Introduction

A decade after the 2015 UN Financing for Development Conference in Addis Ababa (FfD3), the financing gap between the resources mobilized by emerging markets and developing economies (EMDEs) and those needed to meet development goals has continued to widen. Estimated at an annual $4 trillion in 2022–2023, total financing needs are projected to reach $6.4 trillion by 2030, the target year for the UN Sustainable Development Goals (SDGs) (OECD 2025). Achieving these goals – tackling challenges such as poverty, inequality, climate change, and peace – requires not only increased financial flows but also a more strategic and diversified approach to private capital mobilization.

Private-sector investment has been increasingly recognized as critical to addressing this gap, with mechanisms such as blended finance, impact investing, and catalytic capital – including philanthropic funding – playing a central role. However, the volume of private capital mobilized remains insufficient, making this issue a priority for forums like the 2025 Financing for Development Conference in Seville (FfD4).

The concept of mobilizing private finance for development first gained global prominence at FfD3, evolving from a commitment into a more structured strategy. Blended finance and the recognition of a broader spectrum of catalytic capital emerged as a key tool to bridge the financing gap, recognizing that different sectors have varying levels of attractiveness to private investors. Some, such as renewable energy, have drawn substantial investment, while others, such as health, education, and water, continue to face barriers due to perceived risks and lower financial returns.

Historically, high capital costs in EMDEs have hindered development investments, with infrastructure and social sectors largely dependent on public funding. However, the energy sector – particularly renewable energy – has attracted private investment, reducing the need for risk mitigation by public actors such as multilateral development banks (MDBs), public-sector entities, and philanthropic organizations. This shift has raised concerns about crowding out private-sector participation where it could be most effective, while MDBs remain risk averse due to their financial stability considerations. Despite their mandate to finance high-risk ventures, MDBs often prioritize maintaining their AAA credit ratings, which can sometimes take precedence over broader development ambitions.

Conversely, while infrastructure and energy have become viable for private investment, new levels of innovation mean that traditionally public-funded sectors such as water, education, and health are now also seeing some level of private-sector engagement. This trend challenges conventional distinctions between public and private goods, raising both opportunities (for increased funding) and concerns regarding equity, access, and affordability. Private health care providers, for instance, are expanding in underserved areas, and companies are supplying drinking water in the absence of public services. These developments highlight the need for carefully structured financial mechanisms that align private-sector participation with key development objectives and a commitment to inclusion.

As the development finance landscape evolves, blended finance and catalytic capital – including philanthropy – play a crucial role in scaling investment and mitigating risks that deter private participation. Philanthropy, as part of a broader continuum of capital, can de-risk investments and crowd in private capital, particularly in sectors where financial returns alone do not justify investment. The effectiveness of MDBs and development finance institutions (DFIs) in mobilizing capital must also be enhanced to ensure these institutions fulfill their mandate of financing high-risk, high-impact ventures while retaining their credit ratings.

This chapter explores how blended finance, catalytic capital, and philanthropic contributions can be leveraged to close the financing gap and drive sustainable development. It will examine strategies for scaling these mechanisms and transforming MDBs and DFIs into more effective mobilizers of private capital, ensuring a more inclusive and impactful development finance system while also collaborating more widely across the broader ecosystem.

The Transformative Potential of Public–Private–Philanthropy Partnerships

The G20 Independent High-Level Expert Group (IHLEG) emphasizes the transformative potential of investment partnerships among private, public, and philanthropic stakeholders from both the Global North and Global South (Bhattacharya et al. Reference Bhattacharya, Songwe, Soubeyran and Stern2024). Their analysis highlights the unprecedented investment imperative and opportunity presented by the net-zero transition as a pathway to equitable and sustainable growth.

For example, Africa holds 60 percent of global solar energy potential yet received only 2 percent of global clean energy investments in 2023 (IEA 2024). Given that solar panels are the most cost-effective method of electricity generation, Sub-Saharan Africa presents immense business potential – provided adequate funding is available. Instead of framing this solely as an investment gap, the IHLEG advocates for viewing it as an opportunity to lift millions out of poverty and enhance livelihoods. This perspective shifts the narrative from a challenge to an asset, fostering innovative solutions that benefit both people and the planet.

Within this context, philanthropic organizations have a unique opportunity to leverage their assets more strategically to catalyze development impact. According to the Organisation for Economic Co-operation and Development (OECD), while private philanthropy contributed an estimated $9.6 billion to global development in 2020, up by 65 percent from $5.8 billion in 2015, many foundations are not fully utilizing their potential to drive systemic change (OECD 2023). By adopting innovative financial instruments such as loans, guarantees, and equity investments – beyond traditional grants – foundations can address gaps in development funding, particularly in such sectors as health, education, and climate resilience.

Perhaps most importantly, by adopting more sophisticated instruments and structures, philanthropic entities will inevitably enhance their capacity to support broader partnerships, leveraging their risk capital to underwrite ambitious initiatives. This presents an untapped opportunity, historically exacerbated by the lack of collaboration between the philanthropic sector and the broader development community. As multi-sector partnerships gain momentum and philanthropy’s potential to apply a systems lens – taking a holistic rather than fragmented approach – is increasingly recognized, this gap is beginning to close.

