COVID-19, the Sustainable

Development Goals, and Blended

Finance
The COVID-19 pandemic threatens the achievement of the Sustainable Development Goals
(SDGs). With investors withdrawing $90 billion from emerging markets in the first 3 months
of 2020 (the largest outflow ever recorded), and with rising debt burdens in developing
countries and depreciating local currencies, the sustainable development agenda faces a
difficult landscape. The pandemic is also directing critical domestic resources away from
financing the SDGs while worsening pre-existing development challenges in ways that are
interlinked. People struggling to access food (SDG 2, Zero Hunger), for example, often suffer
higher rates of underlying health conditions (SDG 3, Good Health & Well-Being) that make
them more susceptible to developing severe COVID-19 symptoms. This is compounded by
already-weak national healthcare systems under increased strain.

Blended finance has solutions that can be funded today to address the challenges and
reduce the economic effects of COVID-19. Blended finance combines development funds
(from governments and philanthropic foundations) and private sector investment to fund
SDG projects. Around $15 billion of blended finance is mobilized annually, and with over 500
blended finance transactions having reached financial close, numerous projects demonstrate
how to successfully direct funding to targeted objectives.

Here, we discuss COVID-19’s impact on the SDG agenda. We also highlight challenges in
the real economy that, on the basis of our own analysis and our conversations with the
development community, have been identified as being well-conditioned for blended finance
solutions. In subsequent publications, Convergence will explore the role that blended finance
can play in counteracting some of these challenges. The time for blended finance at
scale has truly arrived.

COVID-19 and the SDGs

What are the likely impacts of the COVID-19 pandemic on the sustainable development
agenda? Its impact on SDG 3 (Good Health & Well-Being) may be most obvious, with
developing economies unprepared for the pandemic due to persisting challenges such as
relatively weak health systems, vulnerable supply chains, and difficulties with infection
prevention and control. But what are the pandemic’s likely effects on some of the other
SDGs?

Consider SDG 1 (No Poverty). Average incomes in one out of five countries globally were
projected to decline ahead of the outbreak of COVID-19, mainly in Africa, Latin America and
the Caribbean, as well as parts of Western Asia, and the pandemic is projected to further
accelerate declines in per capita incomes. Commodity exporting developing countries, for
example, already experiencing slowing growth in GDP per capita over the course of the
decade, will be particularly impacted by the sustained weaknesses in commodity prices
caused by the pandemic. Indeed, estimates suggest that global poverty could rise for the
first time since 1990, potentially setting the world back a decade in achieving SDG 1. An
analysis of COVID-19’s potential impact shows that the number of people living in poverty
globally could increase by 85-135 million under a 5% contraction in per capita household
incomes and consumption, by 180-280 million under a 10% contraction, and by 420-580
million under a 20% contraction.

The global economic contraction (forecast at 3% for 2020 by the IMF) and the related drop in
international trade (currently estimated at 27% QoQ, for Q2 2020) will also directly threaten
SDG 8 (Decent Work & Economic Growth), with 1.25 billion workers employed in sectors
facing severe falls in output and lay-offs. Meanwhile, remittances from migrant workers are
forecasted to decline by 20% in 2020, the sharpest decline in recent history, cutting crucial
income sources for many households throughout the developing world, while social
distancing measures may have an outsized effect on livelihoods in developing nations with
large informal economies without adequate social safety nets.

The pandemic also threatens progress on SDG 2 (Zero Hunger). Current estimates suggest

that an additional 130 million people in low and middle-income countries could face acute
hunger risk because of COVID-19. Pandemic response measures, such as restrictions on
movement, threaten to heighten logistical challenges within business supply
chains, disrupting the transportation and processing of food, and potentially straining the
agricultural sector’s capacity to meet demand and provide stable incomes to over one billion
people globally in the long-term. Export-oriented agricultural production may also be
stressed, impacting multiple levels of the supply chain and local, national, and regional
economies. Net food importers may also come under pressure, particularly if their currencies
further depreciate against the US dollar.

