181. Despite the continuing importance of and need to increase official development assistance and other public sector funds (in 2010, total official development assistance from OECD countries amounted to $128.7 billion), it is clear that there will be huge financial demands on the private sector as well. The parties to the United Nations Framework Convention on Climate Change, in negotiations over the past several years, have recognized the need for scaled-up finance — agreeing to mobilize $100 billion of public and private finance per year by the year 2020. However, this is only a portion of the investment needed: the International Energy Agency has estimated that investment in the energy sector alone will total trillions of dollars over the next several decades to keep pace with demand.

182. The past few years have seen a number of innovative public-private partnerships to reduce investment risks, optimize the use of both public and private sources of finance and pool human resources and strategic capabilities. There is increasing recognition among practitioners that such partnerships could play a pivotal role in scaling up sustainability efforts in both developing and developed countries. Strategic public-private partnerships are becoming more influential in implementing sustainable development investment. In these partnerships, participants agree to cooperate up front in a strategic programme design rather than in a stand-alone project.

183. A major part of the sustainable development challenge will be to spend differently, rather than just to spend more. There is significant overlap between many areas where investment is needed: much climate adaptation spending should help with agricultural productivity, for example. Even so, the fact remains that delivering poverty reduction and sustainability outcomes in the future will be an expensive process and will require greater clarity with regard to the respective roles of the public and private sectors.

184. The provision of infrastructure services and their associated financing challenges is an area that requires particular attention. For example, as the world becomes increasingly urbanized, investment in infrastructure for long-term economic growth and sustainable development, such as in energy, water and transportation, will become more important. There are several areas with potential for promoting and leveraging investment in infrastructure.²

Partnerships with micro, small and medium-sized enterprises and local communities

185. One area where public investment may be needed is situations in which the required investments need to be front-loaded — for example, when sustainable technologies will reduce operating costs, but recouping their initial capital costs takes time, or when time is required for other instruments, such as private investments, to be able to generate sufficient revenues. It is important to balance the costs and benefits of front-loading carefully and to avoid a situation in which the poor have to carry the burden of up-front resource costs.

186. Another area where public investment can be essential is capacity-building to help developing countries to create market-enabling environments. Unlike fixed investments, these kinds of investments are not usually funded by private finance, but they nonetheless offer high leverage ratios, as they unlock many multiples in both national and international private investment flows.

187. Above all, public investments are critical for projects that offer high social returns but do not provide sufficient financial returns for profit-seeking investors. In such cases, Governments can make the project economically viable through such policies as provision of infrastructure, risk-sharing, viability gap funding³ or advance purchase commitments.

188. One particular area where partnerships are crucial is the promotion of micro, small and medium-sized enterprises. These companies are pivotal drivers of growth, wealth-creation and employment. The role of small business in sustainable development is thus hugely important.

189. Access to capital is a major obstacle in the development of small businesses, as are gaps in management and limited access to technology. It is estimated that, despite the enormous expansion of the microfinance industry, many small businesses still lack access to credit.

190. Microfinance can be effective in poverty alleviation, by empowering the poor through small business loans, group participatory lending structures and safe institutions for saving money, and it has a key role to play in promoting small and medium-sized enterprises and reducing the vulnerability of the poor to the impacts of poverty and climate change.

191. The key challenges are to continue and, if possible, accelerate the scaling-up of the microfinance industry, to reach increasingly poor and remote people, especially in rural areas, and to reduce costs, taking better advantage of new electronic technologies. There is also a need for mainstream actors in the financing system, including banks, to become much more active in lending to smaller enterprises.

192. For too long, partnerships have been seen as a task for national Governments, international organizations and, more recently, markets. But today substantive progress on sustainable development is not possible without including local governments and local community organizations, such as women’s self-help groups, in the forefront of the sustainable development agenda. They must be consulted, engaged and, in many cases, called upon to implement sustainable development policies and partnerships.

Recommendation 34
193. Governments and business should build strategic partnerships between themselves and local communities for the implementation of sustainable development investments.

Recommendation 35
194. Governments, international financial institutions and major companies should work together to create incentives for increased investments in sustainable technologies, innovations and infrastructures, including through the adoption of policies and targets that reduce investor uncertainty; the promotion of public-private networks to support research and development; the development of risk guarantee schemes and the provision of risk capital; and seed financing.

Recommendation 36
195. Governments should use public investment to create enabling frameworks that catalyse very substantial additional financing from the private sector, for example, through the provision of infrastructure, risk-sharing, viability gap funding or advance purchase commitments.

Recommendation 37
196. Governments should seek to incentivize investment in sustainable development by shaping investor calculations about the future through, in particular, the greater use of risk-sharing mechanisms and the enhancement of certainty about the long-term regulatory and policy environment. Measures could include targets for renewable energy or conservation, waste reduction, water conservation, access to carbon markets through the Clean Development Mechanism of the Kyoto Protocol or sustained prospects for public financing.

Recommendation 38
197. Governments and the financial sector should develop innovative partnerships to provide capacity-building and increased access to capital, as a means of incentivizing small and medium-sized enterprises and enabling them to take part in the new sustainable economy.

__________________
² Infrastructure assets can be defined as the system of public works in a country, State or region, including services such as roads, utility lines and railroads. Private sector financing of public infrastructure usually takes the form of project finance with a long-term perspective.

³ Viability gap funding is most commonly referred to as financial support from the public sector, in the form of grants to a private partner in infrastructure projects undertaken through public- private partnerships with a view to making them commercially viable.