Innovative Finance is Key to Affording the Global Goals
This post is part of a series on Advancing the Global Goals.
Last year, the world set ambitious targets for addressing global challenges, agreeing on the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. The cost of implementing these agreements will be astronomical. Over the next decade, the UN estimates that implementing the SDGs will cost between $50 trillion and $70 trillion, and the Paris Climate Agreement will cost over $12 trillion over 25 years. At a time when the world economy is in a fragile state, Overseas Development Assistance is in decline and being redirected towards peace and security efforts, the critical question is: how will we pay for it all? While philanthropy provides a few hundred billion dollars a year, it is far less than what is needed. The answer is to leverage innovative finance solutions that can tap into the over $200 trillion in private capital invested in global financial markets and effectively deploy these funds towards development efforts.
Innovative finance represents a set of financial solutions that create scalable and effective ways of channeling private money from the global financial markets towards solving pressing global problems.
As society’s provider of risk capital, philanthropy has over the years championed the development of innovative finance solutions that have shown how to successfully enable, accelerate, and harness private capital markets for public good.
The Rockefeller Foundation is committed to using our philanthropic risk capital to develop the next generation of innovative finance solutions that are needed to close the gap between global development’s funding needs and the resources that are currently available. We call this initiative Zero Gap. Working at the intersection of finance and international development, Zero Gap offers a model for how the development community can support and de-risk new and innovative financing mechanisms to mobilize large pools of private capital to address the pressing social, economic and environmental challenges of our times.
The Zero Gap portfolio has a range of financial mechanisms which have been purposefully designed to better global humanity, in alignment with the SDG’s laid out by the United Nations. To enhance the resilience of regions exposed to epidemics, Zero Gap is grant funding the development of an Outbreak and Epidemic insurance solution. This insurance will not only provide a timely response in the wake of the next epidemic, but is also designed to build better preparation. Another example is the Forest Resilience Impact Bond, a pay-for-performance mechanism to fund wildfire prevention activities in California. The bond provides a means for protecting ecosystems, while also offering private investors a return. UNITLIFE, launched at a UN event last year to coincide with the adoption of the SDG’s, is a micro-levy on the extractives industries in Africa, e.g. 10 cents on a barrel of oil, dedicated to combating chronic malnutrition. This fee is inconsequential to the competitiveness of the industry, but when aggregated across companies and countries generates a sizable funding stream for alleviating malnutrition in Africa. And lastly, the Re.bound program is designing resilience bonds that not only will seek to manage the financial risk from catastrophes in U.S. cities, but also promote investment in infrastructure that mitigates physical risk posed by the disaster.
The only way to close development’s precarious funding gap is to make a sustained commitment to innovation—innovation in developing novel financing mechanisms and enabling public policy interventions. Collectively these innovations will amass the power necessary to mobilize the private sector capital needed to realize our sustainable development goals.