Reimagining Financing for Development: from filling gaps to shaping the future
The Sustainable Development Goals (SDGs) are dangerously off track. With only five years remaining until 2030, nearly half of the SDG targets are either stagnant or regressing. Hunger levels have regressed to those of 2005, and no target under SDG 13 (Climate Action) is on course. These alarming trends reflect more than just missed milestones; they expose a systemic failure to embed the SDGs into the DNA of our economic and financial systems.
The question is, why? Why are we so stuck, even with more money on the table?
A large part of the problem lies in how we frame development financing. Since the Addis Ababa Action Agenda in 2015, the dominant narrative has revolved around "filling financing gaps." The logic goes like this: if there’s a gap between the resources available and those required, we simply need to mobilize more finance. This idea suggests that growth is constrained by insufficient savings, and once we close the gap, growth will follow.
But real development doesn’t work that way. It can be constrained by a lack of capital but, even more so, by a lack of strategic direction. Instead of simply pouring resources into poorly defined or static objectives, we need to think strategically about how we use the resources we already have. It’s not just about scale; it’s about direction.
Directionality Over Volume: Mission-Led Public Finance
At the heart of the solution lies the idea of directionality. Financing must be guided by clear missions—specific, transformative goals that align with national and global priorities. This isn’t about broad challenges like ‘climate action’ or ‘healthcare access’; it’s about concrete, actionable missions like achieving net-zero emissions in steel production or eradicating malaria in specific regions.
Public finance institutions—Multilateral Development Banks (MDBs) and National Development Banks (NDBs)—must lead this charge. With over $22.5 trillion in assets under management, these institutions are uniquely positioned to act as investors of first resort rather than lenders of last resort. They must move beyond gap-filling to actively shape markets.
Take Germany’s Energiewende, for instance. The KfW Development Bank mobilized private capital for renewable energy by creating a clear mission and first-mover advantage. Similarly, the Development Bank of Southern Africa’s Climate Finance Facility used public funds to catalyze $110 million in climate-resilient infrastructure investments.
This approach flips the narrative. Instead of the public sector de-risking private initiatives it steers private initiatives towards societal goals, creating a symbiotic relationship that drives systemic change.
Why Blended Finance Is Not Working
Blended finance is often touted as the solution to the SDG financing gap. But after 15 years, the results are sobering:
Annual volumes have stagnated at $15 billion—a far cry from the $5-7 trillion needed.
Only 38% of blended finance comes from private capital, with public non-concessional resources dominating.
Low-income countries (LICs) mobilize just $0.37 of private capital for every $1 of public financing, compared to $1.06 in lower-middle-income countries.
A staggering 70% of blended climate finance flows to large international corporations, sidelining local actors and small enterprises.
Blended finance disproportionately prioritizes lower-risk initiatives, with 60% of climate blended finance deals directed toward mitigation projects that typically offer higher returns on investment, while only 27% support higher-risk but essential adaptation efforts.
A Smarter Approach to Public-Private Partnerships
To advance the SDGs we need a smarter, more strategic approach to blended finance:
Embed conditionalities: Tie public finance to explicit SDG targets, ensuring that private sector contributions create real public value.
Socialize risks and rewards: Shift from project-based to portfolio-based financing, pooling risks and reinvesting rewards.
Ensure additionality: Develop concrete metrics to assess whether blended finance projects would have happened without public intervention.
Recognize limitations: Blended finance isn’t a silver bullet. Traditional public financing, particularly grants, remains essential.
The Way Forward: A Bold Vision
The upcoming Fourth International Conference on Financing for Development (FfD4), set for 30 June - 3 July 2024 in Seville, Spain, represents a moment to rewrite the rules of development finance. As the premier global forum for discussing how we finance development, FfD4 must be more than a venue for reiterating past commitments - it must catalyze systemic changes in our financial systems. The outcome document must prioritize:
Developing robust public investment pipelines aligned with SDGs.
Embedding directionality in public finance through mission-driven strategies.
Reforming MDBs and NDBs to place the SDGs at their core, ensuring they act as market shapers, not just financiers.
Strategically deploying existing public resources to maximize impact, rather than simply mobilizing more funds.
If we are to achieve the SDGs, we must move beyond incremental changes. It’s time for bold, transformative action that prioritizes quality over quantity, strategy over scale, and impact over rhetoric. The SDGs demand nothing less.
Read the full policy brief with UNDESA: Reimagining financing for the SDGs - from filling gaps to shaping finance
Read our policy blog for UNDESA Voice: Blended finance is not working; It is time for a new approach for mobilizing private finance for the SDGs at FfD4
Further reading:
Independent Report of the G20 TF‑CLIMA Group of Experts co-chaired by M. Mazzucato and V. Songwe, (2024). A Green and Just Planet.
Mazzucato, M., Doyle, S. and Kuehn von Burgsdorff, L. (2024). Mission-oriented industrial strategy: global insights. UCL Institute for Innovation and Public Purpose, IIPP Policy Report No. 2024/09.
Mazzucato, Mariana (2023). Financing the Sustainable Development Goals through mission-oriented development banks. UN DESA Policy Brief Special issue. New York: UN Department of Economic and Social Affairs; UN High-level Advisory Board on Economic and Social Affairs; University College London Institute for Innovation and Public Purpose. September.
Mazzucato, M. and Rodrik, D. (2023). Industrial Policy with Conditionalities: A Taxonomy and Sample Cases. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2023-07).
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