Key recommendations from the GSG Impact Summit, October 2–3, 2023

The numbers are going the wrong way

Only 12% of SDGs are on track, whereas the total financing gap for the SDGs has increased to $4Tr USD per year, most of which is needed in EMs. The total climate finance gap is around $5Tr USD per annum, and only 13% of current climate finance is flowing into emerging markets (EMs). Overall, only 4% of finance flows to EMs.

If we want a world which is sustainable and just, we need to shift gears in addressing issues that prevent EMs from harnessing their full potential. We all have a role to play here.

We need to create incentives at all levels of the investment chain

It starts at the beginning: with entrepreneurs

It’s been demonstrated that public subsidies increase the likelihood of start-ups raising VC investments. We know what good looks like in terms of business development services. And yet, incubators and accelerators in EMs, working to grow impactful businesses, still struggle to be self-sustaining. In Europe, 70% of the revenue of incubators and accelerators comes from public subsidies. So donors, Development Finance Institutions (DFIs), foundations, and others need to get serious about funding the development of impact businesses, if we want more investable deals in EMs. This will seriously help in moving away from a narrative of need, to a narrative of opportunity.

Then DFIs need to get better at doing their job

DFIs need to get much better at implementing and deploying the de-risking tools they already have at their disposal, such as guarantees and insurance, which have the highest potential to attract private capital. Overall they need to become serious about mobilising private capital full stop. At the moment they only mobilise on average less than $0.6 USD of private capital for every dollar invested, and that’s far from the 10X that would ideally be required. So how do we help them re-align with their mission of … development? One of the most immediate solutions is that they need to urgently make some of their data available to private investors. This starts with the GEMs database. This database pools data on the credit events of projects that DFIs invested in, for the past 30 years. If investors can access such data, they will be able to more accurately assess the risk of certain investment opportunities in EMs. And hence increase their allocations.

Private investors need to change how they look at EMs

Investors need to shift their mindset and look at EMs in terms of opportunities rather than risk. Even mainstream asset managers, such as Morgan Stanley and Lazard, are advising clients to invest more in emerging markets: valuations are attractive and the economic growth-premium over developed-markets is expected to widen. Around half of impact investors are already investing in EMs, and there is an increasing range of impact investing products available across ALL asset classes. The most promising are the Green, Sustainable, Social and SDG (GSSS) Bonds which now represent a total market of nearly $4 Tr USD. As part of the GSG Impact Summit, we launched a report to show how these bonds are an immediate solution to increase capital flows to finance the SDGs in emerging markets.

Governments need to roll up their sleeves too

Governments are the ones that can change the mandates of DFIs to ensure that private capital mobilisation becomes a formal target for them. They can work to improve how their domestic financial players channel capital to finance the SDGs. For instance, pension funds should be able to allocate at least 10% of their portfolios for sustainability and impact. Voluntarily a few Dutch pensions are already leading the way. Governments can also change regulations to increase the issuance of GSSS Bonds in their country, following the example of what Argentina did that allowed the social enterprise Promujer to raise 2 gender bonds that will support thousands of underserved women to improve their livelihoods.

And last but not least, governments are the ones that can launch a new “Bretton Woods”. It’s high time to reform the global financial architecture, not with small tweaks but with major changes and courage.

Probably the most important call to action of the Summit is that we all need to focus much more on supporting initiatives and collaborations led by and from emerging markets, such as the one led by GSG National Partners. For instance, the Ghanian National Partner is launching an Impact Fund of Fund with domestic pension funds as investors in it. In Nigeria, the National Partner is developing an Impact Wholesaler and the government has already committed to anchoring it and providing 50% seed capital. That’s where the attention and support need to shift: working with those who already worked out the best policy and financial solutions for their own markets, developing domestic solutions that have scale, so that capital can flow to generate real impact. For the farmers regenerating topsoil, the low-income city dwellers working 3 jobs, for the underserved families seeking affordable healthcare and education, for everyone.