Recent gains in gender equality may also be threatened by COVID-19, affecting SDG 5
(Gender Equality). With women likelier to hold insecure jobs in the informal economy and
generally earning and saving less, with lower access to social protections, they
are disproportionately more impacted by economic shocks and are at a greater risk of
suffering from lay-offs. Women’s incomes and labour force participation are thus threatened
by the pandemic, while gender-based violence is also rising under lockdown conditions, with
the experience of past epidemic scenarios such as Ebola suggesting that the negative
impacts on women’s economic livelihoods are more longer-lasting than with men. Women
are also likelier to be front-line health workers and health facility service-staff, increasing
their exposure to the virus.

SDGs 7 (Affordable & Clean Energy) and 9 (Industry, Innovation, and Infrastructure) will also
be affected by COVID-19. Developing economies already face a dearth of reliable and
affordable energy for industrial and domestic uses. If governments make policy-based
moves to shore up fossil-fuel plants, or otherwise redirect resources away from investments
in renewable energy or boosting access to energy in favour of other near-term priorities, we
could lose momentum in realizing SDG 7. For example, reduced access to electricity could
limit the ability of health centres in developing countries (particularly in rural regions) to
provide key services and support frontline health workers. Any reallocation of resources
away from sustainable development in favour of near-term GDP growth that slows progress
in developing renewable and clean energy technologies could also affect SDG 13 (Climate
Action). Finally, COVID-19 has highlighted the need for disaster-resilient infrastructure to
improve the ease of provision of transportation, connectivity and utility services.

In the table below, we present an overview of some of the key impacts of COVID-19 on the
SDGs, while offering ideas for how we can begin to build back better for some of the SDGs
in the post-pandemic economic reconstruction.

SDG COVID- 19 Impact

 Loss of income, leading vulnerable segments of society to fall below poverty line.
SDG I, No Poverty
Employment declines in developed countries will reduce remittances.

Disruptions in food production and distribution under lockdown; food insecurity can
SDG 2, Zero Hunger contribute to weaker immunity and poorer health outcomes; reduction in
remittances leads to lower disposable income, especially in low-income countries.

SDG 3, Good Health Large negative effect on health outcomes; unequal access in developing nations to
and Well Being healthcare systems which are relatively weak. Post-pandemic, investments targeting
developing nations' pandemic preparedness and health security should be prioritized.

SDG 4, Quality
Prolonged school closures; remote learning less effective and equitable.
Education
Potential reversal of women's economic gains; threat of increased gender-based
SDG 5, Gender violence; health workers exposed to virus predominantly women. Given the
Equality disproportionate impact of the pandemic on women's livelihoods, women's economic
empowerment should form a critical part of the post-pandemic reconstruction.

Supply disruptions and inadequate access to clean water hinder access to clean
handwashing facilities, key to virus prevention. Looking forward, there is a
SDG 6, Clean Water
heightened urgency in financing water infrastructure and increasing supply and
& Sanitation
access for the majority of the population, especially in underserved rural and peri
urban areas.

Supply and personnel shortages may disrupt access to electricity supplies (already
weak in developing countries, with 840 million people living without access to
SDG 7, Affordable &
electricity), further weakening health system capacity. In the near-term, energy
Clean Energy
solutions targeting health clinics should be prioritized; post-pandemic, investing in
affordable energy sources should form a key part of the economic recovery.
SDG 8, Decent Work
Lockdown conditions have seen economic activity suspended, increasing
and Economic
unemployment and lowering incomes. Long-term shifts in how we work likely.
Growth
SDG 9, Industry, Primary healthcare infrastructure and systems are required as a first defense
Innovation, and mechanism against illnesses, diseases, and pandemics. The lack of this basic
Infrastructure requirement further threatens already vulnerable populations and countries.

SDG 10, Reduced National inequalities in access to healthcare; inequalities in economic impact (lay-
Inequalities offs, reduced incomes) of virus.

Urban populations risk higher virus exposure due to high population density and
SDG 11, Sustainable potentially poorer sanitation conditions. Looking forward, post-pandemic
Cities and reconstruction should target investments in sustainable infrastructure, as well as
Communities improving access to (and municipal use of) digital technologies to streamline service
deliveries.

