THE LEVERAGE OF THE TRILLIONS: The outlook on finance and investment for the SDGs

Photo by: Amena Mabrouk in Unsplash (CC)

The Agenda 2030 and its Sustainable Development Goals (SDGs) set ambitious targets for the world to achieve, whose fulfilment is dependent upon the availability of resources to leverage, not least among them, finance. Indeed, the concept of finance for development (Fin4Dev in short) is not new and hence the birth of the idea of “financing for the SDGs”.

With the inception of the SDGs in 2015, the Addis Ababa Action Agenda on Financing for Development became the roadmap to establish a global framework for financing for development, including SDG finance. The Agenda also includes a complete set of policy actions for member states to finance sustainable development.

Unfortunately, since then the chasm between financial resources devoted to the SDGs and the amounts needed have highlighted the existence of an “SDG Financing Gap”. Indeed, the International Finance Corporation (IFC) estimated this gap at 2.5 trillion USD, as the difference between the total needed, of approximately 4.5 trillion, and the current financing levels, which stand at a scant 2.5 trillion.

The COVID-19 pandemic has widened this financing rift: the OECD speaks of a scissor effect of decreasing resources and increasing needs, suggesting an enlargement of the financing gap by 1.7 trillion USD.

How could then this cleavage be addressed to unlock sufficient finance to achieve the SDGs? The OECD and other key development finance partners have been calling for an increased alignment of all types of finance to the SDGs.

In this regard, a key lever comes from multilateral development banks as the quintessential Fin4Dev institutions. For instance, a joint publication bringing together more than ten multilateral development banks (including the ADB, IsDB, AfDB, IDB, EIB and the World Bank) and the International Monetary Fund for the first time assessed the contribution of these institutions to support countries in SDG acceleration, as well as future opportunities to strengthen their mechanisms in SDG finance. 

Multilateral development banks have also pioneered other SDG-enhancing initiatives like green or blue bonds (tied respectively to environmental benefits and freshwater or ocean improvements). For example, the first blue sovereign bond was issued by the Government of Seychelles with the support of the World Bank.

In this case, the World Bank mobilized capital through the Global Environment Facility (GEF), which is one of the many climate-finance instruments available to countries, with usually multilateral development banks or UN agencies as trustees or administrators, and which are another substantial SDG-finance accelerator.

The United Nations’ Joint SDG Fund may be the most representative instrument of SDG finance. As a multi-partner trust fund, it feeds on contributions from both public and private-sector donors and its resources are not earmarked for any specific UN entity, but instead leveraged for UN-system broad functions.

This multilateral friendliness and reallocating flexibility has allowed the Joint SDG Fund to finance 101 joint programs, more than 1000 partnerships and more than 200 innovative solutions for SDG achievements.

The SDGs harbour an enormous potential to improve the lives of millions of people across the planet, in issues as varied as environmental sustainability, food and agriculture, gender equality or terrestrial and marine ecosystems. Mobilizing targeted finance to achieve them thus gains importance if the Agenda 2030 is to be realized.
Photo by: 2Photo Pots in Unsplash (CC)

With a mandate to make public and private finance work for the poorest, the United Nation’s Capital Development Fund (UNCDF) is another crucial stakeholder in SDG finance. Unlocking both public and private capital, UNCDF focuses on the 46 Least Developed Countries (LDCs) and offers “last mile” finance through three main channels: local development finance, investment finance and inclusive digital technologies. As such, UNCDF plays a key role in enabling, channelling and catalyzing SDG finance in LDCs, particularly at the subnational, regional and local levels.

Complementarily, UNDP’s platform Sustainable Finance Hub (SFH) or SDG Finance tries to centralize and leverage the organization’s efforts to accelerate SDG financing. SFH’s one-stop-shop includes a rich SDG Integration Offer of tools, best practices, case studies and other means for country policies.

SFH also eyes the private sector as an underperforming financier of the SDGs with significant potential to unlock: according to UNDP estimates, with just less than 8% of the total global assets under private command worldwide (6 trillion USD) the financing gap for the SDGs in developing countries could be bridged. Hence the birth of two main venues for private sector engagement in the SDGs under SFH:

> The UNDP Istanbul International Center for Private Sector in Development (IICPSD), which hosts four initiatives that all have a significant component of SDG private finance: the Business Call to Action, the SDG Philanthropy Platform, the Global Islamic Finance and Impact Investing Platform and the Connecting Business Initiative.

> The four SFH flagship initiatives of SDG Impact, the Integrated National Frameworks (INFFs), the Insurance and Risk Facility, and the Digital Financing Facility

In particular, SDG Impact equips private investors with the clarity, insights, and tools that they need to scale up their investments towards SDG attainment. Such SDG-enabling investment flows are supported by three toolkits to address the main barriers identified by investors in SDG achievement: impact management, impact intelligence and impact facilitation instruments.

The first encompasses mainly standards and certifications to authenticate SDG-accelerating investments in a uniform way. With regard to impact intelligence, the key tool is SDG Investor Maps, which break down locally-rooted investment opportunity areas in specific developing countries, thereby tying the knot between national development agendas and investors’ quest for profitable and bankable projects.

As per impact facilitation, public-private policy dialogues, investor forums and other platforms are key to fostering partnerships for increased SDG-enabling investments.

The funnel methodology of SDG Investor Maps that identifies investment opportunities out of national development priorities of developing countries.
Source: UNDP

All in all, the profusion of initiatives, institutions, platforms and toolkits to catalyze finance for the SDGs have the potential to turn the tide in financing the Agenda 2030.

With targeted policy actions to step up public finance while enticing and keeping private investment, the SDG Financing Gap is poised to disappear or altogether become an SDG Financing Surplus. The institutional, policy and legal foundations have been laid, now it is time to act to leverage those trillions of dollars. It certainly is a challenge worth striving for.

Jorge Alarcón
Jorge Alarcón
Jorge joined GlobalCAD through the ICEX Scholarship Programme on Business Internationalisation and works as a technical and research assistant.