How Business Environment Reform Can Catalyse Private Investment

Mobilising private capital is essential to sustainable and inclusive growth, job creation and climate resilience. Public finance and official development assistance cannot, by themselves, meet the scale of investment required.

Yet private investors do not respond only to individual transactions or financing instruments. They also respond to the rules, institutions and market conditions that shape risk and returns. This is where business environment reform (BER) can help catalyse private investment: by addressing the upstream barriers that prevent investment from taking place.

The case for improving the business environment is well established. The emerging question is how BER can be designed more deliberately to catalyse private investment and its development effects.

From broad reform to catalytic business environment reform

Over the past three decades, evidence increasingly suggests that business environment reform works best when it moves beyond broad investment climate reforms. A more focused approach often combines BER with other private sector development approaches, including industry policy, market systems development and, more recently, development finance and blended finance.

The World Bank’s former Doing Business indicators, and the newer B-READY framework, provide useful perspectives on the wider business environment. However, more specific and granular reforms are often needed to overcome barriers to private investment.

Over the past 15 years, my work has examined how BER can focus more sharply on specific sectors, local economies and informal firms. These discussions have included the idea of deals-based reforms: using business environment reform to enable strategic private investments that can, in turn, create wider economic effects.

What catalysation adds to private finance mobilisation

The OECD’s 2026 Private Finance Mobilisation report and related work on catalysation distinguish between three broad forms of public intervention that shape private investment: transaction-level mobilisation, portfolio-level operations, such as securitisation and exits, and catalysation.

Mobilisation, in the OECD DAC sense, is counted when a public actor can credibly demonstrate its role in a specific transaction and apportion private finance accordingly. Catalysation is different. It concerns indirect and downstream private investments enabled by public interventions that strengthen enabling environments and unlock capital beyond the life of an individual transaction.

The OECD groups catalytic interventions into advisory and policy-based support—funded and unfunded, at both macro and micro levels—and investment-based effects in financial and real sectors. The latter include associated investments needed to make a project viable, connected follow-on phases, demonstration effects that encourage replicated investments, and secondary downstream activity through intermediaries.

This distinction matters. It gives donors and development finance institutions a way to describe and tag interventions with catalytic intent, even when attribution is difficult and monetary estimates remain uncertain.

The OECD is appropriately cautious. Members are concerned about inflated figures, double counting and weak causal claims. For now, catalysation remains conceptual and exploratory, distinct from mobilisation in DAC statistics. The emphasis is on definitions, taxonomies and case studies rather than headline figures. That caution is useful. It creates space to understand how upstream interventions work before adding large catalytic estimates to reporting systems.

Business environment reform as a catalytic tool

The DCED has described business environment reform as a foundational enabler of private capital mobilisation. Yet its links to investment are often indirect, slow and poorly understood. Generic reforms may reduce red tape or improve rankings, but they rarely catalyse private capital at the scale needed for climate resilience and sustainable growth.

A more selective, investor-aligned approach is needed. Four principles stand out:

• Anchor BER in local business and investment needs, rather than global templates alone.
• Focus reform where political will and investor demand align.
• Develop tailored BER for climate resilience, recognising that long horizons, public-good characteristics and high uncertainty make standard tools insufficient.
• Bridge the gap between upstream policy teams and downstream investment practitioners.

These are not simply good reform principles. They are practical design features of catalytic interventions.

Unfunded macro advisory support, sector-specific technical assistance, project-preparation facilities, SME credit infrastructure and environmental, social and governance norms all sit within the advisory and policy-based part of the OECD’s catalysation typology. When these interventions are intentionally linked to investment opportunities and documented accordingly they become visible as catalytic business environment reforms rather than generic institutional strengthening.

Climate resilience and catalytic business environment reform

Climate resilience makes this agenda more urgent. Adaptation and resilience investments often involve long time horizons, political and regulatory uncertainty, benefits that are difficult to monetise, and high costs of capital. Streamlined licensing and general investment promotion can help, but they rarely resolve these underlying constraints on their own.

Policy stability and regulatory certainty can be particularly important. Credible long-term policies may reduce perceived risk and lower financing costs for climate-related investments, including renewable energy and resilience infrastructure.

In practice, this points to sector-specific reforms: policy roadmaps that can withstand electoral cycles; climate-related fiscal measures; adapted public-private partnership frameworks; and regulations that enable resilience-linked projects and financial instruments to become bankable.

Evidence also suggests that BER is most effective when paired with instruments such as guarantees, blended-finance funds and technical-assistance facilities. Upstream reforms are often what allow these instruments to operate effectively.

Implications for donors and evaluators

For donors and evaluators working on business environment reform and private sector development, the evolving catalysation agenda has several practical implications.

First, BER portfolios should be designed and managed with explicit catalytic hypotheses. Rather than assuming that an improved business environment will automatically mobilise private capital, programmes can identify the private flows they expect to enable, the relevant sectors, likely timeframes and complementary instruments required. This is fundamentally a theory-of-change exercise, but with a stronger finance lens.

Second, the OECD’s emerging taxonomy could help programmes tag catalytic BER activities more systematically. Labelling advisory and reform work as catalytic when it is intentionally designed to enable private investment may support future reporting through DAC statistics, even where programmes do not seek to monetise the effect. The current OECD approach—voluntary taxonomy-based tracking, case studies and pilot projects—offers a pragmatic way to build an evidence base without premature pressure to produce figures.

Third, climate resilience requires dedicated reform domains, not simply “climate flavouring” of existing investment-climate programmes. For evaluators, this means looking beyond immediate outputs, such as laws passed or procedures simplified. Evaluation should also examine policy stability, investor confidence and, where feasible, changes in the cost of capital over time in climate-linked sectors.

Finally, the agenda depends on closer organisational collaboration. BER programmes often sit apart from investment teams, even when both seek to enable private investment. Donors, DFIs and implementing partners can narrow this gap by connecting policy, legal and regulatory reforms with transaction-level instruments, including blended-finance funds, hedging platforms and portfolio-level mobilisation approaches.

A cautious conclusion

None of this makes BER a magic lever for private investment. Evidence remains mixed, attribution is difficult and political economy constraints are stubborn.

But emerging work from the OECD, DCED and others suggests a more disciplined approach: design upstream interventions with a credible catalytic pathway, align them with investor realities, and document their contribution to private finance with greater rigour.