A paradigm shift for development finance has been achieved with the recent 18th replenishment of the World Bank Group’s (WBG) International Development Association (IDA): the largest source of un-earmarked concessional finance for the world’s poorest countries. The IDA18 negotiations concluded in December 2016 with a historic outcome of US$ 75 billion for the poorest and neediest countries. IDA18, which will start implementation on 1 July 2017, for a three-year period, marks a 50% increase from the US$ 52 billion committed under IDA17. IDA18 is a milestone for the World Bank Group, both in terms of policy and financial innovations.

‘Follow the money’, goes the advice, for understanding any organisation. In the UN development system (UNDS), the bulk of member states’ contributions take a fairly ballistic course: launched with political fanfare, the money is aimed at the narrow landing place of a concrete project or purpose. 77% of development and humanitarian resources were earmarked in this way in 2015, ‘bilateralizing’ and bypassing the UNDS’ multilateral- and value-adding mechanisms. The three largest donors, accounting for 47%, also rely heavily on ear-marking, and have thus practically cancelled the contract according to which the UNDS, like any other organisation, is (core-) funded to implement joint global agendas. Emerging donors are adapting the same transactional funding pattern for their South-South Cooperation.

These are troubling financial times for the United Nations (UN). Recent estimates suggest the UN is US$ 22.8 billion short for meeting the humanitarian needs of 98.2 million people affected by crisis in 36 countries. Meanwhile, the single largest donor to the UN, the United States, is threatening to cut assessed and voluntary funding by as much as 50%. The ambitious global mission of the United Nations is, sadly, not matched by its balance sheet.

Until recently, the notion of financiers and investors in regular attendance at serious United Nations (UN) deliberations would have seemed outlandish – or at the very least, inappropriate. Indeed, it wasn’t until the end of the 1990s, with the adoption of the Agenda for Development, that the UN even began exploring the theme of financing for development – convening conferences and forming the ‘Ad-Hoc Open Ended Working Group of the General Assembly on Financing for Development’. Multilateral banks as well as business and non-governmental organisation (NGO) representatives were brought on to help shape what would later become the international conferences on Financing for Development (FfD). While paying some lip service to the role of private finance, the focus of the FfD agenda was largely on public funding and official development assistance (ODA).

What does leveraging finance for sustainable development mean? In the simplest terms, it is when private capital is being raised against public capital to implement sustainable projects and attain specific development goals. Today, there is a growing palette of means by which this is achieved, from special one-on-one partnerships, to the use of match-making platforms, the development of blended finance and the recourse to green or social bonds. Another form of leverage is also at work, namely at UN Environment, through its Finance Initiative (UNEP FI).

In an increasingly interconnected, complex and turbulent world, business is navigating uncharted waters. Amidst this uncertainty, the global community came together in a global call to action to guide all stakeholders– including business– in building a more sustainable, equitable and inclusive society. While the Sustainable Development Goals (SDGs) were designed for and approved by governments, they also constitute a global framework for measuring business contributions to society – how companies can ‘win with purpose’. According to a recent survey, more than two thirds of participating companies said they were already planning to engage with the SDGs, but less than half plan to embed them into their business strategy in the next five years.1 As the United Nations Global Compact 2016 CEO Survey notes, only 59% of companies report that their company is able to accurately quantify the business value of their sustainability initiatives.² Therefore, the central question is: Should the SDGs really matter to business?

The rough contours of financing for the Sustainable Development Goals (SDGs) are now well known. Low-income and lower middle-income countries alone will need incremental resources of US$ 1.4 trillion per year over the next 15 years.¹ The challenge is how to mobilise and orient enough capital for investments that contribute to achieving the SDG targets. In this note, I argue that ‘blended finance’, a much used and much abused term that broadly refers to the mixing of funds from public and private sources, offers the greatest promise, but is still in its infancy as an instrument for sustainable development. The Organisation for Economic Co-operation and Development (OECD) estimates that only US$ 27 billion of private money was mobilised by official development finance interventions in 2015 in blended finance operations.² This should increase to several hundred million dollars per year within five years.

