Presentation by Amar Bhattacharya during the OECD-UNDP G20 Workshop in 2018

1. OECD-UNDP G20 Workshop
Paris, November 5, 2018
Financing for Sustainable Development
Amar Bhattacharya
Brookings Institution
1

2. Investment area
Development
investment needs
Incremental climate
mitigation and
adaptation investment
needs
Total Investment
needs
Health 68-87 1-1.4 69-89
Education 194 0 194
Social protection ? ? ?
Agriculture and food security 125 22 148
Access to modern energy 265-289 55-57 321-347
Access to water and sanitation 28 14-17 42-45
Telecommunications infrastructure 361 35 396
Transport infrastructure 189 0 189
Ecosystems including biodiversity 11-28 ? 11-28
Data for SDGs 0.5 0 0/5
Emergency response and humanitarian work 8-23 > 8.23
Total 1251-1327 128-133 1378-1459
Source: Schmidt-Traub (2015)
Low- and lower-middle income countries need $1.4 trillion per year
to achieve the SDGs
SDG investment needs in low- and lower-middle income countries (average for 2015-2030 in US$ billion)
2

3. 3
0
5
10
15
20
25
30
35
40
45
2000-2009
Average
2004-2011
Average
2012 2013 2014 2015 2016 2017
Advanced Economies Commonwealth of Independent States
Emerging and Developing Asia Emerging and Developing Europe
Latin America and the Caribbean Middle East, North Africa, Afghanistan, and Pakistan
Sub-Saharan Africa
Source: IMF (2018)
Investment trend by region (% of GDP)

4. LICs and LMICs face a big challenge in expanding public spending
Source: Bhattacharya and Kharas (2016)
Note: Figure reproduced and adapted from
Kharas and McArthur, “Nine Priorities for
Action at Addis”
Domestic revenue plus ODA across income levels, 2010
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5. Median Per Capita GDP Growth in LIDCs
(In percent)
Source: IMF (2018)
Scaling up SDG investment is challenging due to slow growth,
low investment, and declining fiscal balance in LIDCs
Recent Fiscal Trends—Revenue, Investment, Expenditure and Fiscal Balance
(Percent of FY GDP, PPP weighted)
5

6. • Tremendous change in our understanding since the Stern Review made the case 12 years ago
that the costs of inaction were greater than that of action.
• As the 2018 Report of the Global Commission on the Economy and the Climate argues, the
world has an unprecedented opportunity to shift to a better growth trajectory, one that is
driven by: 1) innovation, 2) high quality and sustainable investments, 3) greater resource
productivity and 4) the vitality and potential of the private sector.
• This opportunity has become available because of the enormous advances over the past
decade and a changing understanding of the processes of growth.
• This new growth path will deliver higher productivity, more resilient economies and greater
social inclusion. It can thus lay the foundations of “strong, sustainable, balanced and
inclusive growth”, deliver on the sustainable development goals and reduce the intense
pressures on the global commons including the grave threats posed by climate change.
A New Era of Economic Growth
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7. • The opportunities and benefits of the new growth path are increasingly evident; and the risks of the old are
mounting faster than we had anticipated.
• Over the next 15 years, the stock of infrastructure is expected to double; the world economy will likely double over
the next over the next 20 years and urban population will nearly double over the next 30 years.
• With the scale of the investment that will have to be made, we cannot afford to lock-in polluting technologies and
inefficient capital.
• We have a small window of opportunity to make the shift to this new growth path because of a shrinking carbon
budget and because remedial measures will become progressively costlier.
• The next 2-3 years are a critical window when many of the policy and investment decisions that will shape the next
10-15 years will be taken.
• The choice we face today, therefore, is not whether or how to act, but how quickly we will do so: we can either
make a gradual shift locking us into an unsustainable future or a decisive change of direction towards this new
growth agenda.
The Next 10-15 years are crucial
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8. Sustainable infrastructure is at the center of the SDGs
8

9. Projected cumulative infrastructure demand, 2015-2030
By regional groups, sector and income groups
Source: Bhattacharya et al. (2016)
Around 70 percent of the projected infrastructure investment needs
will be required in EMDCs accounting for most of the increase
Projected Annual Infrastructure Investment Trends,
US$ Billions (2014 US$)
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10. Pillars for sustainable investment
10Source: Bhattacharya, Contreras, and Jeong (forthcoming)
Platforms for scaling up
Ensuring quality and
sustainability of
individual projects
Robust upstream policy
and institutional
framework
Mobilizing and aligning
finance

