OECD Development Assistance Committee - Summary report on the Conference of the Community of Practice on Private Finance for Sustainable Development!

OECD Development Assistance Committee (DAC) - Summary report on the Conference of the Community of Practice on Private Finance for Sustainable Development (CoP-PF4SD)

SUMMARY REPORT

CoP-PF4SD Conference:?Time to step up private finance for the SDGs

31 January – 1 February 2023

The deadline to meet the 2030 Sustainable Development Goals (SDGs) is rapidly approaching. Yet the financing gap stands at a staggering USD 3.9 trillion – and figures on mobilisation of private finance lag far behind, reaching USD 51.3 billion in 2020.

This year’s virtual OECD DAC Community of Practice on Private Finance for Sustainable Development (CoP-PF4SD) event focused on the need for urgent action – bringing together experts from across the development finance ecosystem to discuss how to achieve both scale and impact when mobilising private finance for the SDGs.

The event centred around discussions on critical policy topics: blended finance more broadly, and with respect to understanding how donors can unlock private finance with the support of Green, Social, Sustainability and Sustainability-linked (GSSS) bonds as well as for climate action more generally, while ensuring good practice impact approaches.

Between the two days, over 950 participants joined from more than 80 countries– from organisations including UNDP, GIZ, Sida, the EIB, IFC, FCDO and many others. This broad participation underscored the interest in approaches to mobilise private finance for sustainable development – while stressing the need to close the gap between ambitions and realities in the mobilisation challenge.

Opening and Keynote

The conference opened?with high-level speeches by the Luxembourg Development Cooperation and Humanitarian Affairs Ministry, the U.S. Department of the Treasury, the European Commission, and the OECD Development Co-operation Directorate – all underlining the high importance of private finance mobilisation for policymakers.[1]

The speakers expressed concern about the apparent gap between stated collective ambitions and realities in?private finance mobilisation, as for example shown again by the?latest OECD data?on mobilisation.?Speakers noted?how in a time of poly-crisis, meeting the SDGs will only be possible through a fully integrated approach between domestic, international, private and public finance. To this end,?they highlighted the active role that governments must play in using public resources more strategically through blended finance and in addressing foundational issues to strengthen the enabling environment for private sector investments more broadly.?They also shared successful initiatives and stressed the importance of a common understanding of sustainable investment practices, and of recognised labels and impact standards.

1?Alexia Latortue’s speech, published on the U.S. Department of the Treasury website, can be found?here.

Time to reflect – Benchmarking ambitions with realities in blended finance

In 2017, the DAC High Level Meeting approved policy-level principles for Blended Finance to back efforts to scale up resources flowing towards Blended Finance instruments. The session brought together panelists who all have been part of the efforts since 2017, to (1) take stock of ambitions laid out in the development of the OECD DAC Blended Finance Principles and associated Guidance, (2) match those with the realities blended finance is facing today, while (3) introducing an action moment on achieving the mobilisation ambitions with blended finance.

The panel discussion took stock of current efforts in scaling-up blended finance and alluded to what still needs to change to achieve significantly larger volumes. Key takeaways included:

• Blended finance is not only about the money. At a transaction level, it needs consolidated efforts to get from pipeline development to financial close. Project risks and gaps need to be well identified, and blended finance needs to be tailored to address these. At the policy-level, it is crucial to put in place the right institutional set-ups on the development provider side that allow for in-donor and across-donor coherence, as well as stronger integration of the public and private sectors. Strong, regular engagement needs to exist between all these actors.
• To scale-up blended finance, it was emphasized that focusing on “new” and “first time” approaches will not deliver scale. Many smaller projects can also be conducive to scale. At the same time, excessive replication may foster fragmentation, while local differences need to be considered.
• A persistent challenge to unlocking private finance where it is needed most was identified, including social sectors and LDCs. Also noted was the clear role for the public sector to take greater risks to start using the market-building capacity of blended finance.
• To strengthen policies and implementation across policy communities, a persistent need for greater transparency on financial risks and impact in blended finance was articulated.

Time to align – The role of donors in the GSSS bond market

How can donors better support the GSSS bond market in developing countries? The session tried to give a multifaceted answer to this complex question by convening experts from a breadth of development finance and private sector institutions. It covered topics across pertinent policy areas for GSSS bond market development: investment, insurance, issuance, (market)-infrastructure and impact. Speakers also gave their views on seven draft recommendations for opportunities of closer coordination between development finance actors presented by the OECD.