Indeed, these partnerships, often anchored by social sector actors, represent an emerging model designed to address the complex, multi-stakeholder, systemic shifts required to deliver on the SDGs and notably for climate and nature transitions.Footnote ¹ Moreover, only a minority of foundations currently align their endowments with responsible investment strategies, despite clear evidence that mission-related investments can generate both competitive financial returns and meaningful social impact. Enhancing transparency, collaboration, and capacity-building within the philanthropic sector is essential to amplifying its role as a catalyst for sustainable development finance.

The Financial Gap for the SDGs: Building an Enabling Environment

The pressing need to fill funding gaps has highlighted the limitations of traditional development finance. Even at its highest level ever in 2023, ODA reached $223.3 billionFootnote ² – yet remained insufficient to meet the SDGs. While governments and international institutions remain key players, the private sector has emerged as a crucial partner in closing the gap. With global assets worth $461 trillion in 2022 (OECD 2025), its capacity for innovation, and focus on environmental, social, and governance (ESG) metrics render it a natural ally.

However, significant barriers continue to hinder the effective mobilization of private capital, chief among them the inefficacy of public finance instruments in EMDEs and the constraints imposed by existing regulatory frameworks. Domestic tax policies, investment environments, and regulations have failed to attract sufficient private finance, which has fallen well short of the expectations set in 2015. In 2023, only $70 billion in private capitalFootnote ³ had been mobilized for development – far from the “billions to trillions” ambition outlined at the FfD3 in Addis Ababa.Footnote ⁴

Enabling regulatory frameworks remains essential to unlocking private investment. As consistently emphasized by the OECD, this requires the development of robust domestic capital markets, clear policies, and institutional frameworks that incentivize private-sector participation (Dembele Reference Dembele, Randall, Vilalta and Bangun2022).

Meanwhile, blended finance has gained traction as a tool to de-risk investments and attract private-sector participation. Instruments such as equity investments, debt instruments, guarantees, impact bonds, structured funds, and syndicated loans have evolved significantly since 2015. However, challenges persist, including high local currency interest rates and public-sector reliance on concessional funding.

The OECD (2022) emphasizes the opportunity of blending public and private finance to better meet the investment challenges of developing markets while also recognizing the capital surplus the Global North and the demographic growth and investment opportunities in the Global South. Institutional investors – from pension funds to sovereign wealth funds, insurance companies, private equity firms, hedge funds, and family offices – could all play a much greater role in addressing key global issues such as climate change, sustainable development, and financial inclusion with a more enabling environment.

The need for reform has not gone unnoticed. In 2023, G7 countries engaged extensively in discussions to this end. A significant bipartisan achievement was the 2019 establishment of the US International Development Finance Corporation, partly aimed at countering China’s Belt and Road Initiative. Moreover, the G20’s call for “better, bigger, and more effective” MDBsFootnote ⁵ underscored the need for greater cohesion, optimized balance sheets, enabling cross and joint investments and risk mitigation through treasury operations like swaps.

There is also a growing emphasis on improving coordination among bilateral DFIs, such as FMO, NORFUND, and DEG, to strengthen the sustainable development financing ecosystem. However, much deeper structural progress is still needed – through initiatives such as the Investment Mobilisation Collaboration Alliance (IMCA), a partnership between Denmark, Finland, Iceland, Norway and Sweden promoting project pipeline coordination and collaborative tendering of asset managers using a competitive market approach.

Facilitating Capital Flows: The role of global financial regulations in facilitating capital flows to EMDEs is also crucial. Following the 2007–2009 financial crisis, frameworks such as Basel III and Solvency II prioritized financial stability but inadvertently imposed prohibitive costs on investments in regions urgently needing climate and development funding. There have been persistent calls to reassess these regulations to better balance stability with development objectives, as stringent capital requirements continue to stifle investment in EMDEs.Footnote ⁶

While some advocate for integrating global development and climate goals into financial regulations, others warn of the complexity and political resistance such reforms may face. The FFD4 outcome document, the Sevilla Commitment, acknowledges the issue by inviting international bodies and standard-setting organizations to report on risk-weighting methodologies, especially regarding their impact on MSMEs, infrastructure, and trade finance. However, significant political and technical hurdles remain (OECD 2025).

Mobilizing private finance has thus become a political priority in addressing the SDG financing gap, but it is not a panacea. Concessional finance or aid, historically dominated by OECD member countries, remains essential, accounting for 94 percent of total official flows provided by members of the Development Assistance Committee (DAC) in 2023.Footnote ⁷ Moreover, nontraditional providers – from China to the BRICS nations and Middle East actors – are playing a growing role. Institutions such as the Islamic Development Bank, as well as Saudi Arabian and United Arab Emirates–based entities, are increasingly engaged in this area and building greater transparency by reporting their concessional finance flows to the OECD.

Challenges remain, however, in facilitating collaboration by ensuring comprehensive data collection that can highlight opportunities for co-investments and where the gaps lie. The OECD’s Credit Reporting System aims to address this issue by providing disaggregating data from 130 institutions – including 30 OECD member countries, 20 non-DAC providers, 40 foundations, 40 international organizations, and UN agencies – offering a higher standard of data accuracy and transparency for tracking concessional funding.

Strengthening Domestic Resource Mobilization and Development Finance

Domestic resource mobilization (DRM) is increasingly recognized as the most sustainable funding source for EMDEs. While high-income countries generate an average of 40 percent of their gross national income (GNI) through domestic taxation, low-income countries (LICs) raised only 11 percent in 2022 – far below the 15 percent threshold needed to fund basic government functions and public services (Our World in Data 2023).