11. A robust policy and institutional framework ensures the right selection of infrastructure projects,
incentivizes the private sector to invest in sustainable infrastructure, and promotes sustainability all the
way from planning to project procurement.
A framework to deliver sustainable infrastructure
Institutional capacity and governance
Business and Policy Environment
Upstream
policy and
institutional
settings
Project-cycleInvestment Construction Operation
Decommissio
ning
Growth and
Investment
Strategies
(national/regional/
sectional)
Investment
Frameworks
and Project
Prioritization
Procurement
Public
Private
(PPPs)Initial Design
and Feasibility
Analysis
Infrastructure
Investment
Plans Detailed
Design and
Project
Preparation
Pro-growth policies Strong sustainable policies
Sound regulatory framework
for infrastructure investments
• Leadership at the highest levels of government
• Co-operation of ministries including finance
ministries
• Coordinating infrastructure policies across different
levels of governments
• Institutional capacity to coordinate among stakeholders
• Building and providing robust and accessible data,
knowledge, and expertise
 Competitive product/labor markets
 Policies and regulations to support efficient
resource allocation and innovations
 Putting a price on carbon
 Eliminationof fossil-fuelsubsidies
 Incentives/regulations/standardsto encourage low-carbon investments
 Integratingsustainableobjectives into broader economic policymaking and
developmentplanning
 Sustainableurban planning and land-use policies
 Policiesfor just transition
 Coherent, long-
term, and
sustainablegrowth
strategiesat
relevant
geographical/sector
al levels
 Alignment with
other elements of
policiesincluding
NDCs
Comprehensive
infrastructure plans
includingbudget
allocationby sector,
project pipeline,and
implementationplans
ensuring the
involvementof all
relevant groups
 A well-articulated
methodologyfor
evidence-based
evaluationof public
investmentproposals
in terms of
effectiveness,
sustainability,and
feasibility.
 Reflectingall
sustainabilitycriteria
in project
prioritization
framework
 Clear, transparent, and
predictableprocurement
policiesaligned with the public
investmentframework
 Using all sustainabilitycriteria
from a long-term perspectivein
developing,appraising,
implementing,and managing
projects
Leadership and coordination Capacity building
Ensuring integrity,
transparency, and openness
• Managing integrity and corruption
threats at all stages of the process
• Integrating consultation process early
enough
 Balancing end-user affordability and cost-recovery in
price-setting of infrastructure
 Lowering administrative burdens for infrastructure
projects
 Integrated land-use and transport planning

12. • Given the scale of investment requirements, a significant scaling up of financing is needed from all
sources—domestic, international, public and private—and the links between them made stronger.
• Robust public finance is an essential foundation given the public good nature of infrastructure investments
and the need to meet viability gaps for private investments.
• The biggest opportunity and challenge is to mobilise the large pools of private capital especially those held
by institutional investors. This requires both better mechanisms to tackle early stage risks and to crowd in
long-term finance once revenue streams and underlying cost structures are clearer.
• There is significant scope to further develop innovative sources of finance including green and sustainable
finance. The development finance landscape has changed significantly and there are new sources of
domestic and international public finance that can complement and help attract private resources.
• There is a need for a common understanding of the effective deployment of blended finance instruments.
It is also important to engage and enable new and underdeveloped sources of capital for sustainable
investment, for instance by expanding the engagement of philanthropic capital in blended finance.
• Multilateral development banks and other DFIs have a central role to play in supporting the new growth
agenda. Their mandate, expertise, instruments and shareholding structure enable them to play a role that
other financial institutions cannot.
Mobilizing capital for sustainable investment
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13. • The characteristics of infrastructure
pose various risks in each phase of
the life-cycle of a project
• The biggest risks and constraints to
financing arise at the early stages of
project
Financing sustainable infrastructure faces additional challenge
due to the inherent nature of infrastructure projects
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14. • Removing excessive and regressive tax exemptions,
taxing negative externalities, and making fuller use of
property taxes are all options to expand fiscal space
for infrastructure investments
• Carbon taxation can raise substantial revenues to
fund infrastructure as well as shift investments
towards sustainable infrastructure
• Structural reform of national tax policy frameworks is
important to generate financing for sustainable
infrastructure and to create incentives for
investments
• The national tax agenda should be complemented by
strengthening local tax and expenditure capacities
since an increasing proportion of infrastructure
needs are local and municipal.
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The importance of robust public finance foundations
Median tax revenue by type of tax
(2015, % of GDP)
Source: Inter-agency Task Force on Financing for Development
(2018); IMF

