UNTT Working Group on Sustainable Development Financing 

Challenges in raising private sector resources for financing 
sustainable development 

Although estimates of the financing needs for the economic, social, and environmental 
dimensions of sustainable development are necessarily imprecise, studies conclude, without 
exception, that needs are extremely large. While the fulfilment of all ODA commitments 
remains critical, including the commitments by many developed countries to achieve the 
target of 0.7 per cent of GNP for ODA, it is clear that financing needs far outpace public 
sector resources. 
Nonetheless, estimated financing needs still represent a relatively small portion of global 
savings. Annual global savings are estimated to be around $17 trillion, as of 2012 (IMF, 
2012a) with global financial assets at around $218 trillion, as of 2011. Furthermore, despite 
turbulent markets following the world financial and economic crisis and deleveraging across 
the developed world, global financial assets have grown at least 10 per cent overall since the 
end of 2007 (McKinsey, 2012). Although reallocating the pool of global financial assets 
would be challenging, re-investing a small percentage, say 3 to 5 per cent, of this investment 
in sustainable development could have an enormous impact. 
The challenge lies in promoting a financial system that incentivizes such a reallocation. Both 
private sources (including banks, institutional investors, and direct investors) and public 
resources, domestically and internationally, will be necessary. Public and private resources 
should, however, not be seen as substitutes, as they have different investment objectives. 
Despite small (but growing) pockets of socially conscious investors, most private capital 
remains driven by the profit motive. As a result, the private sector will under-invest in public 
goals when the expected return underperforms other investment opportunities on a risk 
adjusted basis. Hence it is important to recognize upfront that public financing and public 
sector policies are the lynchpin of a development financing strategy. 
This paper lays out some of the challenges associated with raising private sector financing for 
sustainable development, with the aim of better identifying the role for public sector policies 
to leverage private resources for investment in sustainable development. 
This paper argues that there are many reasons that the private sector does not invest 
sufficiently in sustainable development in both developed and developing countries, including 
factors on the country level, as well as on the investor side. On the country level, high risks, 
such as regulatory uncertainty, weak governance and institutions, and other structural issues 
impede long-term sustainable investment. At the same time, the paper finds that there are 
impediments on the investor side, including institutional factors and short-term oriented 
investor incentives, which make it is unlikely that the private sector will invest sufficiently in 
sustainable development on its own.