised clean energy adoption. Yet, the gap between financing needs and actual flows remains substantial.

To bridge this gap, particularly for emerging Just Transition priorities, governments must evolve beyond traditional policy roles and take on a more proactive role as investment facilitators. 

Some countries are already demonstrating what this shift looks like in practice. South Africa, Indonesia, and the Philippines, for example, are developing or implementing co-investment frameworks that reflect strong government leadership. These efforts offer valuable lessons in overcoming systemic constraints and building investor confidence.

Bankable investment plans can attract capital

For governments to effectively attract capital, especially for socially inclusive transition goals, they must present well-structured, bankable investment plans. These plans should clearly outline project specifics like financing requirements, implementation timelines, infrastructure readiness, and environmental and social co-benefits. 

The Philippines' Climate Investment Fund–Accelerating Coal Transition- Investment Plan-(CIF-ACT- IP), designed to facilitate the country’s shift from coal to renewable energy sources, is a good example of active government involvement in developing bankable investment plans. The government, led by the Department of Energy, ensured that a detailed plan was prepared, mapping out key investment areas across the value chain, highlighting financing needs, implementation timelines, and environmental and social benefits.

This helped build investor and donor confidence early on, with the government raising US$500 million from the CIF-ACT programme for the energy transition. This includes US$25 million in grants allocated for Just Transition-related activities, such as early retirement of employees working at coal-fired power plants (CFPPs) and social support plans.

Indonesia’s Just Energy Transition Partnership (JETP), launched in November 2022, also demonstrates this well. To implement its JETP agreement, the country released a Comprehensive Investment and Policy Plan (CIPP) outlining more than 400 project concepts. These span renewables, grid upgrades, and social transition initiatives, with a total estimated investment requirement of US$66.9 billion. 

Projects must be matched with appropriate sources of capital

Even with strong investment plans, softer components like capacity building and community programmes that are less attractive to private investors remain underfunded. Investment facilitation platforms help align funding needs with available capital, and ensure balanced financing across infrastructure and social transition priorities, making the overall investment process more effective and inclusive.

South Africa’s Just Energy Transition Investment Plan (JET-IP) provides a compelling example. The government launched a Just Energy Transition Funding Platform (JET-FP) in 2024 to connect grant funders with projects aligned to JET-IP objectives. The platform helps bridge the funding gap by facilitating connections between funders and project developers, and highlights funding opportunities across a broad range of needs. 

Since its launch, the platform has received 233 applications for grant funding, with grant commitments worth US$1.9 million (Rs160 million) already received by a few applicants. For example, a grant funding of US$ 0.7 million was allocated for Just Transition-related activities, such as reskilling labour and providing social support to employees and communities affected by the closure of the Komati power station.

Coordinating efforts can help mobilise resources efficiently 

Often, multiple entities at the national and sub-national levels, drawing from different public and private funding sources, work in parallel to achieve similar development objectives. Coordinating efforts can help mobilise resources efficiently, align action with shared goals, and avoid duplication.

Two examples from India illustrate this approach.

First, the GEF-supported Accelerating Sustainable Energy Transition (ASET) project aimed to help industrial sector Micro, Small and Medium Enterprises (MSMEs) reduce energy use and emissions. It created a structured platform to align domestic capital from institutions, such as the Small Industries Development Bank of India (SIDBI), Bureau of Energy Efficiency (BEE), and state agencies. By coordinating these actors around the specific needs of MSME decarbonisation, the programme enabled joint investment in policy reform, technical assistance, and scalable clean energy solutions.

Another example is Andhra Pradesh’s Zero Budget Natural Farming (ZBNF) programme. Here, national schemes like the Rashtriya Krishi Vikas Yojana (RKVY) and Paramparagat Krishi Vikas Yojana (PKVY), originally designed to support farmers, were strategically leveraged to support the ZBNF initiative. This reduced the need to mobilise entirely new funding streams and ensured better alignment with ongoing public programmes.

Governments must ensure credibility through strong governance and accountability

As projects are implemented, clear oversight mechanisms, such as independent review bodies, transparent fund flow tracking, and third-party audits, become essential to prevent mismanagement and build long-term investor trust. These systems should be complemented by strong monitoring, reporting, and verification (MRV) systems to track environmental, social, and economic results. A credible MRV framework ensures financing delivers real, measurable impact, enhancing investor trust and stakeholder accountability. 

Ethiopia’s Building gender-responsive resilience of the most vulnerable communities project, funded by the Green Climate Fund with a US$45 million (Rs3.9 billion) grant, is a good example of integrating strong governance and MRV systems in climate investments. Anchored in Ethiopia’s Climate Resilient Green Economy strategy and implemented by the Ministry of Water and Energy, the project introduced a digital MRV platform. This centralised system is used for collecting, storing, and analysing data on water usage, groundwater levels, and the performance of water infrastructure.

Additionally, the project aims to integrate the digital MRV system with the national MRV framework to enable government agencies and other stakeholders to access and use data from the MRV system for policy making, planning, and enforcement. These systems help reduce fiduciary risk and increase stakeholder trust in providing capital.

The experiences of the Philippines, Indonesia, India, South Africa and Ethiopia show that by moving beyond traditional policy roles and taking ownership of the investment process, EMDEs can unlock significant climate finance while ensuring social inclusion. These countries demonstrate that government-led planning, strong project preparation systems, investment facilitation platforms, and robust governance frameworks are not abstract ideas. They are achievable, and they work.