Financing the 2030 Agenda for Sustainable Development is a substantial undertaking − the annual funding gap for developing countries is currently estimated at trillions. Blended finance (using development cooperation to de-risk, crowd-in or ‘leverage’ private investments in these countries) is attracting attention for its potential to help fill this funding gap, including within the Addis Ababa Action Agenda.¹ With financing especially challenging in situations of conflict, fragility and crisis (‘fragile contexts’ for the purpose of this paper)², the role that blended finance can play in such contexts is a particular focus of emerging international discussions. This paper explores the role of blended finance in fragile contexts and identifies considerations and recommendations for the United Nations and wider development actors. We recognise that fragile contexts are diverse (from prevention and risk, to post-conflict and transition, and active crises) and that considering different types of evidence will be critical.

Moving from traditional resource transfer models to innovative financing solutions that shift the dynamics of where finance flows within a country is important for meeting the Sustainable Development Goals (SDGs). There is untapped potential for blended finance models to use international public finance, notably Official Development Assistance (ODA), to unlock additional resources and channel them to the families, local governments and Small- and Medium-sized Enterprises (SMEs) that are underserved and where resources are most scarce. This can be achieved by deploying ODA in the form of technical assistance as well as capital grants, concessional loans and guarantees in ways that de-risk and catalyse public and private, domestic and international, investments to support economic transformation at the local level and tackle entrenched inequities and exclusions.

Achieving sustainable development results at the level of scale and ambition inherent in Agenda 2030 will require extensive mobilisation, joined-up systems and approaches, strong leadership and organisation. This is where UN multi-partner pooled funds offer a distinct advantage relative to project-based instruments and where the UN development system (UNDS) experience with such funds is key. The experience and performance of UN inter-agency and multi-partner pooled funds at the global, thematic and country levels have been widely documented and recognised. Since 2004, pooled financing instruments have been extensively applied and tested in advancing progress toward humanitarian, peace, development and climate goals in the UN, international financial institutions (IFIs), bilateral actors, private sector and beyond.

There can be no sustainable development without peace and no peace without sustainable development. So confirms the preamble to the Sustainable Development Goals – our collective mantra and roadmap for the years leading up to 2030.

There is much that collectively we do not know about peacebuilding, what works and what does not, let alone the activities that broadly define it. At a time when the international community’s resources to international development and aid are under strain due to tightened national budgets and stress from humanitarian action, the need to understand and invest in building peace is more crucial than ever. While the world lost US$ 742 billion to violent conflict in 2015, it spent only a corresponding 2% of that on building and keeping peace.

The world today faces increasing risks of fragility, conflict and violence that pose a serious challenge to economic development and stability, affecting developed and developing countries alike. Poverty is increasingly concentrated in fragile and conflict-affected countries with more than half of the global poor expected to live in just 35 countries by 2030.¹ Globally, trends such as climate change, demographic shifts, new technologies and transnational ideological movements are significantly shaping the fragility landscape at local, national and regional levels. Ongoing conflicts are at the origin of protracted crises situations and are intensifying the food insecurity of millions of people. They are also causing widespread displacement and other cross-border spill-overs. Today, a reported 65 million people are forcibly displaced, of which 21 million with refugee status. These risks and challenges have underscored the need for the global community to take collective action, help manage volatility and invest in building peaceful and resilient societies and states.

The parallel ‘sustaining peace resolutions’ asked the United Nations Secretary-General to ‘provide options on increasing, restructuring and better prioritising funding dedicated to United Nations peacebuilding activities, including through assessed and voluntary contributions, with a view to ensuring sustainable financing’. An ad-hoc working group, established by the former Deputy Secretary-General in June 2016, consisting of experts from across the UN system, have since worked to develop these financing options across different tracks. One of these tracks includes exploring the existence and potential of innovative financing mechanisms and approaches for sustaining peace.

More than one billion people have lifted themselves out of poverty in the past 15 years, but climate and disaster risks threaten these achievements. Global economic losses from disasters are now reaching an average of more than US$ 300 billion a year. According to a recent World Bank report, when accounting for impacts on well-being, disasters actually cost the global economy 60% more than the economic losses usually reported (US$ 520 billion) and force some 26 million people into poverty every year. Furthermore countries face increasingly complex threats that often compound the negative impacts of disaster and climate shocks – from migration caused by fragility and conflict situations, to the risk of pandemics. For instance, it is estimated that 93% of people facing extreme poverty today are living in countries that are politically fragile or environmentally vulnerable and, in many cases, both. The United Nation’s (UN) humanitarian appeal for 2017 stands at a record US$ 22.2 billion to help almost 93 million people affected by conflicts and natural disasters.

