OECD Policy Brief: Scaling Private Finance Mobilization for Sustainable Development#

Key Messages and Strategies#

• Scaling Blended Finance: The OECD defines blended finance as the strategic use of development finance to mobilize additional private capital for sustainable development (OECD, 2018). In 2023, only 18% of development finance instruments targeted private finance mobilization, with $70 billion mobilized globally, including$15.4 billion by OECD DAC countries (OECD, 2023). Scaling effective instruments is critical to bridge the SDG gap.
• Proven Instruments:
  • Guarantees: Mobilized $17 billion in 2023, second to syndicated loans ($19 billion), offering high capital efficiency and low cost. The OECD DAC’s decision to include guarantees in ODA accounting incentivizes their use, though availability remains limited in high-risk LDCs.
  • GSSS Bonds: Only 13% of 2022 GSS bonds and 5% of sustainability-linked bonds (SLBs) were issued in developing countries (excluding China), per OECD (2023). Coordinated support for issuances, risk-sharing, and market infrastructure can unlock their potential.
  • Securitization: Converts illiquid assets (e.g., loans) into investable securities, as seen in Bayfront Infrastructure Management’s $410.3 million infrastructure asset-backed securities issuance in 2023, supported by the UK’s MOBILIST program, per OECD (Forthcoming).
  • Structured Funds: Blend public and private capital but attract only 4% from institutional investors, requiring standardization to scale (Dembele et al., 2022).
  • Insurance: Energy savings and efficiency insurance products unlock investments in EMDEs by covering specific risks, complementing guarantees.
• Standardization: Standardizing instruments enhances transparency, reduces transaction costs, and improves replicability, addressing information asymmetries and investor hesitancy.
• Country Platforms: Just Energy Transition Partnerships (JETPs) in South Africa, Indonesia, Senegal, and Vietnam, and platforms like Egypt’s NWFE and Bangladesh’s Climate and Development Platform, coordinate stakeholders to align financing with national priorities, integrating concessional finance, policy reform, and capacity building.
• Impact Focus: Development impact must be embedded from transaction design, using frameworks like the OECD-UNDP Impact Standards (2021) to ensure accountability and trust, with evaluations currently limited.

Alignment with Recent Developments#

• **IDB’s $11 Billion Climate Finance Initiative**: Announced July 1, 2025, the Inter-American Development Bank’s (IDB) initiatives, including FX EDGE, Amazonia Bonds, and disaster risk programs, align with the OECD’s call for scalable instruments. FX EDGE, building on a Brazilian pilot that mobilized$8 billion, aims to attract $16 billion by mitigating currency risks, per *Reuters*. Amazonia Bonds target$1 billion to curb deforestation, supporting biodiversity and climate goals in LAC, resonating with OECD’s GSSS bond focus.
• Global Climate Finance Trends: MDBs, including IDB, delivered $125 billion in climate finance in 2023, with$28.5 billion in private mobilization, per OECD data. The IDB’s $6.6 billion private finance target by 2030 complements the OECD’s push to scale mobilization beyond the current$70 billion annually.
• Fintech and Payment Innovations: Partnerships like Klarna-Bolt and multifi-GoCardless, per earlier analyses, enhance financial inclusion for SMEs, indirectly supporting EMDE development by improving access to capital, aligning with OECD’s emphasis on market-building instruments.

Financial and Market Context#

• SDG Financing Gap: The $4.3 trillion annual gap (UNCTAD, 2024) is exacerbated by declining ODA (down 2% in real terms, 2023–2024, per OECD) and rising EMDE debt (140% of GDP in some LDCs, per IMF). Blended finance’s catalytic role is critical in high-risk markets.
• Market Performance: The Financial Services sector, with a $10.928 trillion market cap, achieved a 9.54% YTD return as of February 28, 2025, outperforming the S&P 500 (5.05%), driven by firms like JPMorgan (JPM, +20.94% YTD) and Visa (V, +12.34%), per sector data. These firms support blended finance through loans and payment infrastructure.
• GSSS Bond Market: Global GSS bond issuance reached $1.1 trillion in 2024, but only 5$50 million, 2024).
• Sentiment on X: Posts from @OECD and @the_IDB highlight enthusiasm for blended finance and JETPs, with @Fintech_Global noting guarantees’ role in mobilizing $17 billion. Critics like @ClimateWatch argue for more grants over loans to avoid debt burdens in LDCs.

Risks and Opportunities#

• Opportunities:
  • Private Capital Mobilization: Scaling guarantees and GSSS bonds could mobilize $100–150 billion annually by 2030, per OECD estimates, leveraging MDBs’ AAA ratings to derisk investments, as seen in IDB’s FX EDGE.
  • Climate and Biodiversity Impact: Initiatives like Amazonia Bonds and JETPs align with COP30 (Brazil, November 2025) goals, targeting 2 tCO2 per capita in LAC by 2050 (from 7.7 tCO2, 2024).
  • Subnational Financing: Empowering subnational governments to issue GSSS bonds, as in Tanzania, could unlock $500 billion in local climate finance by 2030, per OECD (2025).
  • Market Creation: Securitization, like Bayfront’s $410.3 million deal, demonstrates replicable models for infrastructure, attracting institutional investors (70% prioritize ESG, per Bloomberg 2024).
• Risks:
  • Debt Sustainability: 67% of MDB climate finance (2019–2023) was loans, raising debt concerns in EMDEs, per WRI. Non-concessional terms could strain fiscal capacity.
  • Instrument Complexity: Guarantees and securitization involve high setup costs and pricing complexities, limiting uptake in LDCs, per OECD (Forthcoming).
  • Limited Impact Data: Weak evaluation frameworks for blended finance impact, per OECD/UNDP (2021), risk undermining trust if outcomes are not transparent.
  • Regulatory and Political Barriers: Inconsistent EMDE regulations and political instability (e.g., LAC’s BBB- to BB ratings, per S&P Global) deter private investors.

Recommendations for Investors and Policymakers#

• Investors:
  • Explore GSSS bonds and structured funds in EMDEs, leveraging MDB-backed guarantees for risk mitigation. ETFs like XLF (+8.36% YTD) offer exposure to banks supporting blended finance (e.g., JPM, V).
  • Monitor JETPs and platforms like Egypt’s NWFE for investment pipelines, particularly in clean energy and infrastructure.
  • Prioritize ESG-focused funds, with 70% of institutional investors favoring biodiversity, per Bloomberg 2024.
• Policymakers:
  • Scale guarantees and GSSS bond issuances in LDCs, providing technical assistance for bond market development, as per Tanzania’s model.
  • Standardize blended finance instruments to reduce costs and enhance replicability, per OECD guidance.
  • Strengthen impact frameworks, adopting OECD-UNDP Impact Standards to ensure accountability and attract private capital.

Conclusion#

The OECD’s June 30, 2025, policy brief underscores the urgent need to scale private finance mobilization to address the $4.3 trillion SDG financing gap, leveraging instruments like guarantees ($17 billion mobilized in 2023), GSSS bonds, and securitization, alongside country platforms like JETPs. The IDB’s $11 billion climate finance initiative, announced July 1, 2025, exemplifies these strategies, targeting$6.6 billion in private funds. Opportunities lie in mobilizing $100–150 billion annually and supporting COP30 goals, but risks include debt burdens, instrument complexity, and weak impact data. Investors can explore ESG-focused opportunities, while policymakers should standardize instruments and enhance subnational financing. Consult certified financial advisors for investment decisions and OECD resources (dcdpf4sd@oecd.org) for policy guidance.