Delivering the 2030 Agenda in the COVID-19 era and beyond
After 2020 started with a “call to action” to deliver the SDGs in the remaining decade, the COVID-19 crisis reversed hard-earned progress and is estimated to increase the SDG financing gap in developing countries by $1.7trn, from $2.5trn to $4.2trn .
Public investment budgets, even when combined with Official Development Assistance (ODA) inflows, cannot fill the gap alone. Achieving the 2030 Agenda demands aligning an additional, sizeable share of international private flows with the SDGs.
However, this will only be possible if public and private actors work together to increase attractive opportunities. Blended finance can help. The OECD defines blended finance as the strategic use of development finance for the mobilisation of additional (commercial) finance towards sustainable development in developing countries .
Governments and other institutions deploying development finance for the SDGs can use blended finance to adjust the risk-return profiles of investment opportunities, and attract private investment towards the SDGs.
Private finance mobilised by official mechanisms has increased significantly in the last decade, from $15.3bn in 2012 to $48.4bn in 2018. The total amount mobilised during this period was $205.2bn : a remarkable increase, yet still a long way to go to fill a significant portion of the $4.2trn gap.
And Least Developed Countries (LDCs) receive only a small fraction of private finance mobilised .
How to attract a broader range of private investors towards SDG-compatible projects? New and innovative approaches to optimise the use of blended finance could be part of the answer.
The development finance community with its risk-return perspective can play the role of pathfinder to develop markets that contribute to the achievement of the SDGs. However, institutional investors, commercial banks, national investment funds, private equity funds and venture capital funds have significant financial assets that can and should be deployed more effectively for the SDGs.
What is missing is a regulatory framework that is aligned and conducive to such transactions, allowing institutional investors to finance sustainable development without too many restrictions.
In addition, the development finance community needs to scale up risk transfer mechanisms such as synthetic securitisation and other balance sheet optimisation techniques in order to engage institutional investors.
The COVID-19 crisis has clearly shown a need for financial mediators such as Development Finance Institutions (DFIs) and Multilateral Development Banks (MDBs) to increase their risk bearing capacity and pursue risk-sharing mechanisms more actively.
DFIs and MDBs must speed up transactions that connect to a wider audience of investors in the capital markets.
Financing the green transition is among the biggest challenges. How do we ensure that financing for the COVID-19 recovery integrates climate and environmental considerations? Again, institutional investors such as pension funds are significant players in this field, as many pension holders want their investments to align with the SDGs and climate objectives.
Pension funds are already important buyers of green and social bonds, and pension funds should continue investing in infrastructure that will support the transition to low-carbon economies.
“More conducive regulation is needed to allow investors to scale up support for the SDGs in emerging economies and developing countries”
The question is how these important institutional investors can be mobilised even further through innovative approaches in blended finance. More conducive regulation is needed to allow investors to scale up support for the SDGs in emerging economies and developing countries.
Delivering the 2030 Agenda also requires a stronger focus on social, environmental and economic impact in order to substantiate the need for blending beyond mobilizing funds.
The development community has taken steps to ensure that development commitments are delivered with the highest standards and integrity. However, there is still not enough evidence on the impact achieved through investments.
Public demand for greater transparency on targeted and achieved impacts is already changing the rules for both investors and businesses. The demand is driving investors towards companies that deliver both positive financial returns and positive impacts on people and the planet.
We must continue working towards common methodologies for defining, managing and measuring impact to ensure a real move towards delivering the 2030 Agenda.
The OECD Development Assistance Committee – a 30-member international forum of many of the largest providers of ODA - launched a Community of Practice on Private Finance for Sustainable Development in January 2020, as a platform for its members, the private sector and other key stakeholders to discuss SDG financing issues. One year later, the Community of Practice has 300 active members pushing a collective agenda on blended finance and impact.
To mark that first anniversary, the OECD is holding a week of high-level virtual discussions from 1-4 February 2021, titled “Blended Finance and Impact: Delivering the 2030 Agenda in the COVID-19 era and beyond”. The week will provide new evidence and showcase initiatives to mobilise private finance towards the SDGs through effective blended finance approaches and impact.
Key topics will include financing the green transition and addressing the climate financing gap, how to scale up private finance especially for LDCs, and the need for DFIs and MDBs to increase their risk bearing capacity.
Participants will focus on how to manage and measure the impact of investments made in sustainable development. They will also discuss the ongoing efforts of the international community to harmonise impact measurement and management methodologies.
The OECD will present its latest work on Impact Standards for Financing Sustainable Development (IS-FSD) together with the OECD-DAC Blended Finance Principles Guidance, which offers concrete policy recommendations to optimise the use of blended finance .
The webinars will bring together representatives from international organisations, DFIs and MDBs, private investors, asset managers, pension funds, impact investors, development and impact experts, as well as CSOs, think thanks and academia.
Join us and help move the agenda on blended finance and impact forward to sustain the global recovery in 2021 and beyond. More information can be found on the event page.
Jorge Moreira da Silva is a director at OECD Development Co-operation Directorate (DCD)
 Global Outlook on Financing for Sustainable Development 2021: A New Way to Invest for People and Planet, OECD, 2020.
 Blended Finance in the Least Developed Countries 2020 Supporting a resilient COVID-19 Recovery, OECD, UNCDF, 2020.
 Blended Finance Principles Guidance, OECD, 2020.