Despite its potential, DRM has seen limited progress over the past decade, largely due to inadequate international support for capacity building in tax policy and revenue generation. Philanthropic organizations could play a critical role in closing this gap. Unlike volatile external funding, DRM provides stable, local currency–denominated resources, enabling EMDEs to finance their development priorities sustainably. Strengthened technical assistance and targeted capacity-building initiatives are essential to unlocking DRM’s full potential.

Aligning Investment with the SDGs. Governments can incentivize private sector investment in the SDGs by reducing the cost of capital and implementing ESG taxonomies. While ESG frameworks have advanced globally, pushback – particularly in the United States – has led to reduced commitments in Anglo-Saxon markets, where ESG is increasingly labeled as “woke.” In contrast, the European Union has introduced mechanisms encouraging investment in EMDEs, and organizations such as the OECD and G20 are working on frameworks to align finance with the SDGs, particularly for impact investors.

Private-sector coalitions such as the Global Impact Investing Network, the World Business Council for Sustainable Development, and the Global Alliance for Sustainable Development are also advancing ESG taxonomies, monitoring standards, and reporting frameworks, aiming to increase transparency and drive greater private sector participation.

Portfolio Approaches. Portfolio approaches, pioneered by IFC, Amundi, and Allianz, enable large asset managers to co-invest in MDB and DFI assets, creating substantial ticket sizes with investments in the hundreds of millions. Multi-sector and sector-specific investments are drawing institutional investors into transformative projects, facilitated by initiatives such as the the Hamburg Sustainability Platform (HSP), rebranded in June 2025 as SCALED – a public–private alliance working to standardize financial products and align public strategies. This approach enables large-scale institutional investments from pension funds and insurance companies.Footnote ⁸

Ensuring Equitable Funding Allocation. A greater focus is needed on LICs and least-developed countries (LDCs), which receive disproportionately low private finance. Capital primarily flows to middle-income countries and high-return sectors like energy, bypassing social sectors and LDCs, where funding needs are greatest. DFIs and MDBs must strike a balance between concessional finance (loans and grants) for LICs and LDCs and scaling mobilized capital for broader investments. The G20 Roadmap for MDB Reform, endorsed by G20 Leaders, provides a framework for increasing MDB financing capacity, fostering greater collaboration across development banks, and strengthening engagement with governments, private sector investors, and other stakeholders.Footnote ⁹

Capitalization and Innovation in Development Finance. Sustained innovation in development finance requires increased capitalization of bilateral DFIs, MDBs, and national development banks. However, the current landscape remains static, necessitating a shift toward greater risk-taking and financial innovation. Momentum is building – particularly among shareholders – for higher capital injections into MDBs and DFIs (Bridgetown Initiative 2024). Enhanced capitalization would enable these institutions to take on higher risks, adopt innovative financing mechanisms, and support transformative projects.

Despite resistance from some countries, the World Bank has recently approved incremental capital increases as part of its ongoing reform process. Hybrid capital – a mechanism blending capital and loan characteristics – has emerged as a potential solution. These instruments are currently under discussion within DAC frameworks, with ongoing debates about whether they qualify as development aid based on their structure and intended use (Humphrey, McHugh, and White Reference Humphrey, McHugh and White2023).

The Role of Blended Finance in Mobilizing Private Capital

Blended finance, combining public, philanthropic, and private-sector resources, has emerged as a critical tool for addressing development challenges, particularly in infrastructure, climate adaptation, and other long-term investments in EMDEs. By using concessional funds from development actors to mitigate risks, blended finance encourages private-sector participation in areas deemed too risky or unattractive for conventional investment. The concept hinges on de-risking private investments to unlock capital flows into high-priority sectors such as renewable energy, social infrastructure, and climate resilience. Despite its growing prominence and political backing – supported by initiatives like the Bridgetown Initiative and the 4P Initiative, launched at the Summit on a New Global Financing PactFootnote ¹⁰ – the overall impact of blended finance remains modest.

A major obstacle to scaling blended finance lies in political and operational dynamics. Stakeholders often prioritize launching new initiatives with high political visibility over scaling existing successful models. This fragmentation disperses resources and limits the broader impact of blended finance. To counter this, such initiatives as the HSP and Convergence Blended Finance (CBF) aim to offer solutions (Convergence Blended Finance 2024). The HSP envisions a mega-fund capable of scaling proven projects, channelling resources toward high-impact initiatives. Similarly, CBF has identified and analyzed twelve successful blended finance models, aiming to focus efforts on the most impactful approaches. These initiatives emphasize standardizing processes, including the negotiation of legal frameworks and public-sector programming, to enhance efficiency and facilitate private-sector understanding of risk–return profiles. Such targeted efforts can help resolve structural inefficiencies, streamline investments, and bridge the persistent financing gap.

