PLY: As western nations will clearly struggle with their own budgetary issues for years to come, ring fencing cannot be assured in development budgets (this is based on the politics of pure maths, as it were). A look at SIBs and Impact Investing in plugging that gap:
Impact Investing Could Help Plug $2.5tn Funding Gap For Development
Alison Moodie – The Guardian
Developing nations need trillions of dollars a year to tackle issues. But foreign investment into these countries dropped by 16% in 2014, to $1.23tn, further widening the $2.5tn gap needed annually to address the most critical areas.
“The global challenges are so complex and the size of the funding that’s needed is so large, traditional funding sources like philanthropy are probably not going to be sufficient to meet it,” said Anna Kearney, associate director for corporate social responsibility at the Bank of New York Mellon (BNY Mellon), which this week released a white paper on the importance of social finance.
The report comes after a UN summit in Addis Ababa, Ethiopia, last week, where world leaders reached an agreement on how to finance some of the planet’s most pressing development issues.
Impact investing – investments that have a social or environmental benefit while also turning a profit – might be one of the best ways address the financing shortfalls, experts say.
One example is the relatively new area of social impact bonds – private money that pays for social projects usually funded by the public sector or philanthropists. The bonds typically involve partnerships between private investors, governments and nonprofit organizations.
The UK was one of the first countries to champion the idea, and the results for some of the first social impact bonds are promising. Three programs centered on teenagers and education have been deemed a success – investors have made a return on their investments, and the children’s literacy skills and school attendance has improved.
A version of these, called development impact bonds, aim to help tackle complex social issues in developing countries, but are still in early stages.