By Charlotte Petri Gornitzka, Chair of the OECD Development Assistance Committee
Chairing the OECD Development Assistance Committee (DAC), I often find myself reminding members to uphold their aid levels and to use their public finance resources to stimulate private capital for sustainable development.
It’s a balancing act. Governments risk being accused of shying away from commitments when we talk too much about the “innovative financing tools” and about involving the private sector for development outcomes. It is true that upholding aid levels and directing them to countries most in need will continue to be important to leave no one behind. However, OECD countries must continue to move from talking to taking action when it comes to stimulating private finance.
Why? Faced with an estimated USD 2-3 trillion annual funding gap for achieving the Sustainable Development Goals, public or philanthropic capital will be able to meet only half of it; opportunities for the private sector, thus, are significant.
This is most obvious in the infrastructure sector. The Sustainable Development Investment Partnership (SDIP), of which the OECD is a partner, has a pipeline of almost 100 projects where public and private finance are blended to maximise efforts and release capital. The new OECD report ‘Making Blended Finance Work for the SDGs’ shows that today, 10 out of 30 DAC members have substantial blending operations and more than half of the members have growing portfolios. Another OECD survey showed that DAC members mobilised more than USD 81 billion from the private sector between 2012 and 2015, but more is needed. The newly released DAC Blended Finance Principles are great support for members and other stakeholders when advancing this work.
What is clear is that blended finance is estimated to be a USD 50 billion market, according to another report on blended finance, launched by the Blended Finance Taskforce Report during Davos. Development banks work with private investors mostly in renewable energy but need to scale up and expand operations to more sectors. By doing so, the taskforce’s report estimates that blending could account for USD 1 trillion in financing.
Yet, private sector engagement goes beyond financing. Business conduct and sustainable value chains also have the potential to deliver substantial progress for the 2030 Agenda. Consider the Global Battery Alliance, for instance, as one promising example of this more comprehensive view.
We know that the transformation from fossil fuels to renewable electricity will boost the battery industry. We also know about the major challenges developing countries face when raw materials needed for batteries are extracted with unacceptable human and environmental costs, and we lack the infrastructure for recycling the enormous amount of lithium-ion and lead-acid batteries. So for its part, the Global Battery Alliance is a multi-stakeholder partnership with the potential to contribute to a supply chain that is fairer and more inclusive. Through this partnership, countries with raw materials will be able to grow their sales in a sustainable manner, such as the supply of cobalt from the Democratic Republic of the Congo, where copper and cobalt exports account for 80% of the export revenue. The alliance will increase possibilities for applying sustainability standards and guidelines to recycling plants for batteries in countries like Cameroon, Ghana or Mozambique in their efforts to accelerate and scale up production. This is in line with the OECD Due Diligence Guidance which offers guidelines for sourcing minerals and metals from conflict-affected and high-risk areas to respect human rights.
Through multi-stakeholder partnerships like the Alliance, developing countries are able to turn challenges into opportunities. Such approaches change the dynamic of co-operation with stakeholders, including donors acting as shareholders. OECD members have a chance now to support capacity development in regulating bodies, support civil society in its role to raise awareness and follow-up on the behaviour of large companies, the finance sector and governments and support private sector sustainability initiatives and market transformation. What we also realise is the importance of relationship-building and networks to achieving the SDGs.
Moving from talking in theory about public-private partnership to actually closing the financing for a specific project in a specific country in the most sustainable, responsible and inclusive way is impossible without mutual interest and shared trust. Stakeholder meetings and well-attended platforms provide avenues for joining forces and exploring new ways of working to achieve development results.
At its best, the World Economic Forum serves as one of those platforms along with the OECD. Combining our strengths will help us to scale up financing for development and make sure no one is left behind.