One of the most critical limitations of blended finance is the lack of publicly available, granular data on its successes and failures. Much of this data is proprietary to DFIs and MDBs, restricted by nondisclosure agreements with private-sector partners. The GEMS databank, housed at the European Investment Bank, exemplifies this challenge. While GEMS compiles risk–return data for emerging markets, it shares disaggregated information only among MDBs and DFIs, leaving private investors without the tools to accurately assess risks and opportunities. While more granular data has recently been published,Footnote ¹¹ the relative opacity is widely seen as hindering private-sector engagement and broader understanding of risk–return profiles in developing countries (Galizia and Lund Reference Galizia and Lund2024). In contrast, the OECD’s open-access datasets, which provide detailed project-level funding information across sectors and countries, serve as a role model.Footnote ¹² Studies such as Publish What You FundFootnote ¹³ further stress the urgency for MDBs and DFIs to adopt greater transparency to build investor confidence and reduce reliance on public funds for de-risking (James and Paxton Reference James and Paxton2024).

Blended finance must balance risk and return equitably between public and private stakeholders. In its early stages, public entities often provide substantial de-risking to attract private capital. However, this protection should gradually decrease to prevent overcompensating private investors and crowding out market-driven solutions. This principle was affirmed by the DAC in 2018 through the adoption of the OECD DAC Blended Finance Principles (OECD 2018a). Addressing concerns about the disparity between public risk and private return requires adaptive frameworks that adjust incentives as more data becomes available. Improved data can recalibrate expectations, reducing public de-risking while fostering sustainable private sector engagement with appropriate returns.

The risk of greenwashing and diluted impact-driven investments remains a critical concern. Ensuring accountability requires strong frameworks, transparent reporting, and rigorous monitoring. While on-going multilateral reforms seek to mobilize more private-sector funding, projections indicate they will fall short of the required scale. Bridging this gap demands targeted investments in scalable sectors and a reassessment of philanthropy’s role. As risk capital, philanthropic funding is uniquely positioned to complement public and private efforts, offering flexibility and patience to address gaps in high-need, low-return areas.

The Role of Philanthropy in De-risking and Capacity Building

As the case studies in this book illustrate, philanthropy can play a pivotal role in de-risking blended finance transactions by deploying concessional funding, guarantees, or equity investments to lower perceived risks in developing countries.Footnote ¹⁴ This is particularly significant in sectors such as biodiversity, health care, and education, where financial returns may be uncertain or slow to materialize yet the development impact is substantial.

By assuming higher levels of risk, philanthropic capital can attract private-sector investment, leveraging additional resources to bridge SDG financing gaps. Unlike traditional investors, philanthropy can support high-risk, long-term initiatives, fostering innovation, pilot programs, and research that might otherwise struggle to secure funding. Its catalytic effect can create a multiplier impact, with initial investments de-risking projects and paving the way for follow-up financing from public and private sectors. This not only expands available capital but also establishes proof of concept for emerging markets and innovative business models.

Fulfilling Underutilized Potential. Beyond direct financial contributions, philanthropy can act as a facilitator of systemic change. From financing early-stage impact enterprises to deploying first-loss capital in blended finance structures, it has a unique and underutilizedFootnote ¹⁵ potential to mitigate risk, catalyze public–private–philanthropic partnerships (4Ps), and unlock greater institutional investment for sustainable development. However, it has yet to meet its full potential: a more systemic and strategic deployment of philanthropic funds could significantly enhance risk-sharing mechanisms and build investor confidence in sectors traditionally seen as unviable for commercial investment.

As this book illustrates, philanthropic support for locally led development initiatives can help establish community-driven models that later integrate into national policies, ensuring long-term sustainability. Similarly, philanthropy’s role in renewable energy and climate finance can facilitate the development of market-ready solutions that align with public- and private-sector priorities. By filling critical funding gaps and accelerating market-building efforts, philanthropy can help unlock scalable investment pathways that enable sustainable development.

De-Risking and Innovation. Larger philanthropic organizations have pioneered innovative approaches to mobilizing investment flows. Their efforts demonstrate the leverage effect of philanthropic funding, where relatively small initial investments unlock significantly larger contributions from private and public actors. Initiatives such as The Rockefeller Foundation’s Zero Gap Fund and the John D. and Catherine T. MacArthur Foundation’s program-related investments have supported financial instruments such as social impact bonds and development impact bonds, providing a pathway for private investors to align capital with development goals while ensuring measurable impact.

Capacity Building. Beyond financial contributions, philanthropic organizations can play a crucial role in amplifying the role of partnerships and in capacity building. By convening stakeholders – including governments, private entities, and local organizations – philanthropy strengthens the collaborative frameworks necessary for the success of blended finance initiatives. These partnerships help address systemic barriers such as limited local capacity to implement and manage sustainable projects. However, philanthropy must carefully balance its catalytic function with concerns about becoming a mere “gap filler” for public aid, ensuring that its interventions drive systemic change rather than compensating for insufficient public-sector investment.

Mission Related Investment. The diversity in philanthropic funding structures also shapes how foundations engage in blended finance. Endowments, such as those held by larger foundations, can enable long-term investment strategies, allowing them to act as institutional investors deploying returns for program-related investments. Other philanthropic models, such as those reliant on benefactor injections or equity holdings in companies, may influence risk appetite and investment flexibility. Mechanisms such as portfolio guarantees or subscriptions to MDB bonds and sustainability-linked bonds could provide additional pathways for philanthropic institutions to scale their contributions effectively (OECD 2024).

Philanthropy can play a unique and critical role in shaping global financial paradigms by raising awareness, advocating for policy reforms, and influencing high-level discussions on economic restructuring. Efforts like the Bridgetown Initiative highlight its potential impact in driving financial reform. Beyond advocacy, philanthropy’s capacity for high-risk catalytic investments makes it a key player in de-risking blended finance and advancing sustainable development. However, for such outcomes to materialize, the philanthropic sector must truly lean into its de-risking potential.