15. Strengthen policy and
business environment
Capital market
development
Impediments of
Private Financing
Targeted
Solutions
Reduce government/
Political risks
High transaction
costs
Revenue and
other risks
Tackle Institutional
Constraints
Better platforms for project
preparation
Better instruments and
structures for managing risks
Standardization to develop
infrastructure as an asset class
Improving data and
benchmarks
Regulatory reforms to
incentivize and align finance
Lack of proven
financing structures
Mobilizing private financing
15Source: Bhattacharya and Jeong (forthcoming)

16. Scaling up of blended finance is crucial to unlock private capital
Shared value for ensuring effective blended finance
Source: Tri Hita Karana Roadmap for Blended Finance
1. Practice: Translate a common narrative into good
practices
2. Mobilisation: Where possible, accelerate
mobilization of private commercial finance by
optimizing incentives, financial instruments and
standardisasion efforts
3. Transparency: Build on efforts to facilitate
transparency in the use of blended finance, in
particular blended concessional finance
4. Build inclusive markets: Addressing specificities
in the local and international invest climate
5. Impact: Promote measurement and monitoring
of the impact of blended investments towards
the SDGs
Guidance based on shared values
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17. Source: Climate Bonds Initiative
The green bond market 2012-2017
The issuance of green bonds has rapidly increased recently
• The potential of the green bonds
market needs to be further
developed.
• The market for sustainable
bonds continues to expand, with
applications of “blue bonds”
Green finance can make a significant contribution
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18. Aligning finance: Task Force on Climate-related Financial Disclosures
• Following the 2017 recommendations of
the Task Force on Climate-related
Financial Disclosure, a growing number of
investors and companies are
implementing enhanced disclosure.
• Some countries (France) legislated
mandatory disclosure of climate-related
financial risks for business and investors,
and other G20 countries are looking to
implement the recommendations from
the TCFD.
Source: Task Force on Climate-related Financial Disclosures
Improved disclosure of climate-related risks is essential
Recommendations of the Task Force on Climate-related Disclosure
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19. Source: EU High-Level Expert Group on Sustainable Finance
Aligning finance: Three definitions of sustainable finance
Finance needs to be aligned with sustainability
29

20. • Key role for MDBs around supporting investment by enhancing the quality of the project, reducing
risk and crowding in private finance.
• Their presence can impart confidence, reduce risks (particularly government-induced policy risk),
bring relevant instruments for managing risks (equity, guarantees, long-term loans…) and encourage
participation of other sources of financing.
• This can bring down the cost of capital: crucial for volume and sustainability (quantity and quality).
• They are trusted conveners that can help coordination and help establish replicable and scalable
models.
• They play a crucial role in getting projects through difficult early stages. After that institutional
investors can be attracted by stable long-term returns; great potential scale. Development banking
can be profitable.
• Improving the functioning of the MDB system as a whole is critical. This should include following the
recommendations of the G20 Eminent Persons Group report.
The role of MDBs
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21. Enhancing mobilization of private financing by MDBs
Can commercial financing be cost-effectively mobilized for sustainable
investment? If not…
Can upstream reforms be put in place to address market
failures? If not…
Can risk instruments & credit enhancements
cost-effectively cover remaining risks? If not…
Can development objectives be
resolved with scarce public
financing?
Public and Concessional Financing, including Sub-Sovereign
• Public finance (incl. national development banks and domestic SWF)
• MDBs and DFIs
Commercial Financing
Public and Concessional Resources for
Risk Instruments and Credit Enhancements
• Guarantees
• First Loss
Upstream Reforms & Market Failures
• Country and Sector Policies
• Regulations and Pricing
• Institutions and Capacity
1
2
3
4
Source: World Bank
“Cascade Decision Framework” is one of the approaches to mobilize private finance
Cascade Decision Framework
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22. • Involvement of all relevant stakeholders: public and private; domestic and
external.
• Well articulated investment strategy and medium-term investment plan for
sector or sub-sector.
• Assessment of policy and other impediments and game plan to address them.
Procedures to ensure good governance.
• Project preparation platforms and templates; standardization of
documentation; data and benchmarks.
• Financing models that bring together both intermediaries and long-term
investors.
• Risk mitigation and sharing that can be replicated and taken to scale.
• International public finance including consortium of development banks.
Key Elements of Country Platforms
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