This op-ed was originally published in Environmental Finance.
The world is at a critical juncture in the race to finance sustainable development. The United Nations estimates that achieving the Sustainable Development Goals (SDGs) will require annual capital investments of approximately $5 trillion, including $1.5 trillion for climate; but actual investment happens at only 15-20% of the level required. The total annual private investment mobilization is equal to only 1% of the $5 trillion, as estimated by UNCTAD. There is consensus that the SDG and climate investment gaps cannot be narrowed significantly without private investment mobilization at scale, which cannot happen without standardization of investment models.
We need to move away from bespoke mobilization activities and instead identify what has worked to date to mobilize private capital at scale and with impact, aligned to better debt sustainability, and double down on the most effective and efficient solutions. This need is directly addressed in the recently published UN Financing for Development Outcome Document – Zero Draft: "We support efforts towards the standardization of blended finance instruments to create effective and replicable structures."
In response to public sector initiatives and private sector calls to action, Convergence has launched the Scale Private Investment Mobilization Project to standardize and scale up effective and proven Private Investment Mobilization Models (PIMMs), creating a framework that makes it easier for private capital to flow into developing countries for sustainable development.
A limited number of PIMMs would address the three most important challenges to mobilize private investment: (i) creating a larger universe of viable projects, (ii) increasing project-level investability, and (iii) increasing portfolio-level investability. By addressing key barriers and clarifying how they differ depending on the context and the type of problem addressed, like perceived risk and regulatory constraints, a focused, limited number of PIMMs will make it possible for private investors to consider sustainable development projects in regions they otherwise eschew.
What does a set of effective PIMMs look like? Based on Convergence and partners' research, we have identified a set of 12 PIMMs to address the three challenges above.
One investment model involves public sector funding to part-fund private sector development companies to develop pipelines of viable projects, particularly in sectors like renewable energy.
Another model is public funding to organizations that issue Investment Grade (BBB) guarantees to reduce credit risk for projects with underlying weaker ratings, enabling private lenders to finance high-impact projects.
A third model is a three-tier blended finance fund that uses public funding in the junior tier and non-concessional public and private funding in the mezzanine tier to create a senior tier of capital for private investors – the diversification and subordination creates attractive investment assets (e.g., Investment Grade notes and bonds) that mobilize private investors at the portfolio level.
The impact of standardized PIMMs could be transformative. Preliminary models suggest that they could (i) increase private investment mobilized from current $50 annually to significantly larger amounts (hopefully multiples), (ii) increase investment aligned to debt sustainability (e.g., more equity and local currency debt), and (iii) materially decrease interest rates for developing country governments in one PIMM. Such an influx of sustainable investment would catalyze growth in critical sectors like infrastructure, healthcare, and agriculture, driving job creation, economic stability, and improved quality of life for millions.
Standardized investment models have the potential to provide a timely and practical roadmap to increase sustainable investment by mobilizing private investment at scale. However, realizing this vision requires a collaborative and consultative effort from developing countries (including Least Developed Countries and Low-Income Countries), governments, development finance institutions, private investors, and others that Convergence will facilitate in the first half of 2025, and ensure it aligns with other partners advancing on the standardization agenda. It is most critical that the international development community adopts the proposed standardized models and aligns their mobilization funding commitments accordingly.
The time to act is now. By standardizing and funding the best proposals / cases aligned to standardized investment models, we have a powerful tool to overcome the limitations of traditional private investment and development finance and unlock a new era of sustainable and inclusive growth. We believe we have identified a clear and direct path forward—one that bridges the gap between ambition and action, making a sustainable future possible for all.