Transforming the International Development Architecture

Similar to the philanthropic sector, MDBs and DFIs could do more to fulfill their potential and transition from their traditional role as direct financiers to becoming proactive mobilizers of private capital (G20 2024). This transition requires structural and operational reforms, including more flexible financing terms, expanded risk-sharing mechanisms, and better leveraging of their creditworthiness to attract private-sector investment. These transformations would position MDBs and DFIs as critical enablers of sustainable development rather than sole providers of funding – an evolution that mirrors the catalytic potential of philanthropy.

A central area for reform is integrating blended finance into the core development strategies of MDBs, DFIs, and domestic development banks. This includes designing innovative financial instruments tailored to SDG-related investments and fostering new partnerships with philanthropic organizations and private investors. Just as philanthropy can play a crucial role in de-risking transactions, making private capital more willing to engage in high-impact sectors, if MDBs and DFIs embrace similar risk-sharing approaches, they can also scale investment in these areas. The Development Committee 2024 Paper: A Bank for the Private Sector underscores this, highlighting national and regional development banks as essential intermediaries linking international capital with localized expertise (Development Committee 2024). However, while these reforms are promising, the OECD estimates that current measures will increase the MDB system’s financing capacity by only 30 percent by 2030 (OECD 2024), falling far short of what is required to close the SDG financing gap.

Building More Inclusive Development Finance

The transformation of development finance must also ensure that EMDEs play a leading role in shaping the global financial landscape. Despite generating 58 percent of global GDP and representing 86.5 percent of the global population, EMDEs hold only 40.9 percent of votes and 38.6 percent of quota shares at the IMF, while at the World Bank, developing countries hold just 39 percent of the voting rights, despite making up 75 percent of its membership (OECD 2025). Historically dominated by high-income countries, development finance governance must reflect the perspectives and priorities of emerging economies. Initiatives such as the G20 Common Framework for Debt Treatments provide a step forward by facilitating cooperation in addressing debt sustainability. However, greater transparency in funding flows and stronger coordination mechanisms are needed to prevent unsustainable debt situations.

One challenge is the lack of transparency in certain development finance flows, particularly from emerging donors such as China, whose financing is often channelled through state-owned enterprises with limited accountability. Tools like the Total Official Support for Sustainable Development (TOSSD) framework offer a complementary measurement system to traditional ODA metrics, aligning more closely with the 2030 Agenda for Sustainable Development and providing a more comprehensive view of global development efforts.Footnote ¹⁶

Trilateral partnerships involving MDBs, national development banks, and private investors can help bridge gaps in trust, enhance risk-sharing, and create more effective pathways for investments that balance public and private interests.Footnote ¹⁷ As seen in philanthropy-led blended transactions, when institutions with localized expertise collaborate with larger financial actors, they can more effectively de-risk investments and scale solutions tailored to local development priorities.

Balancing Transformation with Inclusivity. As the development finance landscape evolves, ensuring that the needs of the most vulnerable populations remain at the center is critical. While mobilizing private capital is necessary to scale resources, concessional financing and grants must be strategically allocated to address marginalized communities’ needs. This is where philanthropic capital has unique value – by filling high-risk, high-need gaps that commercial investors may overlook. Lessons from philanthropic contributions in blended finance illustrate the importance of maintaining a balance between attracting private-sector participation and preserving concessional resources for social impact initiatives.

Governance and accountability mechanisms must also evolve to reflect this shift. Efficient oversight, strong advocacy, and transparent reporting will be essential to maintaining credibility and ensuring that private-sector involvement does not undermine development effectiveness. The principles of the Global Partnership for Effective Development Cooperation (GPEDC)Footnote ¹⁸ provide a useful framework for achieving this balance. Additionally, advances in technology and artificial intelligence can enhance data collection and resource allocation, helping optimize financing flows and improve decision-making.

Recommendations for a Conducive Catalytic Finance Framework

The following set of recommendations summarize key structural challenges that currently stymie the mobilization of multiple sources of development finance.

• Increasing Access to Granular Risk Data. A major barrier in blended finance is the lack of granular, accessible risk data, deterring private investment. Initiatives such as the Hamburg Data Alliance aim to enhance transparency through interoperable datasets, enabling better risk assessment at country and project levels. Efforts by Germany, the United Kingdom, and the OECD emphasize the need for such data to boost investor confidence. Improving data interoperability is key to reducing risks and unlocking private sector investment.

• Enhancing Transparency in Credit Rating Agencies. Credit rating agencies (CRAs) influence investment decisions but often overestimate risks in developing countries due to regional biases and limited local data (Bridgetown Initiative 2024). For instance, Kenya and Somalia may receive similar ratings based solely on geography, overlooking key economic and political differences. There is growing pressure for CRAs to disclose methodologies and engage more with EMDE stakeholders. Initiatives like the Summit for a New Global Financing Pact highlight the need for government capacity building to ensure ratings reflect actual conditions.

• Addressing Foreign Exchange and Local Currency Challenges. Foreign exchange risks and high hedging costs hinder development financing in the EMDEs, where most loans are in hard currency. Platforms like the EU-supported TCXFootnote ¹⁹ offer hedging solutions but require scaling and capacity building potentially funded by philanthropy. Beyond hedging, promoting local currency investments and guarantees can reduce volatility, making long-term loans more sustainable (Horrocks et al. Reference Horrocks, Marshall and Thomas2025).

