Bridging the Investment Gap: The Role of Prudential Regulation in Advancing Long-term, Private-sector Investment in Sustainable Development

The mobilization of private sector capital for sustainable development represents one of the most pressing challenges in addressing climate change and achieving the sustainable development goals. According to the 2024 UN DESA report on Financing for Sustainable Development, the sustainable investment gap now exceeds $4 trillion (USD) annually and continues to widen. This challenge has become particularly urgent as society braces for breaching the 1.5°C global temperature rise threshold. While public sector funding remains critical, the current prudential regulatory framework may inadvertently impede needed sustainable investment flows. This paper examined how prudential regulation can be adapted to facilitate long-term, private investment in sustainable development, while maintaining its core function of protecting the stability of the global financial system (Financing, 2024). Through exhaustive stakeholder interviews, a thorough literature review and analysis of the Basel framework, particularly Basel III and Basel III Endgame, the Capstone team identified several critical considerations and recommendations for policymakers.