Three rules for donors: making sure public-private development finance actually works

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Last year’s Sustainable Development Goals (SDGs) and Paris Agreement on climate change represent a significant political shift away from a dependency on fossil fuels towards an era of development more in harmony with the environment. They broaden the previous focus of tackling poverty to include leaving no-one behind and tackling inequality.

Both will require billions, if not trillions, of pounds to implement.

With limited aid budgets, donor governments and global institutions have quickly set their sights on leveraging private sector investment as a way of plugging this finance gap. Aid budgets are increasingly directed towards participating in private sector projects, such as big infrastructure projects like roads, ports and hospitals; service provision such as schools; energy and healthcare.

But if public-private partnerships (PPPs) are to be used effectively to implement both the SDGs and the Paris Agreement, donors need to keep three key rules in mind.

1. We need to learn from past mistakes

A recent paper by UNDESA suggests that the impacts of PPPs can vary across sectors – there have been more successes in infrastructure projects than social sectors, for example – but also that they have tended to be more expensive than other alternatives and have left the burden of risk with governments,. One example is how the government of Lesotho is paying half of its health budget to service the Queen ‘Mamohato Memorial Hospital, built through a PPP. Furthermore, existing safeguards have not always been effectively implemented, and there are too many cases of negative impacts, such as dams displacing communities, fragile ecosystems being damaged or negative environmental impacts of operations on rivers, agricultural and grazing land.

Before proceeding with other PPPs to try and meet the SDGs, donors need to take a hard look at what has worked and what hasn’t, not least to define where this type of approach should perhaps be ruled out altogether.

2. We must move from “do-no-harm” to “do-as-much-good-as-possible”

Existing approaches, such as by the World Bank, have tended to have focused on safeguards and how to prevent the worst cases of human rights abuses.

But we have to go further than that. Going forward we need an approach that focuses on the positive impacts of any investment. How will money invested actually contribute to the SDGs? What does it mean for increased quality jobs, access to clean energy, or improving the attendance of girls at school?

sustainable development traffic light for public private finance

Governments need money from investors and increasingly these investors are asking for information on how their investment will not only produce a financial return, but will be in line with their values and strategies, such as low carbon development or tackling slavery in the supply chain. A recent survey of 50 global investors by ShareAction shows that while many see the SDGs as framing their future investments, they struggle to get the necessary information to make informed decisions.

3. We need more scrutiny and accountability

Despite public-private finance being an increasing focus of public aid money, many investment mechanisms demand less stringent transparency and accountability requirements. It is also much more difficult to track impacts of this new and increasingly complex array of public-private finance mechanisms. Money is often channeled through intermediaries, such as private equity firms, who often report more on money disbursed or raised than on the sustainable development impacts. The UK government’s Climate Public Private Partnership (CP3) is a case in point. It has significant potential for driving low-carbon investment but suffers weak monitoring and evaluation criteria, has delegated investment and reporting to private equity funds, and makes little information available, making it difficult to show concrete impacts or value for money for the taxpayer.

 What next for donors?

Ultimately public private investment needs an investment and evaluation framework that focuses on achieving the SDGs, with proposals already developed needing greater scrutiny to make sure that they work in practice. The UN Financing for Development follow up meetings, alongside ongoing OECD discussions to redefine what counts as development aid, already have this as part of their agenda, as does the Development Cooperation Forum.

It is vital that as a sector, we get this next phase of development and investment right. If we can, there could be trillions of pounds of development finance available to help us have the impacts we are looking for.

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