Over the last couple of years there have been a few important milestones that have integrated prevention as part of a comprehensive response to violent extremism and terrorism. The United Nations Secretary-General’s 2016 Plan of Action to Prevent Violent Extremism is the most notable, along with a series of global and regional summits on preventing violent extremism (PVE). Also noteworthy is the recognition by the Organisation for Economic Co-operation and Development’s Development Assistance Committee (OECD-DAC) of PVE as eligible to be counted as Official Development Assistance (ODA). The relevance of peace and security more widely to the global development agenda had already been framed in the Sustainable Development Agenda, especially SDG 16.

The United Nations Secretary-General recently began his term with renewed focus on the role the United Nations needs to play in preventing conflict. He announced in an early speech that conflict prevention is the priority for the UN. The direction of the Secretary-General is both welcome and necessary. Hopefully the reformed UN that he envisions will be capable of working decisively in this area. A ‘systems’ approach will be needed to more effectively integrate the political, development and humanitarian sides of the UN.

International development cooperation has become much more complex over the last two decades. First of all, current practices provide recipients with more choice when it comes to providers. Namely, the Organisation for Economic Co-operation and Development (OECD) countries remain an important foreign aid provider, despite the changing pattern of cooperation, but South-South Cooperation (SSC) providers are now an additional pillar in the new development cooperation architecture, together with other actors such as philanthropic organisations and the private sector.

In the history of the United Nations, there have been turning points when the UN has had the vision to see an opportunity emerge and to seize that opportunity, thereby reaffirming its relevance and vitality.

The Green Climate Fund (GCF) was launched in 2010 by a landmark decision of the Conference of Parties for the United Nations Framework Convention on Climate Change (CoP 16 in Cancun, Mexico). After intense, yet challenging negotiations in a ‘Transitional Committee’ appointed by the CoP, the GCF opened its door for business in 2014, located in Songdo, Korea. In its initial resource mobilisation drive at the end of 2014, the GCF collected US$ 10.3 billion from contributors, almost exclusively in grant quality. Initial disbursements of funds to developing countries were made in 2015. Total financial commitments from the GCF are at US$ 2.2 billion, as per April 2017. A breakdown is provided on the GCF website.

In the discussions that took place in the United Nations Economic and Social Council (ECOSOC) dialogues on the reform of the United Nations Development System (UNDS) over the last two years, finance was identified as one of the key dimensions of the system that required serious reform. In the informality of the corridors it was frequently heard that reform of the financing system is a prerequisite for the achievement of broader reform. A core concept in this critique was that funding had to be better aligned with purpose and that in this sense finance follows function.

One of the transformational impacts that the acceleration of globalisation has had is that it has brought to the fore a class of development challenges that require collective action to have any chance of success. It is this characteristic, the need for a collective response, that means that the concept of global public goods (GPGs) has a key contribution to make to current debates about the future positioning of the United Nations Development System. This has been widely recognised outside the UN system.

Despite the large sums of money spent by states, businesses, migrants and their families annually on migration, the international community lacks a comprehensive delineation of the size and distribution of what could be dubbed ‘migration finance.’ Beyond disparate data points for specific flows, countries, regions or migration corridors, there is, as of yet, no definition of what constitutes such financing and no methodology for aggregating different migration-related financial flows to account for them as a discrete area of finance.

With the adoption of the Addis Ababa Action Agenda and the Sustainable Development Goals the international community has made fantastic strides toward the holy grail of development: the elimination of poverty. While derided by some as unfocused and overly ambitious, the 17 Goals and 169 targets demonstrate a willingness not only to think big, but to consider the multifaceted nature of development and its interlocking components. Indeed, even critics would be hard-pressed to decide which of the goals should be eliminated to narrow the agenda’s focus. Would it be Goal 11 – Make resilient cities? Or, perhaps, Goal 5 – Achieve equality for women and girls? Any attempt at deconstructing the SDGs would be pure folly.

One of the key shortcomings of the Millennium Development Goals (MDGs) was that governments were not required to openly, regularly and comprehensively report on the public financial resources they invested in pursuit of the goals. This includes how these funds were raised, how they were spent and what results were achieved. Without this information it has been very difficult to track MDG commitments, investments and outcomes — and to understand why specific goals were, or were not, achieved.