Shaping the next generation of financing solutions to unlock private capital for social good
Global philanthropic funds, even when combined with the development or aid budgets of governments, add up to billions of dollars. Meanwhile, the cost of solving the world’s most critical problems runs into the trillions—including an estimated $2.5 trillion annual funding gap needed to achieve the Sustainable Development Goals (SDGs) in developing countries alone. Private capital is urgently needed in order to fill this gap and address pressing global challenges.
To attract more private capital, The Rockefeller Foundation is pursuing innovative finance solutions—the use of financing mechanisms to mobilize private sector capital in new and more efficient and scalable ways to solve social, economic, and environmental problems globally.
The world is currently working toward a set of ambitious targets for addressing global challenges—Sustainable Development Goals (SDGs) and the Paris Climate Agreement. The cost of implementing these agreements, however, are astronomical. Over the next decade, the UN estimates that implementing the SDGs will cost between $50 trillion and $70 trillion; the Paris Climate Agreement will cost over $12 trillion over 25 years. The critical question is: how will we pay for it all? The answer is to leverage innovative finance mechanisms that can tap into the over $200 trillion in private capital invested in global financial markets and ensure that capital is deployed effectively towards development efforts.
The Rockefeller Foundation is committed to using our philanthropic risk capital—through both grants and program-related investments (PRIs)—to develop and scale the next generation of innovative finance solutions that are needed to close the gap between global development 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 provides one model for how the development community can support and de-risk new and innovative financing mechanisms—including financial products and public-private partnerships—to mobilize large pools of private capital that have the potential to create out-sized impact.
The Zero Gap portfolio is working to:
- Create the next generation of innovative finance vehicles capable of mobilizing capital from the private sector to fund the SDGs. We aim to do this by providing early-stage support for the R&D and testing of these innovative finance mechanisms using grant and PRI funds.
- Create large-scale blended finance funds to accelerate investment toward the SDGs and the impact they seek to achieve. We plan to accomplish this objective by seeding blended capital vehicles using PRI funds.
The portfolio is a collection of bold ideas that we have sourced from around the world for how to scale funding for critical development objectives, such as energy access in Sub-Saharan Africa or restoring natural infrastructure in the Americas. A core value of Zero Gap is that finance can be a powerful tool for good. Imagine a forest resilience bond investing in wildfire prevention in California; a micro-levy that creates a stable funding stream for alleviating malnutrition in Africa; or insurance being harnessed to not only respond to the next Ebola crisis, but also to ensure better preparation for disease outbreaks.
Zero Gap Portfolio
The Rockefeller Foundation is supporting a number of innovative financing mechanisms that deliver positive social, economic, and environmental outcomes. Highlights of the portfolio include:
- Africa GreenCo – A new intermediary that aims to increase private sector investment in energy generation in sub-Saharan Africa by mitigating the credit risks associated with the current lack of creditworthy off-takers.
- BanQu – A blockchain enabled technology solution that creates economic identities for refugees and displaced populations.
- Carbon Yield – A mechanism that in real time tracks the “greenness” of individual green bonds, such as CO2 abatement, to better inform green investment decision making. [Case highlight]
- Clean Energy Investment Trust (CEIT) – An investment structure that aligns and supports institutional investments into renewable energy. [Case highlight]
- Disaster Recovery Lending Facility – a new risk management mechanism to increase the capacity of microfinance institutions to lend in post-disaster situations. [Case highlight]
- Extreme Climate Facility – An insurance product to provide African nations access to finance for climate adaptation projects. The product will track the climate change through an index and make trigger insurance payouts as countries show signs of climate change. [Case highlight]
- Forest Resilience Bond – A pay-for-performance mechanism for private investors to invest in forest restoration that prevents wildfires and increases water outputs in drought prone areas in California. [Case highlight]
- Land Degradation Fund – focused on profit-generating sustainable land management and land restoration projects worldwide. [Case highlight]
- Outbreak and Epidemic Insurance – An insurance product to provide African nations with timely resources to contain the spread of deadly pathogens at the first signs of a disease outbreak.
- REDD+ Acceleration Fund – An investment fund designed to build the market for REDD+ carbon credits. [Case highlight]
- Reef and Beach Resilience Insurance Fund – An insurance fund to protect and maintain natural infrastructure. [Case highlight]
- Southeast Asia Disaster Risk Insurance Facility (SEADRIF) – a sovereign insurance facility in Southeast Asia to effectively manage the risk and costs of natural disasters. [Case highlight]
- Social Success Note – A new pay-for-performance structure to finance high-impact small and medium-sized enterprises. [Case highlight]
- Tropical Forest Finance Facility – An investment fund structured as an endowment that ensures a sustainable flow of incentive payments for Tropical Forest Nations to avoid deforestation and other climate-destructive land-use practices. [Case highlight]
- Water Levy – A micro-levy on bottled water to support water, sanitation and hygiene projects around the world.
- Women’s Livelihood Bond – A publicly listed debt product to raise capital for small and medium-size enterprises and microfinance institutions that support women’s livelihoods. [Case highlight]
A Pioneering Legacy: Impact Investing
The Rockefeller Foundation has a long history in supporting innovations that seek to catalyze private sector investment for social and environmental good. In 2007, the term “impact investing” was coined at The Rockefeller Foundation’s Bellagio Center, putting a name to investments made with the intention of generating both financial return and social and/or environmental impact. Since then, the Foundation has worked to build the infrastructure for the impact investing field to take hold. Among our work, we have supported the Global Impact Investing Network (GIIN), B Lab, and GIIRS.
Featured Staff and Senior Advisors
Mike Muldoon, Director for the Innovative Finance Initiative, explains the Foundation’s approach to impact investing through the Zero Gap portfolio.
Zero Gap Senior Advisors are senior industry leaders supporting our work, providing advice on viability, design, and pathway to scale of solutions in the portfolio.
Large and entrenched social, economic, and environmental challenges are invariably accompanied by large and…, Managing Director, The Rockefeller Foundation