• Scaling Investable Pipelines for Institutional Investors. A key challenge in blended finance is the scarcity of investable projects. Initiatives such as the Hamburg Sustainability Platform, WBG’s Private Sector Investment Lab, and Convergence aim to expand pipelines by bundling smaller projects into larger portfolios, making them more attractive to institutional investors.Footnote ²⁰ These scaling strategies could unlock significant capital, aligning blended finance with global asset managers’ demands and with philanthropy de-risking through seed capital.

• Reforming Regulatory Frameworks. Regulations such as Basel III, Solvency II, and taxonomies designed for advanced economies often inadvertently increase capital costs for investments in the EMDEs. These regulations, while necessary for global financial stability, can discourage private-sector participation in high-risk markets. Refining these frameworks to account for the developmental priorities of low- and middle-income countries could ease constraints, reduce costs, and encourage greater private investment in blended finance projects.

• Enhancing Coordination among Bilateral DFIs. Bilateral DFIs must enhance coordination to achieve efficiencies comparable to MDBs. Networks like the International Development Finance ClubFootnote ²¹ and the Finance in Common Summit (FiCS) have advanced DFI collaboration, pooling resources and co-financing initiatives to amplify impact. A more structured approach to joint investments could further strengthen their role in advancing development goals (Volz et al. Reference Volz, Lo and Mishra2024).

• Strengthening Governance and South–South Representation. Momentum is growing to give greater governance weight to EMDEs within key financial institutions like the IMF, G20, and the United Nations. Initiatives such as the Global Blended Finance Alliance,Footnote ²² led by countries such as Indonesia, advocate for inclusive decision-making. Enhancing representation ensures that the voices of developing countries shape the governance of development finance, aligning with local needs and fostering trust among stakeholders.

• Innovation through Performance Management. To ensure that development finance remains inclusive, key steps must include establishing clear mandates, adopting KPIs, and embracing business models that foster collaboration with the private sector. Such initiatives as the World Bank’s Private Sector Innovation Lab and the participation of GFANZ (Glasgow Financial Alliance for Net Zero)Footnote ²³ exemplify this approach.

A Road Map for Future Development Finance and Philanthropy

As the Global South Impact Community’s G20 statement emphasizes,Footnote ²⁴ there is an increasingly urgent need to create a more inclusive global development finance architecture that prioritizes the needs and perspectives of EMDEs. This initiative aligns with ongoing efforts to reform governance structures, such as the African Union’s inclusion in the G20 and calls for increased representation of EMDEs countries in key institutions such as the IMF and the United Nations Security Council. While these changes may now face significant disruption due to the new emerging world order and rapidly shifting global approaches to foreign aid policy, ensuring a fairer distribution of decision-making power and resources remains critical – particularly in addressing global crises such as climate change and public health inequities.

Illustrative for these reforms is the establishment of the Global Blended Finance Alliance, an initiative born from Indonesia’s G20 presidency and set to be headquartered in Bali. This alliance aims to facilitate South–South cooperation in blended finance, focusing on mobilizing catalytic capital for investments in climate action, health, and sustainable development across EMDEs. Supported by knowledge partners such as the OECD and AVPN, this organization seeks to support Global South countries in undertaking transformative investments through mobilizing private finance.

As the financing gap for the SDGs continues to widen, innovative and inclusive solutions are urgently needed to mobilize the necessary resources. Blended finance, supported by philanthropic capital to de-risk investments, represents a promising pathway for closing this gap. By mitigating perceived risks, philanthropy can catalyze private-sector investment and unlock larger flows of capital. However, achieving the full potential of blended finance requires overcoming barriers such as fragmented financing structures, entrenched risk perceptions, and the need for a transformed international development architecture.

Philanthropy alone cannot address these challenges. A coordinated effort involving governments, MDBs, DFIs, and private-sector actors – including philanthropy – is essential. Governance reforms that enhance accountability and inclusivity will play a pivotal role in ensuring development finance reaches those who need it most. Proposals such as the Enhanced Transparency Framework, featured prominently in the substantive discussions leading up to the FfD4, could offer a road map for creating common standards of accountability among all actors.Footnote ²⁵ This framework could foster a global understanding of shared responsibility, with EMDE providers playing a more significant role. Recent developments, such as the increased contributions from EMDEs countries to the WHO, demonstrate the potential for a shift toward greater solidarity and collective action.Footnote ²⁶

Looking ahead, a flexible and adaptive road map for development finance must be resilient to future crises and align with the evolving needs of developing countries. The Sevilla Platform for Action has already laid the groundwork for such a framework. Subsequent reform and discussions are playing a critical role in shaping an inclusive and effective global financing system. By focusing on resilience and adaptability, this road map can respond to emerging challenges while maintaining alignment with the SDGs.

The global economic landscape is shifting, with greater economic weight moving toward EMDEs. To reflect this change, international development finance must embrace inclusivity, innovation, and collaboration. Blended finance, supported by an evolving ecosystem of philanthropic, public, and private actors, has the potential to address the financing gap and build a sustainable, equitable future. With a unified effort and a shared commitment to transparency, accountability, and solidarity, the world can chart a course toward a more resilient and inclusive development finance architecture.

