More than $12 trillion in private investment is needed globally to address the challenges to meeting the Sustainable Development Goals (SDGs) by 2030 (Business and Sustainable Development Commission, 2017), in addition to the public investment suggested throughout this report. The World Bank estimates that low- and middle-income countries face investment needs of $1.5 trillion to $2.7 trillion per year (4.5–8.2 percent of their combined gross domestic product [GDP]) between 2015 and 2030 to meet infrastructure-related SDGs that depend on policy choices (Tippet, 2020; Vorisek and Yu, 2020). Accelerating global progress on the SDGs requires access to this capital and will necessitate new models and partners to finance projects and transitions, as well as greater openness to new customers and a willingness to redefine risk.
Financing can support realization of many of the opportunities identified throughout this report, including food system transformations, carbon dioxide removal, and sustainable urbanization. Yet, unlocking this capital is complex. Public companies are accountable to their shareholders. Start-ups are pioneering exciting innovations but with limited capital. The places that need the most investment are often those with the most limited access to capital. Many subnational governments lack creditworthiness or access to capital markets and/or may not be able to issue debt to finance needed and transformational projects. Municipal financing is constrained by limited access to capital markets for transformational projects while balancing emerging economic opportunities with environmental risks (UN, 2019b). The risk of inaction, including the impact on financial investments, must
be taken into account. There is a need for innovation in microfinancing for small-scale SDG-related projects, and the U.S. Forest Service’s Community Forest Program could serve as a model for rural and indigenous communities (USFS, 2022).
CASE STUDIES AND SYNERGIES
Despite these challenges, opportunities exist to realize tangible and intangible benefits from SDG-related investing. Place-based initiatives can be attractive investments for private capital, whether alone or through public-private-philanthropic (P3) partnerships. For example, Invest NYC SDG has attracted the private sector to sustainable investments in one of the most investor-focused cities on the planet (Box 9-1). The demand for positive ESG (environmental, social, and governance) investments creates demand for more blended finance options that are favorable to public, private, and other projects with significant and measurable social benefits. This presents opportunities for investing alone, through new P3s, or through other partnerships. Impact investing, development aid, and concessionary capital could jumpstart a project or a partnership that provides access to previously underserved markets. As one example, Hawai‘i Green Growth was intentionally designed as an economic growth strategy (see Chapter 3).
Workshop presenters shared strategies to increase financing to achieve the SDGs. First, cross-sector collaboration is essential to unlock the combined capacity of the private sector, public sector, and community. All relevant stakeholders including local communities must be at the table to collaboratively set goals, commit to action, and agree on metrics to assess results. Second, blended finance offers an opportunity to increase the amount of overall resources while offsetting some risk (OECD, 2021a). The private sector understands that investments take time to put in place in other sectors; this mindset should apply to sustainability projects as well, and multisector partnerships that include government investment may help to remove regulatory impediments. Examples are numerous (Table 9-1). Across the six sectors in the table, the greatest level of innovation and capital mobilization has been observed in the renewable energy and the built environment sectors (NYU, 2021).
Through partnerships such as the United Nations (UN) Global Compact (and Global Compact USA), private-sector companies are setting ambitious targets for themselves and their peers (Gordon, 2022). This is made measurable and comparable through benchmarks developed by the World Benchmarking Alliance (Box 9-2) as one aspect of operationalizing the SDGs. The private sector is also working to establish integrated reporting standards for the ESG measures to which companies align their strategic planning, investments, and disclosures. A shared, transparent, and global set of standards for ESG reporting and evaluation is emerging from the Value Reporting Foundation,1 a consolidation of ISSB and
1 The Value Reporting Foundation merged with the International Financial Reporting Standards Foundation in August 2022. See https://www.ifrs.org/issued-standards/ir-framework.