SDG 13, Climate

Climate and environmental action could be de-prioritized in favour of near-term GDP
Action SDG 14, Life
growth. However, climate and environmental investments should form key parts of
Under Water SDG 15,
the post-pandemic economic reconstruction.
Life on Land

SDG 16, Peace Conflicts prevent effective measures for fighting COVID-19; those in conflict areas
Justice and Strong are most at risk of suffering devastating loss from COVID-19
Institution
 Aggravate backlash against globalization; but also highlight the importance of
SDG 17, Partnerships
international cooperation on public health
for goals

COVID-19 and Blended Finance

What role, then, can blended finance play in response to the myriad development challenges
caused by COVID-19?

Blended finance can play an important role in the short, medium and long term response to
the pandemic by accelerating economic reconstruction and improving pandemic resiliency,
and by turbocharging our collective efforts towards achieving the SDGs. That is, blended
finance must address the issue of risk to get private capital circulating again, scale-up
existing approaches and recycle what works, and look to bolster the domestic financial
sector to provide much-needed capital and liquidity.

What are the specific areas in which blended finance can act?

In actuality, the pandemic’s impact cannot be so neatly segmented. The SDGs are
interconnected in important ways: firstly, a deficiency in one SDG can cause a deficiency in
another, and secondly, the pandemic has caused developments that trigger multiple effects
on a range of SDGs simultaneously. For example, riots and violence in countries around the
world over the lockdown and severe economic dislocations risk raising countries’ risk
premiums, making capital scarcer and more expensive, thereby contracting their economies
and affecting a wide range of SDGs at once. The key is to get capital circulating again.

Selection of challenges in the real economy, affecting access to finance, which:

(i) have worsened in the context of COVID-19,

(ii) will affect multiple SDGs simultaneously, and

(iii) blended finance can play an important role in countering.

While the challenges and solutions presented in Table 2 may appear targeted primarily
towards the development community, they each have a possible private sector angle. For
example, while a typical international trade finance solution will involve a development
finance institution providing guarantees of letters of credit, DFIs have found opportunities to
offload some of this exposure to private sector companies (such as insurance companies),
drawn to the relatively attractive yield and very low loss rates.

We have also included two solutions, donor-supported conditional cash transfers and credit-
enhanced COVID-19 bonds, which look to alleviate the difficulties faced by governments
lacking the fiscal wherewithal to fund development outcomes or lacking the ability to easily
raise financing on the international bond markets.

Overall, the challenges and solutions in Table 2 are by no means exhaustive, but they do
provide a sense of where development institutions looking to catalyze private investment can
begin to focus their efforts in the fight against some of the key impacts of the pandemic.

Table 2: A selection of challenges in the real economy caused by COVID- 19

 Challenge caused by COVID-I 9
Reduction of financing to local financial
institutions and SMEs in developing
countries.
Increase in insolvency of financial
institutions in developing countries.
Depreciation of local currencies relative to
hard currencies (worsened by falling
commodity prices).
Fall in international trade due to lower
demand in developed world and reduced
trade finance.
Increased actual and perceived risk of
investing in developing countries.
Weakening of supply chains for essential
commodities.
Decline in Foreign Direct Investment.
Constriction of governments' fiscal ability to
fund cash transfers targeting developmental
outcomes.
Constriction of fiscally pressured
governments' ability to access international
financing.
Potential Blended Finance Solution(s)
Wholesale debt financing to local financial
institutions. SME risk sharing with local
financial institutions. Equity and quasi-
equity solutions for local financial
institutions and SMEs.
Financial institution re-capitalisation
solutions.
Local currency solutions.
International trade finance solutions.
Risk mitigation mechanisms such as
guarantees, insurance products, and first-
loss capital.
Supply chain financing mechanisms.
FDI mobilization solutions.
(Donor-supported) conditional cash
transfers.
(Credit-enhanced) COVID- 1 9 impact
bonds.