Introduction

At Danone, the transformative power of partnerships has been a cornerstone of the company’s approach for decades and an intrinsic part of its DNA. Indeed, Danone was born out of a partnership in 1919 when its founder, Isaac Carasso, collaborated with scientists at the Pasteur Institute to create yogurts with health benefits. This foundational collaboration set the tone for the company’s business approach and commitment to science, ultimately inspiring Danone’s mission: bringing health through food to as many people as possible.

Over the years, we have repeatedly witnessed how partnerships can turn challenges into opportunities. CITEO is a prime example – an organization that plays a crucial role in France in managing extended producer responsibility for packaging waste and paper. What began in 1992 as a pioneering initiative in packaging recycling, spearheaded by our former CEO Antoine Riboud, has now become a benchmark for our sustainability efforts, helping develop and optimize recycling systems across France.

Since 2006, Danone has experimented with various forms of partnerships to tackle sustainability challenges around nutrition, nature, and the resilience of local communities in relation to food supply chains. Danone Communities, a social business initiative within Danone, was created in 2006 as a venture capital fund co-investing with partners in social businesses as well as providing them with capital and technical and managerial expertise on water access and nutrition. Over the years, the fund has impacted 12.7 million people with 15 businesses in 24 countries. Similarly, Danone Ecosystem has been supporting inclusive business models since 2009, touching lives and communities around the globe by empowering small-scale players in our value chain. This nonprofit organization has launched more than 100 projects with more than 90 partners co-investing $270 million and impacting 6 million people indirectly. Similarly, the Livelihoods Funds – a group of impact investment funds designed to support the efforts of agricultural and rural communities to live in sustainable ecosystems – is investing on aggregate more than €320 million in carbon reduction and family farming.

At the heart of all these initiatives lies a commitment to partnerships – bringing together companies, social entrepreneurs, nongovernmental organizations (NGOs), universities, governments, farmers, and local communities to drive meaningful impact.

Our experience in these endeavors has reinforced our belief that partnerships are the most effective way to tackle sustainability challenges. It has also taught us valuable lessons about how to build and sustain them. In this chapter, we outline how each partnership begins with an initial discussion centered on shared goals and clearly defined roles for stakeholders. Among them, the private sector plays a critical role as the off-taker, bearing primary responsibility for the resilience of its supply chain.

We have also learned the importance of moving beyond predefined roles – engaging with partners from the outset to co-create solutions. From the design phase, we focus on developing economically viable projects with a clear commitment to sustaining impact beyond our direct involvement. Additionally, we have realized that striving for perfect alignment from the start is less effective than establishing strong governance structures that allow partnerships to evolve and adapt over time.

Danone’s experience exemplifies these principles, but the challenge extends far beyond our company or the dairy industry. This is a broad, cross-sector issue that requires the collective efforts of all stakeholders to confront the stark realities of our world’s interconnected crises. Encouragingly, we are witnessing the rise of partnerships at multiple levels, alongside a growing ecosystem of actors willing and able to support and finance these efforts. Now is the time to accelerate these partnerships, scaling them to the next level. The complexity of today’s challenges is too great for any single company – or even an entire sector – to address alone. Fortunately, there is unprecedented momentum to align interests across all sectors around humanity’s most urgent issues.

This is where public–private–philanthropic partnerships (4Ps) come into play. By aligning goals and leveraging innovative funding mechanisms, 4Ps have the potential to drive transformative impact, addressing the root causes of these crises and fostering a more sustainable and equitable future.

In this chapter, we aim to share key lessons on how partnerships can be structured, financed, and scaled to address some of the most pressing challenges of our time. We will also explore why, despite their potential, partnerships are not materializing at the necessary pace – and how to overcome the barriers preventing their full realization.

The Interconnected Crisis Asks for a Collective Response

Our efforts, while impactful within local contexts and specific industries, are not achieving the scale or speed needed to comprehensively address the demands of our rapidly changing world. The planet faces a convergence of interconnected crises, including climate change, water scarcity, biodiversity loss, and land degradation – challenges that are especially acute in the Global South. These issues are deeply intertwined, each intensifying the effects of the others and posing escalating risks to both human and ecological well-being.

Climate change remains a dominant global threat, driven primarily by greenhouse gas (GHG) emissions. While carbon dioxide (CO₂) has been the focus of many reduction strategies, methane (CH₄) is gaining increased attention, especially in the dairy sector, due to its potent warming effect. With a global warming potential 27–30 times greater than CO₂ over a 100-year period (European Commission) CH₄ reductions could provide rapid short-term relief pending longer-term CO₂ reduction strategies. However, it is clear that humankind is not reaching its targets in addressing these challenges. Taking GHG alone, the commitments made to date fall short of what is required by the net-zero emissions pathway (International Energy Agency 2021). Current plans would indeed leave around 22 billion tons of CO₂ emissions worldwide in 2050, leading to a temperature rise from preindustrial levels in 2100 of around 2.1ºC (International Energy Agency 2021).

The consequences of these changes in climate are particularly severe for vulnerable communities, especially in the Global South, affecting water availability and agricultural productivity. These impacts, in turn, exacerbate biodiversity loss, which has already reached alarming levels. Over the past 50 years, wildlife populations have declined by an average of 69 percent (Pullen Reference Pullen2022). This loss is both an ecological tragedy and an economic concern, as an estimated 55 percent of global gross domestic product relies on biodiversity and ecosystem services (Dasgupta and Levin Reference Dasgupta and Levin2023).

