Shifting markets and mindsets: Financing the Sustainable Development Goals

One of the most significant questions surrounding the Sustainable Development Goals today is how to secure the necessary financial resources; unlocking private sector financing is key, says SustainAbility consultant Charlotte Pearson.

A year has passed since the adoption of the UN Sustainable Development Goals (SDGs). At the time, many set out to ask what it would take to achieve the global to-do list for people and planet.

Today, we are still trying to determine how to mobilise various levers to achieve the global goals. One of the most significant questions is: What is the financial resource required to end poverty, protect the planet and ensure prosperity for all? Can you even put a number on it?

From millions to trillions

Several groups have certainly attempted to, whilst recognising the limitations of doing so.

Led by the World Bank Group, the Multilateral Development Banks released a joint statement last year expressing the need to move on from billions in Official Development Assistance to trillions in investments of all kinds: public, private, national and global.

Meanwhile, the OECD Development Co-operation Report 2016 estimated that the annual SDG financing gap in developing countries is USD 2.5 trillion, or 3 per cent of global Gross Domestic Product. And the UN System Task Team Working Group on Financing for Sustainable Development says USD 17 trillion, a relatively small portion of annual global savings, could have an enormous impact.

If there is consistency amongst these estimates, it is that the financing needs for sustainable development are enormous. There is enough money to close this gap, but currently only a small portion of the global investment assets of banks, pension funds, insurers, foundations and multinational corporations is targeted at sectors and areas that advance sustainable development.

The challenge will be unlocking the potential of the private sector and catalysing financing from diverse private sector sources towards the SDGs.

The blended finance debate

The OECD Development Co-operation Report 2016 identifies five pathways to ensure the quantity and quality of investment for implementing the SDGs. Of these, blended finance is regarded as both largely underutilised and with high potential for impact.

The blended finance model uses development finance and philanthropic resources to mitigate risks (e.g. through mezzanine finance arrangements, where the public sector body accepts the first loss arising from any default) and enhance returns for investors. ‘Blending’ can mobilise private capital to dramatically scale up investment and development outcomes across a range of sectors and countries.

Citigroup, HSBC, Standard Chartered and Sumitomo Mitsui Banking Corporation are joined in a public-private partnership developing new blended finance solutions, the Sustainable Development Investment Partnership. With partners including Danish pension fund PKA, USAID, the OECD, the World Economic Forum, the Swedish International Development Co-operation Agency and others, the partnership aims to catalyse USD 100 billion in private financing over five years to infrastructure projects in developing countries in support of the SDGs. It will leverage official funding to better mitigate risk and ‘crowd-in’ private sector capital.

Convergence is a platform launched in 2016 to connect private, public and philanthropic investors in blended finance deals in emerging and frontier markets. Institutions can post blended finance investment opportunities on the searchable deal database. One such opportunity is the Deutsche Bank Eye Care Fund, providing affordable loan financing for organisations that offer sight-saving surgery to people in low-income segments in developing countries.

However, a recent report by Development Initiatives cautions that the claims that blending can significantly plug the SDG funding gap have been based on little evidence to date. Improved transparency and data is required on where blended finance spending is going and on its impact on the ground. The report recommends development of a common reporting standard for better disclosure on who ultimately benefits from such financing.

The challenge will be unlocking the potential of the private sector and catalysing financing from diverse private sector sources towards the SDGs.

Doing good while doing well

Whilst a crucial component, funding alone is not enough: the private sector holds a decisive power to participate positively to or to undermine the success of the SDGs. Recognising the significant role of business to help create an investment environment underpinned by respect for social and environmental principles, the OECD’s fifth identified pathway is, ‘responsible business conduct’.

The immediate challenge for the private sector is to accelerate towards inclusive and sustainable business models in support of the Goals. The SDGs have spurred a new wave of efforts by business to develop integrated corporate initiatives that successfully align the business case – including product and service innovation, building markets and strengthening supply chains – with sustainable development. There are pockets of the private sector where business models are already successfully aligning profit with purpose and the Goals:

  • Goal 2: Zero hunger | Nestlé is committed to provide 200 billion servings of micronutrient-fortified foods and beverages annually worldwide by 2016. It’s Popularly Positioned Products (PPPs) portfolio focuses on the needs of 3 billion low-income consumers, providing affordable, nutritious and accessible products.
  • Goal 3: Good health and well-being | The Novartis Access portfolio offers 15 affordable medicines addressing cardiovascular diseases, diabetes, respiratory illnesses and breast cancer. The portfolio is offered for USD 1 per treatment per month to governments and NGOs in low- and middle- income countries, where 28 million people die from chronic diseases each year.
  • Goal 5: Gender equality | The Gap Inc. was the first Fortune 500 company to announce equal pay for equal work for female and male employees globally. The company’s A.C.E. (Personal Advancement & Career Enhancement) programme teaches work and home skills to the women who make their clothes. The programme, which aims to reach one million females by 2020, empowers women to advance their lives. It also propels the business by enhancing productivity and performance; garment factories report improved attendance, retention and efficiency rates, with associated cost savings.

The potential of finance to directly support progress towards the SDGs is enormous, especially in sectors such as infrastructure, telecommunications and water and sanitation where the funding gap is greatest.

And in October, the UN announced the creation of a Financial Innovation Platform to identify, pilot and scale up innovative finance solutions. Yet as From Billions to Trillions reminds us, finance is only one part of the equation: “…achieving the SDGs will require more than money. It needs a global change of mindsets, approaches and accountabilities.”

Charlotte Pearson is an analyst at sustainability consultancy SustainAbility. This post is republished from  SustainAbility Insights.

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