How National Development Banks Play A Key Role in Financing the UN Sustainable Development Goals

How National Development Banks Play A Key Role in Financing the UN Sustainable Development Goals

The unique positioning of National Development Banks (NDBs) makes these institutions critical players in meeting the challenge of financing the UN SDGs. This is Momentus’ insight into what NDBs need to fulfill their potential as catalysts to financing the SDGs.

Financing the United Nations’ 17 Sustainable Development Goals (SDGs) as outlined in the 2030 Agenda is not just about mobilizing more money. The challenge is more systemic and much deeper than closing any financial gap. To achieve the SDGs, actors across public and private sectors must work together at scale.

The Unique Role of National Development Banks (NDBs)

Nearly every country in the world has a national development bank (NDB) with a mandate to finance development, to fill gaps to underserved markets and to mobilize capital. NDBs are essential to financing the SDGs because they play a unique and critical role within a country’s economic ecosystem. These unique institutions sit at the nexus of many of the main economic actors – positioned between government ministries, international funding agencies, private capital markets, commercial banks, local businesses, and project sponsors. In fulfilling their mandate, which includes catalyzing private finance and taking on a counter – cyclical role, NDBs encourage innovations to enhance financial inclusion and promote environmental sustainability. No other government body has the capacity to make the same progress in such a positive way.

NDBs must focus on balancing a financial return with a development return. This has typically meant that the bank’s financing prioritizes economic development. Transactions are approved based on potential financial return with an eye to profitability, while also considering the developmental mission guiding the NDB’s operations.

NDBs as Catalysts of Development

While it’s critical that a bank is financially sustainable, it cannot be so at the expense of achieving a development return. Many NDBs add a second element to their decision-making, seeking to ensure that their operations achieve a development return. This means that NDBs are committed to balancing financial performance with maximizing economic, environmental, and social benefits.

The success of NDBs in financing the SDGs is fundamentally related to effective governance and ensuring that the banks are effectively measuring their development impact. It’s imperative that NDBs reorient toward a system that measures development results.

What it Takes to Align with the SDGs

Though traditional development impact is inherent to NDBs, a commitment to sustainable development requires alignment with the strategic positioning of the NDB, as defined by the institution’s charter or constitution, embedded in its Vision and Mission, and written into its Annual Corporate or Business Plan. In addition to the internal drivers of sustainable development, most NDBs have also committed to supporting national goals. Many stakeholders now expect investments by their development banks to support national development strategies, including financing the SDGs and the Paris Climate Agreement.

Based on more than 20 years’ experience working with NDBs to assess their development effectiveness while financing the SDGs, Momentus (formerly IFCL) has developed a maturity model to help these institutions examine where they currently sit on the maturity scale and consider what steps can be taken to improve.

For an NDB to evolve to its full maturity, its strategic framework and operational decision-making will need to fully consider the SDGs, backed with specific and consistent data collected across all stages of the project and financing cycle.

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- John Brown, Caribbean Development Bank