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16 Jun 21

SDG Invest: Four takeaways from its first round of funding

SDG Invest: Four takeaways from its first round of funding

In March 2021, the United Nations (UN) Joint SDG Fund and Convergence announced $41 million in commitments through SDG Invest to catalyze strategic financing to accelerate the Sustainable Development Goals (SDGs).

SDG Invest provides catalytic grants to UN country teams and their partners to develop and implement innovative blended finance initiatives. In addition to financial support, SDG Invest also provides coaching and mentoring to deal sponsors, investor matching and facilitation, and opportunities for peer-to-peer learning. Over the past year, Convergence led a rigorous process to evaluate and recommend initiatives to receive funding under the first round of SDG Invest. We also worked with SDG Invest to provide technical assistance and support to applicants throughout the process. Ultimately, Convergence recommended proposals from Fiji, Indonesia, Malawi, and Uruguay for funding, which are anticipated to mobilize an estimated $4.7 billion in additional finance from private, public, and philanthropic investors.

Convergence was a natural partner for this initiative. Our Market Acceleration and Design Funding program supports funders in deploying early stage grant capital toward innovative blended finance initiatives. Since its inception in 2016, the program has supported 23 blended finance solutions which have gone on to mobilize over $650 million in additional capital. Convergence also maintains the largest and most detailed database of historical blended finance transactions in the market, which allowed us to perform a comparative analysis of these transactions to the proposals submitted to SDG Invest.

With this perspective, we reflected on some learnings from this first round of funding from SDG Invest.

SDG Invest can harness the global reach of the UN

Harnessing the global reach of the UN system, SDG Invest was able to cast a wide net to solicit innovative proposals. Through the first call for proposals, the fund was able to solicit initiatives from countries and regions that are under-represented in blended finance, based on Convergence’s historical deals database, particularly from a range of Small Island Developing States (SIDS). Historically under-represented sectors such as water infrastructure, waste management, health, and tourism were also heavily featured across proposals. SDG Invest’s ability to source initiatives from countries and sectors that have previously struggled to attract blended finance has the potential to contribute to market building and ultimately catalyze additional investment into these regions and sectors.

A regional approach may enhance investable transactions

Nearly half of historical blended finance transactions captured by Convergence have been implemented across multiple countries. On average, these deals have been able to raise more capital than transactions implemented in single countries. For the first round of funding, SDG Invest solicited proposals primarily from single-country initiatives, which leveraged the deep network of UN country teams and highlighted their on-the-ground knowledge of local markets and context. However, taking a regional approach may open the fund up to a broader set of bankable blended finance initiatives and may enhance the investability of initiatives with small target markets, while continuing to benefit from local market knowledge.

Focus and standardization are important for scale

Many initiatives submitted through the first call sought to implement a complex set of interventions, each with bespoke financial and governance structures and implementing agents. While the UN country teams may be correct in identifying a multitude of development finance challenges faced in target markets, taking a focused approach is critical to attract investment. Mobilizing private sector capital to the SDGs at scale requires the participation of investors who crave standardized products that are familiar and accessible. These investors may be incentivized to deploy capital to nascent sectors and regions, but only if they can be presented with blended finance approaches that are straightforward and standardized.

Support to practitioners is crucial

Each of the shortlisted UN Country Teams were provided with design funding and technical assistance, support in identifying local consultants to aid in proposal development, and tailored feedback on initiatives. The fund also established investor advisory groups to act as an expert sounding board for applicants. More of this type of support is needed in the market, and the feedback from the teams indicated that both funding and advisory support were highly valued throughout the proposal development process.

SDG Invest’s first call for proposals resulted in significant learnings that can be taken forward through subsequent rounds, with an opportunity to evolve and continue to support blended finance practitioners globally. Together, Convergence’s unique market position and the UN’s global reach are enablers for catalyzing blended finance solutions to achieve the SDGs.

For a more detailed perspective, please read our technical white paper here.

By Matthias Pries, former Senior Associate at Convergence