Priming SDG Markets: Can International Donors and Implementers Create An Impact Investment Pipeline?
Leveraging the power of markets is critical to fulfilling the bold ambitions of the United Nations Sustainable Development Goals (SDGs). The SDGs are a collection of 17 global goals set by the UN General Assembly in 2015 to end poverty, protect the planet, and engender prosperity for all by 2030. Estimates suggest that achieving the SDGs requires $2.5 trillion in additional annual investment, which has created a consensus around the urgent need to forge effective mechanisms for cooperation between the international donor community and the private sector. International donors have approached this challenge by focusing on blended finance structures in which a combination of public, philanthropic, and private sectors invest together. But while the growth of blended finance is notable and essential, it is constrained by bottlenecks of transaction costs and project pipeline development. To fulfill the SDGs, the international donor system must re-orient itself to better enable the efficient translation of its grant-funded programs into opportunities capable of absorbing private capital and reaching commercial scale.
In pursuing this shift, can the international donor community apply lessons from other systems that have successfully mechanized the commercialization of social innovations? In many advanced economies, the universities, research institutes, and other organizations that receive grant funding from public or philanthropic sources have well-established processes for packaging these projects into early-stage companies for the private sector to bring to the next phase of commercial development. The international donor community has many of the same components that could be adapted to produce more investable innovation opportunities. There are large-scale donors that provide billions in grants and service contracts to private implementing organizations (IOs) to execute projects ranging from early-stage product design to last-mile distribution and service delivery. Also, there is a diverse, growing field of impact investors seeking early-stage investment opportunities aligned to the SDGs. Could donors’ IOs provide the systematic coordination needed to transition donor-backed projects to private markets at scale?
In a study supported by the UBS Optimus Foundation, the Milken Institute’s Center for Financial Markets analyzed how the donors’ IOs could become a fulcrum for generating more market-based solutions and better outcomes for children globally. Through greater collaboration across donors, their IOs, and investors, there is a path for private capital to leverage commercial opportunities and lessons learned seeded by international donors. Achieving the SDGs requires systemic change and integration across donors, their IOs, and investors. This research has identified a number of issues and strategies that stakeholders should consider to provide a new way for priming SDG markets for private capital.