The good news is that blended finance has created and implemented solutions for all of the
challenges listed above. For each category, there are solutions that can mobilize financing in
three phases: in the short term over the next 3 months, in the medium term over the next 12
months, and in the long term. One ‘elephant in the room’ challenge in the short term is
limited private investor appetite: the large majority of potential cross-border investment will
remain on the side-lines in the short term (although networks like the GIIN’s R3 Coalition are
looking to counteract this). The benefit of blended finance here is that it mobilizes private
investors across the whole spectrum of investment – real economy companies and financial
investors, and domestic, regional and international investors. In addition, multilateral
development banks and development finance institutions are committing, and have
the financial firepower to step up activities in the short term, which can be tapered down as
financial investors return in the medium and long term.

Our intention is to follow up this piece with separate analyses of some of the individual
challenges mentioned here, providing a practical resource on the specific blended finance
solutions that can be leveraged to contribute to the fight against the impacts of COVID-19 in
developing countries. The time for blended finance at scale has truly arrived.

Background

With the aim of taking forward the success of Millennium Development Goals, the United
Nations (UN) General Assembly, in its 70th Session held on 25th September 2015, adopted
the document titled "Transforming our World: the 2030 Agenda for Sustainable
Development" consisting of 17 Sustainable Development Goals (SDGs) and associated 169
targets. The SDGs are a comprehensive list of global goals integrating social, economic and
environmental dimensions of development. Further, the SDGs are universal (for all nations -
developed, developing and least developed), interconnected and indivisible and hence
necessitate comprehensive and participatory approaches in bringing everybody together so
that no one is left behind. Countries are primarily responsible for following up and reviewing
the progress made in implementing the goals and targets at the national level till 2030.

The 17 SDGs and associated 169 targets came into force with effect from 01st January, 2016.
A set of 232 distinct global indicators were identified by the United Nations for monitoring
the progress of Global SDGs and associated targets. The SDGs are not legally binding, but
have become de-facto international obligations and have potential to reorient domestic
spending priorities of the countries during the next 15 years. Countries are expected to take
ownership and establish a national framework for achieving these goals. Implementation and
success will depend on countries’ own sustainable development policies, plans and
programmes. The 2030 Agenda also underscored the fact that quality, reliable and
disaggregated data would be needed for measurement of progress on the targets and for
ensuring that “No One is Left Behind”.

India is committed to implementing the SDGs based on the nationally defined indicators
responding to national priorities and needs. In this effort, towards integrating SDGs into
country’s on-going national and sub-national policies and programmes, at national level,
NITI Aayog has mapped the SDGs with centrally sponsored programmes of concerned
Central Ministries/Departments. Further, Ministry of Statistics and Programme
Implementation (MoSPI) developed a National Indicator Framework (NIF) consisting of 306
national indictors along with identified data sources and periodicity following due
consultation process with concerned Ministries/Departments, UN Agencies and other
stakeholders. Presently, at national level, data flow from Official Statistical System and
nearly 50 data source Ministries/Departments are involved in the process of providing data on
SDGs. MoSPI coordinates with these line Ministries for institutionalizing the data flow for
SDG indicators. NIF is the backbone of monitoring of SDGs at the national level and
provides appropriate direction to the policy makers and the implementing agencies of various
schemes and programmes. Keeping in view the localization of SDGs, States/UTs are also
carrying out similar exercises at State and District level.

Government has constituted a High Level Steering Committee to periodically review

and refine the NIF

Government has constituted a High Level Steering Committee (HLSC) on SDGs under the
Chairmanship of Chief Statistician of India (CSI) & Secretary, MoSPI with members from
NITI Aayog, Ministry of Home Affairs, Ministry of Health and Family Welfare, Ministry of
Environment, Forest and Climate Change (MoEFCC), Ministry of Finance and MoSPI to
periodically review and refine the NIF. HLSC has revised the NIF based on consultations
with line ministries, departments, UN experts and recommendations of the six sectoral
committees on SDGs, constituted by the MoSPI, for data related matters on National
Indicator Framework and Global Indicator Framework (GIF). The goal-wise distribution of
NIF (original as well as revised) is shown in the following table:
Goal
Number of
indicators in
NIF (original)
Number of
indicators in
NIF (revised)
Goal 1: No Poverty 19 22
Goal 2: Zero Hunger 19 19
Goal 3: Good Health and Well Being 41 42
Goal 4: Quality Education 20 19
Goal 5: Gender Equality 29 28
Goal 6: Clean Water and Sanitation 19 17
Goal 7: Affordable and Clean Energy 5 4
Goal 8: Decent Work and Economic Growth 40 32
Goal 9: Industry, Innovation and Infrastructure 18 16
Goal 10: Reduced Inequalities 7 8
Goal 11: Sustainable Cities and Communities 16 15
Goal 12: Sustainable Consumption and Production 17 14
Goal 13: Climate Action 4 5
Goal 14: Life Below Water 13 11
Goal 15: Life on Land 21 15
Goal 16: Peace, Justice and Strong Institutions 18 19
Goal 17: Partnership 0 11
Total Number of Indicators 306 297