TABLE 9-1 Landscape of Financing Instruments for Capital to Make Impact
|Debt||Private Equity and VC||Other|
|Built Environment Sustainable Mobility||Tax Exempt Bonds, e.g., Betances Residences Green Bonds, e.g., MTA Green Bond||Accelerators e.g. The Urban Future Lab New Business Models, e.g., Carma; Bay Area Rapid Transit (BART)||Government subsidies/Philanthropic Grants Capital Leasing; Public-Private Partnerships; Grants|
|Renewable Energy||Asset-Backed Securities; Property Assessed Clean Energy (PACE); Green Bonds||Power Purchase Agreements; Tax Equity Financing; Real Estate Investment Trusts (REITs)||Energy Services Agreements; Energy Performance Contracts|
|Waste||Variable Payment Obligations, e.g., ReFED||Venture Capital, Project Finance, Private Equity, e.g., Closed Loop Partners||Government subsidies/Philanthropic Grants and “Venture Philanthropy,” e.g., SEACEF|
|Food and Health||Microloans, e.g., Farm Service Agency (FSA)||Venture Capital, e.g., Pod Food||Crowd Funding e.g., Brooklyn Grange|
|Climate Resilience||Environmental Impact Bond e.g., DC EIB||Venture Capital, e.g., Quantified Ventures||Catastrophe Bond e.g., FEMA Catastrophe Bond|
SOURCE: NYU, 2021. Reprinted with permission from the NYC Stern Center for Sustainable Business.
SASB and other frameworks previously in competition with one another and individual corporate structures. From the Value Reporting Foundation:
In an era where the impacts of global pandemic, climate change and growing inequality are intensifying, the concepts of sustainability and intangible value have grown in importance. Capital markets must evolve to deliver long-term value to shareholders while also helping secure the future of our people and our planet—improving reporting is an important means to this end (Medress, 2022; Value Reporting Foundation. 2020).
KEY RESEARCH PRIORITIES FOR FINANCING TO ACHIEVE THE SDGS
The committee proposes the following areas for further research to operationalize sustainable development in the areas of financing for sustainable development:
- Explore place-based initiatives in need of private investment, such as community-supported initiatives, or other means of providing capital for P3, such as those identified through the Invest NYC SDG initiative (Koval, 2022; NYU, 2021). Adam (2022) also raised the issue of near-shoring and localized value chains enabled by digitalization, the mission of the Digital Economy for Africa initiative (The World Bank, 2022a).
- Examine key ways to unlock financing for the SDGs, including local initiatives to sufficiently scale or tranche themselves to meet investor demand, and whether barriers such as debt limits, reporting requirements, and jurisdictions limit this scale.
- Identify brokers needed to “matchmake” the capital investment required to accelerate projects that will advance the SDGs, as well as to identify entities in the public, private, and nonprofit sectors with funding needs.
- Develop strategies to advance adoption of emerging integrated reporting standards that help define “stakeholder value” as opposed to shareholder
- returns and deter “greenwashing,” and monitor whether aligned companies and investors outperform non-ESG-aligned portfolios over time.
- Explore costs, benefits, challenges, and opportunities relating to certification standards such as Climate Bonds Certification, Green Bond Principles (as described in Chapter 6), and SDG Bonds (Dimovska, 2021). It would be useful to examine whether these standards could be integrated into social financing projects in cities (e.g., housing building projects).
POSSIBLE ACTIONABLE STEPS FOR FINANCING TO ACHIEVE THE SDGS
The committee proposes the following possible actionable steps to operationalize sustainable development in the area of financing to achieve the SDGs:
- Public, private, and other organizations could create more blended finance options given the growing demand for positive ESG investments where social benefits are significant and measurable. With these options, more capital could be provided by local governments and new public-private or other partnerships. Impact investing, development aid, and concessionary capital could jumpstart a project or a partnership that provides access to previously underserved markets.
- National governments could provide cities and regional governments with the creditworthiness or access to capital markets so that they can issue debt to finance needed transformational projects. Risk could be redefined to account for the cost of inaction.
- Private-sector companies could participate in partnerships like the UN Global Compact (and Global Compact USA) that are setting ambitious targets for themselves and their peers, and/or transparently measure themselves against benchmarks developed by the World Benchmarking Alliance.
- Funding agencies and philanthropic organizations could promote additional investment into the development of local value chains and sustainability innovations, using a circular economy framework in the context of the COVID-19 pandemic, geopolitical conflict, and climate change.
- Governments could support research and private-sector initiatives relating to renewable energy, such as those that expand electric car charging stations, build railroads and bike lanes, and subsidize public transportation.
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