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Panellists highlighted:

• A common understanding of what constitutes (and what does not constitute) a Green, Social or Sustainability bond is still lacking. This is detrimental to increased coordination between donor institutions but also hinders attracting investors with less experience in ESG investing.
• Technical assistance remains crucially important but should target not only issuers but also market regulators and administrators. South-South exchanges and peer learning can be ways to increase GSSS bond issuer uptake.
• The development of mature and bankable projects was stressed as an area of importance for donors to focus on. Simplicity around bond preparation was also highlighted to ensure donor take up.
• GSSS bonds can be a very powerful instrument, but debt sustainability concerns of the issuer and underlying market fundamentals need to always be taken into consideration to ensure sustainability of support.
• Guarantees and other blended finance instruments have to be used in a catalytic and demonstrational way, as the ultimate goal is to pave the way for private sector actors to enter new sectors or markets on their own.

Opening and Keynote

The second conference day opened with keynote addresses from the Norwegian Ministry of Foreign Affairs, the OECD Development Cooperation Directorate and NORAD. The comments emphasised?the dual challenge facing policymakers: using available resources in a catalytic way while increasing the amount of investable SDG projects. The role of collaboration between countries and stakeholders was also stressed, while also making sure that all efforts are additional and allow the scaling of impact.

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Time for impact – Standardising impactful approaches to working with the private sector?

The session opened with the launch of the Guidance on OECD-UNDP Impact Standards for Financing Sustainable Development. The Standards constitute a best practice guide and self-assessment tool for development finance actors seeking to optimise their positive contribution to the SDGs, promote impact integrity and avoid impact washing. The new accompanying Guidance provides detailed support in aligning with each of the four standards:?impact strategy,?impact management approach,?transparency and accountability, and?governance. In particular, the standards support organisations in revising their work in these four areas to help them achieve the SDGs.

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Panellists discussed the importance of impact standards and the remaining challenges that public and private actors face in measuring and managing impact. Key points included:

• Progress has been made in getting shareholders of DFIs and MDBs to value impact measurement. Now, DFIs and MDBs have a special responsibility to drive high impact measurement standards and practices.
• Panelists discussed how impact standards are useful because they (i) provide?organisations?with a checklist against which to review their existing systems and strategies, and (ii) are an opportunity to validly signal the broader impact of their work.?
• An important next frontier for reporting is the development of standardised metrics that quantify impact, are understandable to stakeholders, and hold actors accountable. Measuring and reporting on impact with high quality data also necessarily needs to come at a reasonable cost.?
• Several challenges for impact reporting continue to exist – such as the confidentiality of information, and the need for greater information disclosure. Where possible, impact data quality assurance is also?significant.

Time to scale – Unpacking the promise of blended finance for climate

The session focused on climate action – and the role that blended finance can have in it. It began with a reminder that blended finance is powerful, but in some contexts, it may not be the best tool due to binding constraints – such as the regulatory framework, infrastructure, or counterproductive subsidies in place.?A presentation of the?latest OECD?data revealed that only 32% of private finance mobilised by official development finance interventions contributes to climate action, of which a large share supports mitigation activities. The funds are also concentrated in only a few sectors (banking and financial services, energy) and largely target middle-income countries.

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The panel discussion focused on successful programmes and remaining challenges in scaling blended finance for climate action. Some important takeaways included:

• In the climate space, mobilisation of private finance by development actors has succeeded already in areas such as mitigation. As a take-away, development actors should promote measures that increase predictability of project cash flows.
• There is a necessity for the development finance community to accept greater risks in emerging markets. In particular, local currency risk was identified as a significant obstacle to investors.
• There is a need to prevent financial products from being greenwashed – which means defining standards and local taxonomies and encouraging disclosure of data.
• A call was made for a system of knowledge sharing between developing countries with the aim of sharing best practice examples of blended finance approaches in climate action.

• Review of OECD DAC Blended Finance Guidance:?The two-year process of strengthening the?OECD DAC Blended Finance Guidance?– a handbook on putting the OECD DAC Blended Finance Principles into practice – was kicked off during the conference. This will ensure that it stays relevant to new obstacles and a changing context.?
• Upcoming publication of GSS bond report:?The?OECD report on ‘GSS bonds – how can donors be greater than the sum of their parts in support of the GSS bond market?’ will be published soon – keep an eye out for this!
• PF4SD – What’s New?newsletter coming soon:?Check your inbox for our newsletter, which will make sure you’re up to date with all CoP-PF4SD events, and latest and upcoming policy publications.

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[1]?Alexia Latortue’s speech, published on the U.S. Department of the Treasury website, can be found?here.