ASC LEGAL COMMENTS

India is in a race against time in meeting its climate goals and greening all finance has
become an imperative. This requires concerted efforts, a cohesive approach and the
collective vision of policymakers, regulators and actors in the financial system. The way
forward is to accelerate the dialogue at the highest level and initiate a narrative around
sustainable finance.

There should be a unified approach around taxonomy, green guidelines, financial

products, as well as defining the roles of private and public sector and bankers and asset
managers. This will stimulate action to align the financial system with green finance and
in turn support the sustainable growth of the country. As investments are a function of
risk and rewards, investments in climate finance will not take off unless the risk criteria is
not recalibrated for the long term. This means putting a risk premium on every polluting
asset in India because they will go bankrupt in the coming decade.

This year marks the start of the Decade of Action. Although the COVID-19 crisis
undoubtedly brings extraordinary challenges to the achievement of the SDGs, it also
brings extraordinary opportunities for solidarity. Multilateral actors and countries
should come together to rebuild a better world and ensure healthy economic, social
and financial well-being for all.

Financing SDGs Under A New Normal:

Challenges And Response To COVID-19
Pandemic

The year 2020 has witnessed an unprecedented COVID-19 crisis where many human lives
have been lost. We have also witnessed the tremendous magnitude and speed of collapse in
economic activity– something unseen in our lifetime. This is certainly not good for achieving
the Sustainable Development Goals (SDGs) where prior to this crisis, the world was already
falling behind in efforts to achieve them.

The pandemic has led the global economy to a new conundrum. Just in the first three months,
investors moved around US$90 billion out of emerging markets, the largest outflow ever
recorded. Global growth is projected by the International Monetary Fund (IMF) to fall to -3
per cent this year, making it the worst recession since the great depression and much worse
than during the 2008-09 financial crisis.

In Asia and the Pacific alone, the drop in global demand will cost an estimated US$172
billion from trade alone, equivalent to 0.8 per cent drop of the gross domestic product (GDP)
of the region. Of more immediate concern is the COVID-19 crisis impact on fiscal position,
which exacerbates the risk of a new debt crisis in the region.

The region still has fiscal space to mitigate the costs imposed by COVID-19, with the median
fiscal balance still less than -1 per cent and debt to GDP ratio well below 40 per cent. But
even before the pandemic, the Asia-Pacific region has experienced weakening private
investment and falling tax revenues. The response to COVID-19 by large fiscal, monetary,
and financial policy stimulus to solve the crisis will, therefore, drain domestic resources from
financing the SDGs. To avoid this scenario, it is critical that policy makers take appropriate
immediate and medium-term measures for post-pandemic recovery.

The United Nations system and partner international organizations have recently outlined
measures to address the impact of the unfolding global recession and financial turmoil in the
recent 2020 Financing for Sustainable Development Report. The report urges policy makers
to take immediate steps and coordinated response to address the economic and financial
havoc wrought by the COVID-19 pandemic, which threatens to destabilize poor countries’
finances.

There are at least three immediate actions and medium-term policy responses required in
handling the COVID-19 crisis and to ensure that adequate finance is channeled to support
progress on the SDGs and those most in need. First, countries need a coordinated stimulus
package, which includes reversing the decline in aid and increasing concessional finance.
Additionally, to prevent a debt crisis, poor countries must be allowed immediately to suspend
debt payments and reassess debt sustainability beyond the crisis. Risk pooling mechanisms
also need to be considered at the regional level by establishing a regional response fund or
exploring the possibility of multi-country social bonds in financing the SDGs post-pandemic.

