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Operationalizing Sustainable Development to Benefit People and the Planet (2022)

Chapter: 9 Financing to Achieve the Sustainable Development Goals

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Suggested Citation: "9 Financing to Achieve the Sustainable Development Goals." National Academies of Sciences, Engineering, and Medicine. 2022. Operationalizing Sustainable Development to Benefit People and the Planet. Washington, DC: The National Academies Press. doi: 10.17226/26654.

9

Financing to Achieve the Sustainable Development Goals

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.

CHALLENGES

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

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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

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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.

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BOX 9-1
Engaging with the Private Sector: Invest NYC SDG

New York City (NYC) has been a leader in aligning its sustainability plans with the Sustainable Development Goals (SDGs), beginning with the country’s first Voluntary Local Review. The New York University Stern Center for Sustainable Business saw the opportunities to support implementation, reported Marianna Koval, and launched a place-based initiative in the city to develop projects to advance the United Nations (UN) SDGs and attract private investment.

Invest NYC SDG

Invest NYC SDG began with $760,000 in funding for two years. It is now funded for five years and has raised a total of $3.5 million with a small staff, bolstered by undergraduate and graduate student teams, executives, and fellows (including retired experts and others who have provided pro bono advice). A governing board of 14 people includes UN, business, government, and community representatives. Koval noted the center is within an academic institution, but it is not a research institution, an incubator, or an investor. “We recognized our value as a catalytic matchmaker, identifying opportunities and connecting.”

Six focus areas have been mapped against the SDGs: sustainable mobility, built environment, waste, renewable energy, climate resilience, and food and health. The center developed criteria to identify high-impact projects that could attract private investment and metrics to measure success, inspired by the book Drawdown. Convenings brought sectors together. As Koval pointed out, the private sector cannot do it alone; the sustainable goals are a political document and the city controls the infrastructure. But the city will not be successful without the private sector. COVID-19 and the murder of George Floyd galvanized the community. Invest NYC SDG made economic equity core to all efforts, which include the following:

Riker’s Island: This 413-acre island in the East River currently has 10 jails housing 5,000 people. Considered a symbol of injustice, the facility is scheduled to close in 2027. Invest NYC SDG is helping to reimagine this large tract of city-owned land as a site of growth and regeneration through urban agriculture.
Equitable Commute Project: During the pandemic, most New Yorkers could not work remotely yet live in transportation deserts. Micro-mobility has worked in other cities, but cost has put it out of reach for lower-income New Yorkers. The Equitable Commute Project is a collaboration to create ownership access to electric commute options for frontline Bronx and Brooklyn workers through a novel lending program for people without credit histories.
Decarbonization of buildings: Seventy percent of NYC’s greenhouse gas emissions come from 1 million buildings. The Carbon Mobilization Act, landmark legislation passed in 2019, offers both sticks (tax) and carrots (access to low-cost capital, called the Property Assessed Clean Energy Program, or PACE) to decarbonize buildings. Invest NYC SDG worked with the mayor’s office to support a data tool to learn who owns and who

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holds the mortgages of high-carbon buildings. The effort will target not only property owners, but also mortgage lenders to increase the use of PACE. NYC SDG is working to develop bank leadership so that banks will proactively accept PACE loans and themselves become PACE lenders.

References

Invest NYC SDG Initiative website, https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/invest-nyc-sdg-initiative.

Koval, M. 2022. Workshop Presentation, May 17, 2022.

Koval, M. 2021. Creating a Sustainable, Inclusive, and Resilient Future Economy in New York City. https://wagner.nyu.edu/files/nyc2025/Koval_NYC%20Sustainable%20Inclusive%20and%20Resilient%20Goals_NYC2025_101921.pdf.

McKibben. B. 2017. Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming. New York, NY: Penguin Books.

The Equitable Commute Project, https://equitablecommuteproject.carrd.co.

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.

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BOX 9-2
Financing Sustainable Development: Benchmarking as a Tool

Benchmarks equip investors, governments, civil society, individuals, and companies with the information they need to engage and step up to achieve transformational change (Muusse, 2022). The World Benchmarking Alliance (WBA) was launched in 2018 based on the belief that the private sector can contribute to and benefit from the global ambition of the Sustainable Development Goals (SDGs), and that corporate performance benchmarks are powerful levers for change. WBA has identified seven systems that offer a strategic framework for achieving the SDGs: food and agriculture, decarbonization and energy, urban, digital, and nature and biodiversity, with social at the core and the financial system essential to unlock change.

Keystone Companies

WBA assesses, measures, and ranks 2,000 of the world’s most influential companies on their contributions to the SDGs and other internationally accepted norms using free, publicly available data. They are called “keystone companies” because of their disproportionate influence on the structure or functioning of the system in which they operate. Profiles and analyses of these companies, called SDG2000, are available on the WBA website. Among the 2,000 companies are 400 financial institutions. They include banks, insurance companies, asset managers, and asset owners (e.g., pension funds, sovereign wealth funds, and development finance institutions). Financial institutions have a dual role—being benchmarked themselves through the WBA Financial System Benchmark and mobilizing companies in the other systems through their financing activities.

Financial Benchmarking

The financial institutions are assessed on their readiness to address global sustainability transitions and their contributions to the 2030 Agenda. The WBA benchmark has three broad measurement areas: governance and strategy, respecting planetary boundaries, and adhering to societal conventions, with a total of 32 issues and indicators. This benchmark, expected for completion later in 2022, is a “race to the top” to illustrate how these 400 companies compare against one another and to understand the gaps across the areas.

Investor Space

Financial institutions also play a key role across the economy as investors, lenders, insurers, and other roles. Benchmarks empower them in their provision of analysis, identification of sustainability risks and opportunities, and assessment of company performance, as well as facilitate their engagement across sectors and allocation of capital. Twenty-seven “investor allies” are working with WBA through active ownership, knowledge sharing, market shaping/signaling, and investment research and/or fund creation. Investors are also using company scorecards to inform one-on-one engagement. Others are replicating the WBA methodology and systems lens in their own work.

Collective Impact Coalitions

WBA provides a space for allies to come together and develop coordinated action across sectors, builds upon existing efforts to raise the bar for all, mobilizes

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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

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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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