This is the year for investors and the region to accelerate progress toward the UN Sustainable Development Goals (SDGs) and the Paris Agreement.

Only 22% of the region’s SDGs are on target for 2030, and the infrastructure investment demand is topping $2.2 trillion. 

Emerging markets expect to grow faster than developed economies, and the region’s younger demographics and higher urbanization rates offer momentum for sustainable action. 

Market trends in 2025 signal the potential for sizable returns for investors seeking growth and impact and for the region’s future generations. 

1. Emerging industries will bridge the prosperity gap

Agriculture technology, coined "agtech," encompasses regenerative agribusiness and alternative proteins. Food production advancements are reshaping how farmers grow, process, and store what we eat. 

After decades of biodiversity loss, nature finance will challenge us to put a value on nature. Through the Amazonia Finance Network, IDB Invest is finding new ways to manage nature-related risks, strategy, and financial products, such as sustainability-linked bonds (SLB). 

One example is the investment in an SLB issued by Natura in Brazil. IDB Invest incentivized performance so that the cosmetic company’s cost of capital would decrease when the number of Amazonian bioingredients in their products went up – an innovative structure for nature-positive business. 

Financial inclusion is an ever-changing industry due to technological change and fast adoption. Fintech innovations, mobile banking, and digital wallets empower vulnerable and underserved populations, including women, the elderly, and small businesses. 

Credit, savings, and insurance solutions are critical in a region where 45% of adults remain unbanked, and MSMEs face a $1.2 trillion financing gap. In 2024, digital platforms grew by 30%, reducing transaction costs and funneling billions into local economies (Source). 

As outlined in my 2024 blog, generative artificial intelligence (AI) - when used for good - can scale information and generate analytics that will be a game-changer for nearly all emerging industries, especially as more countries and companies plan to adopt AI more broadly. 

Looking Ahead: This year, agtech, nature, and digital inclusion, especially of the silver economy, will offer new possibilities for development finance. Underpinning their success will be generative AI that operates under a shared ethos of impact, responsibility, and inclusion. 

2. Transition finance will be known for more than clean energy

The energy transition is evolving beyond renewables while clean energy development and regional integration remain the course. Investments are pouring into critical minerals like lithium. 

Demand has tripled from 2015 to 2022 to support the rise in lithium-ion rechargeable batteries. IDB Invest is working upstream and downstream on critical transition minerals to supply battery producers. 

Hard-to-abate sectors, such as cement, are coined because it is difficult to lower their emissions. 

Yet promising research out of the University of Cambridge shows the potential for concrete recycling by heating used cement in low-emissions furnaces that also recycle steel.

 Similar innovations in other hard-to-abate sectors and the right incentives can accelerate the transition without adding costs. 

Looking Ahead: 2025 will shift the focus from transition planning to action, with investors driving decarbonization in hard-to-abate sectors and empowering the resource-rich region to benefit from the global transition to net-zero. 

3. Development impact will be maximized by more public-private synergies 

When it comes to the public and private sectors, the sum is far greater than the individual parts. 

To pave the way for private investors, the region is increasingly prioritizing upstream reforms to strengthen laws, regulations, and institutions.

One way is through policies aimed at combating fraud and corruption. IDB supports host countries with a Regional Alliance for Security, Justice and Development.

 The direct costs of crime to GDP exceed 3.4%, so policies for security free up fiscal space to achieve the SDGs. 

Partnering with public institutions is another way to accelerate impact in underserved sectors. This leverages their market reach and financial backing. 

Recently, IDB Invest worked with Mexico’s non-bank financial institutions to invest in a bond. 

The underlying loans boost MSME finance in the agriculture sector. A partial guarantee from the government's Agriculture Trust (FIRA, for its Spanish acronym) enhances its creditworthiness.

Looking Ahead: 2025 will see an increased alignment between the public and private sectors as upstream reforms signal stability and remove barriers to investment. This collaborative approach will make government and business function more transparently and efficiently, paying dividends to the citizens of LAC and investors. 

4. Enhanced ESG data will reframe risk-reward dynamics

“Unknown doesn’t mean unknowable,” said Philippe Valahu, CEO of PIDG. 

Knowing more about project performance starts with progress on quality data, including harmonizing disclosure practices, advancing transparency on comparable and decision-ready data, and communicating through utilized channels. 

Initiatives like the Global Emerging Markets (GEMs) Risk Database Consortium continue to spotlight credit risk data, offering actionable insights for investors. For instance, in 2024, GEMs revealed IDB Invest’s impressive private sector default rate of 1.8% and recovery rate of 69%. 

Looking Ahead: 2025 will see the ongoing democratization of ESG and risk data, creating a virtuous cycle where knowledge adjusts risk assessments and drives smarter investment behavior. As data-driven confidence grows, investors will increasingly follow multilateral development banks and finance regional projects. 

5. De-risking strategies will incentivize capital flows and cement a new asset class for development finance

The recent boom in structured finance on Wall Street may reshape development finance as an asset class. The more development finance institutions can offer tailored risk-sharing mechanisms, the more they can attract diverse investors. 

IDB Invest’s innovative Originate-to-Share model exemplifies this transformation by pooling and allocating $1 billion in development assets across 20 countries and 10 sectors. 

This exposes institutional investors to projects that achieve the SDGs and will enable $500 million of new lending capacity to the region. 

At the project level, development finance can mobilize at a multiplier for every dollar invested. 

For instance, in the Tarifas III energy project in Chile, IDB Invest syndicated $2.16 billion from private placements in the international capital markets alongside its own $240 million investment – a multiplier of almost ten! 

This model highlights the efficacy of structured finance in investors while closing the infrastructure gap. 

In newer sectors or geographies, blended finance can help at the project level through first-loss capital, extended tenors, and reduction of perceived risks for private investors. 

Looking Ahead: In 2025, the convergence of structured finance and de-risking solutions will expand the investor base for development finance. Institutional and private investors will play a central role in advancing sustainable development. 

Investment and Prosperity

Latin America and the Caribbean are poised for transformative growth in 2025, driven by private-sector innovation, strategic public-private collaboration, and sustainable financing.

 By aligning bold investments with impactful opportunities, MDBs can mobilize capital, close infrastructure gaps, and deliver measurable benefits to citizens and investors alike. 

This is the moment to harness the region’s potential and accelerate progress toward the SDGs, ensuring long-term growth and resilience.