Second, governments and monetary authorities must continue to stabilize financial markets
by continuing to inject much-needed liquidity. Furthermore, governments must partner with
private financial institutions to roll over debt to SMEs and individuals. At a later stage, we
need to continue promoting sustainable investment, for example by requesting mandatory
disclosures, minimum standards for investment products, and requirements for advisors to
ask about sustainability preferences for investment.

Lastly, policy response must be about rebuilding better towards sustainable development in
several aspects. These include: (a) public and private investment in sustainable development
such as building resilient infrastructure; (b) strengthening social protection systems; (c)
additional investment in crisis prevention, risk reduction and planning; and (d) eliminating
trade barriers and restrictions that affect supply chains.

In addition to the above policy responses, financing sustainable development policy should
reap the potential benefit of transformative digital technologies and countries should invest
more in this area. The digital technologies have unique properties that enable inclusion and
efficiency. It is much cheaper, for example, to gather, process and search for information.
Digital goods and services can be reproduced at zero cost and have almost zero transportation
cost. But digital technologies also create inequities, uncertainty and new risks. The rise of
automation and Artificial Intelligence (AI) threatens jobs and increases wage inequality. In
this context, it is necessary to put people and decent jobs first. The public sector, for their
part, should not only aim to accelerate technological progress, but also address exclusion and
risks of discrimination, and ensure that the benefits reach the society at large.

This year marks the start of the Decade of Action. Although the COVID-19 crisis
undoubtedly brings extraordinary challenges to the achievement of the SDGs, it also brings
extraordinary opportunities for solidarity. Multilateral actors and countries should come
together to rebuild a better world and ensure healthy economic, social and financial well-
being for all.
Financing sustainable development strategies and transformations within countries

An adequate financing of the 2030 Agenda should imply putting in place policies and
regulations that send the right signals to catalyse the desired behaviours and
investments. Shaping effective policy responses requires understanding the deeper
systemic interconnections between individual goals and targets, but mostly,
assessing how they unfold at the national/local level.

Although some countries have set up policy frameworks for SDG implementation, as
observed from the Voluntary National Reviews (VNRs), only very few have
presented an associated financing plan. Thus, this effort falls short, given the
complex and ambitious set of transformations needed to deliver on the 2030
Agenda: an overarching policy that provides solely general remarks on the country’s
objectives without relying on budget allocation or on a financing plan will remain as a
mere intention, rather than becoming a vehicle for change.

In the Addis Ababa Action Agenda, Member States agreed “that cohesive nationally
owned sustainable development strategies, supported by integrated national
financing frameworks (INFF), will be at the heart of efforts”. Operationalising INFFs is
an option to foster public and private investments that are truly aligned with the
SDGs. These powerful planning tools, still overlooked by countries, can definitely
help overcome many of the existing impediments to financing sustainable
development. Once countries already know what needs to be funded laid out in their
sustainable development strategy–INFFs will map how this plan ought to be financed
and implemented.

According to the UN Report on Financing for Sustainable Development (2019, 2020),

INFFs will consider the full range of financing sources and non-financial means of
implementation that are available to countries, and therefore help define financing
strategies that are grounded in the country’s specific context and risks and that will
connect financing and related policies more explicitly with longer-term objectives–in
short, a blueprint on resources needed and where to invest them. INFFs can provide
a logical financing framework for steering synergies between SDGs, in concert with
other key drivers of sustained growth–like the entry points proposed by the Global
Sustainable Development Report (2019). Such a process will allow stakeholders and
financial actors concerned at the local, national and global levels to target their
investment efforts with the needed clarity on where their funds could provide
effective results. In the post-crisis period, such planning might prove particularly
useful in managing the emergency relief, economic recovery and long-term structural
transformation sequence of investments and action, and in avoiding lock-in situations
and path dependencies where short-term recovery investments would hamper long-
term goals in relation to inequalities reduction or environment protection, and even
increase vulnerabilities.

