The sustainability agenda encompasses the greatest economic, social and environmental risks and rewards of the next half century. At least one trillion dollars of incremental annual private sector investment is needed in developing countries to meet the UN Sustainable Development Goals by 2030. Clean infrastructure accounts for more than half of the overall investment gap. The total economic prize of achieving the SDGs could be worth over 20 trillion dollars a year by 2030.
Global institutional investors manage over 100 trillion dollars of assets, of which only about one trillion dollars is allocated to impact investments and only a tiny fraction of these to developing countries. Under current asset allocation models, fiduciary and regulatory constraints, the amount of capital available in the financial system to meet the UN SDGs in developing countries is orders of magnitude smaller than what is needed.
Blended finance is essentially a transaction between donors and investors, in which risk mitigation and/or enhanced returns are sold in exchange for investment in social and environmental outcomes. The addition of an impact dimension allows for new efficient frontiers to be found, offering a higher return for a defined level of risk or a lower level of risk for a defined return. By establishing a global marketplace to work through the blended finance cost curve, governments can mobilise hundreds of billions of private capital annually.
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