Financing the Future: Risk, Return and Trust

This session examines how the financial sector interprets the new risk environment. With trust increasingly valued almost as a factor of production, the discussion will focus on how reliable policy frameworks can lower the cost of capital.

Every investment decision rests on a calculation of the present value of future returns. The cost of risk and the cost of capital are decisive in this calculation. In a changing world, the factors that determine these costs are also evolving. Alongside familiar factors such as interest rates and exchange-rate risk, new considerations include country credibility, institutional predictability, sanctions risk and climate risk.

The tightening of global financial conditions has made access to capital more expensive, particularly for emerging economies, while also making capital more selective about the countries and projects it finances. As a result, comparable investment projects can face very different financing costs across countries. Capital therefore prices both the project itself and the economic and institutional environment in which it is implemented.

The session also examines the limits of relying on returns to attract capital at a time when high expected returns alone no longer suffice.

The session is expected to address the following topics:

• Rising financing costs and the effects of tighter global financial conditions on capital flows
• Geoeconomic fragmentation, sanctions risk and access to capital
• How trust, predictability and institutional quality are reflected in the cost of capital
• How climate risk is reflected in asset prices and lending conditions
• Financing long-term investment under uncertainty