There is a long way to go to plug the funding gap for the Sustainable Development Goals, writes Peter Cripps
In 2015, the Sustainable Development Goals (SDGs) were signed by the nearly 200 countries that are members of the UN.
They are an ambitious, almost utopian, set of 17 overarching environmental and social goals to be achieved by 2030. Examples include no poverty, gender equality, and clean water and sanitation.
However, nearly 10 years on, progress towards achieving them has been woefully inadequate.
The 2024 Financing for Sustainable Development Report estimates the SDG financing and investment gap sits between $2.5 trillion and $4 trillion annually.
Meeting the SDGs is a key concern for the multilateral development banks (MDBs) and development finance institutes (DFIs). But the obvious truth is that they, and the public sector more broadly, do not have adequate capital to finance the SDGs. The only way the gap can be plugged is by encouraging private sector financial institutions to invest in at scale.
One of the most important tools at the disposal of MDBs and DFIs is to leverage their often-AAA-rated balance sheets to derisk investments.
There have been many examples of investments or vehicles that mix private and public finance – also known as 'blended finance' – but they need to be drastically expanded.
A recent report by the OMFIF think tank's Sustainable Policy Institute found institutional investors complained of a lack of opportunities in blended finance: "Many of the funds interviewed for this project expressed some exasperation and disappointment on the lack of progress in blended finance as a tool for reducing the risk profile of projects in emerging markets.
"One interviewee noted they'd been discussing it 'for 15 years and I haven't seen much progress'. Most of the global asset owners said that they saw little opportunity to invest in blended finance in the near term."
The issue of how to scale such transactions and get more capital flowing to the 'global south' is a key challenge. This is the subject of a two-day conference the OECD is running in Paris in two weeks, in partnership with Environmental Finance. CoP-PF4SD Conference 2025: Mobilising private finance towards 2030 and beyond.
It will hear from a range of speakers, including MDBs, DFIs, government ministers and, crucially, investors about how to get more capital flowing into sustainable investments in emerging markets.
"Most of the global asset owners said that they saw little opportunity to invest in blended finance in the near term"
The barriers are numerous, and include currency risk, political risk, governance risk, inhibitive capital requirements, strategic asset allocation and asset liability matching.
Some argue that the perception of these risks is greater than the reality. And the returns are potentially enticing, as emerging markets offer growth potential and relatively attractive valuations.
There are some great examples of how innovative financing structures are helping to crowd-in the private sector and help projects in emerging markets tap into the capital markets:
- The World Bank's outcome bonds have proved attractive to financial institutions in the 'global north'.
- The Climate Investment Funds Capital Markets Mechanism (CCMM) earlier this month issued a $500 million bond, in a deal hailed as the dawn of "a new era in climate finance". The transaction, which was six-times oversubscribed, is believed to be the first time a multilateral climate fund has accessed the capital markets, which should give it more firepower to make further allocations to climate-related projects in emerging markets.
- The Emerging Africa and Asia Infrastructure Fund (EAAIF), part of PIDG, is one of the first blended finance funds globally, investing in a wide range of projects and companies.
- And Environmental Finance's Impact Awards Personality of the Year was Amar Inamdar, managing director of KawiSafi Ventures, which is based in his native Kenya and focused on investing in energy access and a 'Just Transition' in Africa. It is currently raising its second blended finance fund.
At a time when nationalism is resurgent and many countries are firmly focused on putting their own interests first, US President Donald Trump being a case in point, the development agenda is in danger of falling by the wayside.
But there are many problems which are global in nature and need to be tackled on a global level.
Climate change is one of them. In more than a decade of doing this job, I have learned that climate change repeatedly butts up against the development agenda.
Developing economies understandably want to develop and to improve their standard of life. For some of them, this includes gaining access to electricity. If building coal-fired power plants is the cheapest way of doing that, then that is what they will do, unless there is some form of intervention to make cleaner alternatives more attractive.
And to put it more bluntly, people who are struggling to put food on the table for their families every day, are less likely to care about climate change.
Sustainable development typically requires vast capital investment, and many emerging markets currently lack the infrastructure to access the international capital markets.
Bridging the SDG funding gap by crowding-in the private sector – in a way that offers them compelling risk-adjusted returns while meeting their obligations such as fiduciary duty or capital requirements – will require financial and political innovation.
We need to scale up the ideas that work, and think of new ones to supplement them. The conference in Paris will prove a fruitful conversation if it helps remove some of the barriers to capital flows.
See the agenda here. CoP-PF4SD Conference 2025: Mobilising private finance towards 2030 and beyond. To register email events@fieldgibsonmedia.com