Private capital and the SDGs: The Urgent Need for Scale

The total investment need in developing countries for basic infrastructure (roads, rail and ports; power stations; water and sanitation), food security (agriculture and rural development), climate change, health, and education is estimated at somewhere between US$3.3 trillion and US$4.5 trillion a year. At current levels of investment, this equates to an annual funding gap of US$2.5 trillion each year. The bulk of this investment gap is for infrastructure, which is critical to delivering the 2030 Sustainable Development Goals (SDGs). Public capital cannot meet this funding need alone, so mobilising local and international private investors is key. 

While there is no shortage of capital worldwide, the private sector is often unable to make SDG-related investments due to the associated project- or country-related risks. Hence the rationale for “blended finance”, which involves the strategic use of development funds to improve the risk-return profile of investments in order to attract private capital (using instruments like guarantees, risk insurance, currency hedging, syndicated loads, collective investment vehicles, subordinate capital, technical assistance funds etc.) It is unclear exactly how much development finance is currently “crowding in” private investment for the SDGs. However, with the investment gap in the trillions, the message is clear: public and philanthropic funds need to crowd in significantly more private capital for every dollar in order to fund the SDGs.

 

The Challenge and the Opportunity  

There is a major business opportunity for the private sector to invest in the SDGs (at least US$12 trillion in investable opportunities and 380 million new jobs by 2030), and there are big pools of long-term capital currently on the sidelines which could be invested. But mobilising an extra US$1 trillion of private capital a year (about 10% of annual net inflows into global savings pools) will require better deployment of blended finance and a focus on achieving scale to increase the public to private leverage ratio. This presents a major challenge, but also contains an enormous opportunity for the private sector, which led to the creation of the Blended Finance Taskforce.    

Working closely with other blended finance initiatives, notably the OECD and MDB/DFI efforts, and supported by a Steering Committee of 25 experienced practitioners and experts, as well as a broader informal advisory group, the Taskforce is focused on bringing the voice of the “private sector” into this agenda. The Taskforce will publish a report at Davos in January 2018, which aims to identify and tackle the systemic barriers to mobilising large-scale private capital for SDG-related investments. The report will contain bold recommendations that push for an ambitious deployment of blended finance to fund SDG related investments, especially for sustainable infrastructure. 

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Member - Organisation

Matt McGuire / Vinay Chawla - Abraaj

Astrid Manroth - AfDB

Steve Waygood - Aviva

Carsten Stendevad - ATP (former) / Bridgewater

Abyd Karmali - BAML

Brian Herlihy - Black Rhino

Ashley Schulten - BlackRock

Ed Mathias - Carlyle Group

Michael Eckhart - Citi Group

Sean Kidney - Climate Bonds Initiative

Joseph Brandt - Contour Global

Marisa Drew - Credit Suisse

Tony Adams - EastSpring (former)

Alan Rousso / Mattia Romani - EBRD

Nanno Kleiterp / Soren Andreasen - EDFI

Sarah Chapman - Faro Energy

Cherie Nursalim - GITI

Stewart James / Ed Wells - HSBC

Julie Katzman / Matthieu Pegon - IADB

Hans Peter Lankes / Kruskaia Sierra-Escalante - IFC

Gavin Wilson - IFC AMC (former)

Hendrik du Toit / Chris Newson - Investec

Fuat Savas - JP Morgan Chase

Lord Nicholas Stern - LSE / NCE

Debra Schwartz / Lori Scott - MacArthur Foundation

Aron Betru / Chris Lee - Milken Institute

Charlotte Petri-Gornitzka / Paul Horrocks - OECD–DAC

Elizabeth Littlefield - OPIC (former)

Lorenzo Bernasconi - Rockefeller Foundation

Daniel Hanna / Katharine Steger / Deniz Harut - Standard Chartered

Neo Gim Huay - Temasek

Cameron Khosrowshahi - USAID

Rick Samans / Alex Wong - WEF