Reaching out to new financing actors

Although traditional financing approaches, such as ODA and domestic resource

mobilisation, remain essential, a vast amount of additional funding is needed to
finance the 2030 Agenda. Public Development Banks (PDBs) may be a prime
candidate. In 2018, Development Finance Institutions (DFIs), including development
banks, represented USD 1.9 trillion in investments. Are they fit for the purpose?
Initial evidence such as sustainability reports, strategic plans, and published
assessments of financed projects illustrate practices that might lead to think they can
become allies in this endeavour. In this respect, we can highlight the commitment,
made in the margins of the September 2019 climate and SDG summits, of the IDFC
(International Development Finance Club), which brings together 24 national or
regional DBs, to further harmonise its financial flows with the Paris Climate
Agreement and the 2030 Agenda.

International financial institutions and PDBs can play an important role in addressing
the impacts of the Covid-19 crisis and financing the recovery. Available tools to
mobilise large injections of concessional finance, like offering a diversified portfolio,
or having dedicated credit lines for on-lending should be rooted in the promises of
the 2030 Agenda to safeguard funding will be channelled to support the desired
sustainability transitions.

Harnessing the potential of innovative financial instruments

Why and under which conditions trending financial instruments such as blended
finance, bonds, artificial intelligence, or venture funds, can truly contribute to finance
the 2030 Agenda? Harnessing the potential of those tools demands real commitment
to invest in areas critical to sustainable development, and exceed the myopia of
short-termism and aversion to invest in fragile settings.

For instance, blended finance trends show a preference to invest in SDG targets
aligned with common private-sector goals, such as economic growth and
infrastructure, with less than 6% going to least developed countries, and less than
6% to social services (health and education).

Therefore, if we intend to move these instruments from ‘safe investments’ to

‘impactful investments’, the call is for a more strategic interplay between
beneficiaries, investors, areas of focus—cross-cutting transitions that catalyse
sustainable development—and targeted countries –better tailoring solutions to the
needs of developing countries.

Blended finance offers the possibility to jointly allocate resources, share transaction
costs and de-risk investments with a longer-term perspective.

Another interesting tool are bonds. There is broad portfolio of SDG investments that
could be financed through SDG bonds. Sovereign, municipal and project bonds able
to support the implementation of countries’ national plans for the SDGs have as well
a large potential within the market. However, there are still many unresolved
questions: Do they really bring additionality? What is their added-value? Do they
attract capital into investments that are more novel? Are bonds an important
innovation for sustainability or just the same business- as- usual with a new cover?

Mexico recently launched its SDG Sovereign Bond Framework, which provides clear
guidelines for the government for SDG Bond issuance. This charter comes with
attention-grabbing proposals like geospatial eligibility criteria (targeting end-
beneficiaries in vulnerable population groups), dynamic exclusion and screening
criteria (with avoided sectors and impacts, such as deforestation), and impact
reporting (beyond the sole budget allocation reporting). Drawing on Mexico’s
experience could be of use for revising other private or public bonds issued in the
market and safeguarding that they are structured under an SDG lens.

In times of crisis, the question of the added value of these financial innovations with
regard to a situation of debt also needs to be addressed: aligning with an ‘SDG
aligned sequence of investment’; assessing the starting point and the prospects for
growth, not only betting on future growth to develop debt-based instruments.

Concerted action to deliver better development solutions

The 2030 Agenda and its SDGs are about partnerships, inclusion and action. Large
private and financial players have the responsibility to look up and leverage the kind
of initiatives that make SDGs ‘actionable’. It is not just about partnering, but to bring
people in so they own the solution, they own the process. Effectively implementing
and financing the 2030 Agenda requires the establishment of forceful alliances that
have the appetite to deliver systemic solutions; partnerships that convene decision-
makers and business that are willing to back its efforts with political and institutional
capital. Above all, we need concerted action that:
i) bets on innovation,
ii) is grounded on national/ local needs and capabilities, with active
participation of civil society,
iii) which has large upfront investment with long-term financing and payback
periods,
iv) political will and participation from government authorities and,
v) employing science- based solutions that catalyse cross-sectoral
transitions.