Desertification and soil erosion further compound these issues, degrading land fertility and reducing agricultural output. This process diminishes the land’s capacity to retain water and sequester carbon dioxide, creating a feedback loop that intensifies climate change. Most importantly, these issues threaten food security and livelihoods – again, mostly affecting communities in the Global South. The problem is more relevant today than ever, with nearly 282 million people in 59 countries and territories having experienced high levels of acute hunger in 2023 – a worldwide increase of 24 million from the previous year (European Commission 2024).

The complexity and scale of these issues demand a new approach – one that builds on the learnings of the past fifteen years of partnership efforts and takes them to the next level. Just as these crises are interconnected, so our response must be integrated and holistic. We need to bring together the best experts from various fields to address each aspect of these challenges while at the same time recognizing that solutions in one area often have far-reaching implications on others. For instance, working on soil health will affect both climate mitigation and adaptation, as it both reinforces water retention and reduces GHG emissions. This interconnectedness extends to agricultural practices as well. Crop rotation, a key method for maintaining soil health, naturally involves a variety of off-takers, introducing even more stakeholders into the equation.

Ultimately, we need plans that acknowledge the complexity of interconnected crises while keeping the actual recipients – in this case farmers – at the center. These approaches must ensure increased revenues and improved livelihoods for those directly impacted.

The Perfect Time for Partnerships

Paradoxically, we believe this moment is uniquely suited for scaling 4Ps to a new level. While the world faces increasing fragmentation – marked by rising geopolitical risks, conflicts, and disruptions to international trade – we are also witnessing a significant shift in how stakeholders collaborate to address the interconnected nature of these crises. Amid this challenging reality, there is a growing alignment of interests and goals across sectors, converging on the urgent need for sustainable action, particularly in the Global South.

Governments worldwide are increasingly bound by international commitments under conventions such as the United Nations Framework Convention on Climate Change (UNFCCC), the Convention on Biological Diversity, and United Nations Convention to Combat Desertification (UNCCD). These obligations create a common framework for action, pushing governments to implement ambitious transition policies. Furthermore, fully adhering to the principle of Common but Differentiated Responsibilities, these conventions – particularly the UNFCCC – explicitly recognize the need to support the Global South (Non–Annex I Countries).Footnote ¹

Recently, significant progress has been made in aligning the climate plans of developed countries and those of the Global South. One of the key outcomes of this alignment is the establishment of a “loss and damage” fund to address the impacts of climate change. This fund aims to provide financial support to vulnerable countries that are disproportionately affected by climate-related challenges such as extreme weather events and rising sea levels. We are also seeing real progress in the dialogue surrounding the need to integrate climate mitigation and adaptation plans to climate change strategies, with food security being recognized as a top priority.

Simultaneously, the private sector is increasingly recognizing its responsibility around sustainability. Companies are setting ambitious goals to reduce emissions and implement sustainable practices, driven by growing consumer demand and tightening regulations. Moreover, the requirements set by the increasing number of regulations such as the European Union (EU) Corporate Social Responsibility Directive, external certifications such as the Carbon Disclosure Project, as well as frameworks like the Science-Based Target Initiative are pushing businesses to act on sustainability. Importantly, there is a growing recognition that sustainability is not just good for the planet – it is crucial for business resilience.

It is particularly exciting to observe how businesses are uniting to address these challenges collaboratively. The Dairy Methane Action Alliance (DMAA), for instance, is an excellent example of how companies within a specific industry, catalyzed by the convening power of an NGO (in this case the Environmental Defense Fund), can join forces to address a critical issue such as methane emissions. On a broader scale, we are also seeing impressive collaborations through organizations such as the World Business Council for Sustainable Development (WBCSD). Under their umbrella, initiatives such as the One Planet Business for Biodiversity (OP2B) are bringing companies together to protect and restore biodiversity in agricultural systems. Similarly, the COP28 Action Agenda on Regenerative Landscapes demonstrates how businesses are pre-competitively sharing their regenerative landscape projects to accelerate the transition to more sustainable agricultural practices.

Finally, philanthropic organizations are expanding their focus to include environmental conservation and climate action. Traditionally dedicated to areas such as education, health care, and poverty reduction, many foundations now recognize the intrinsic link between environmental sustainability and their core missions.

In the case of methane emissions, philanthropic organizations have taken concrete collaborative steps, notably through the establishment of the Global Methane Hub in 2021. This initiative is designed to drive systemic reductions in methane emissions across the energy, agriculture, and waste sectors. Danone has been the only private company involved in this effort, specifically contributing funding to the GMH’s Enteric Fermentation R&D Accelerator.

Overall, we see a shift toward a more systemic approach in tackling methane emissions. However, there remains significant potential for deeper integration with the private sector, as demonstrated by Danone’s involvement.

This convergence of interests presents a unique opportunity for aligning goals and fostering collaboration. Each sector contributes complementary strengths – as outlined in what follows – which makes this collaboration particularly effective.

• The public sector provides the regulatory framework and policy direction. It has the authority to establish and enforce regulatory practices, create enabling environments for sustainable practices, and leverage financial and policy instruments to encourage sustainability. On the international stage, it steers global conversations through various COPs and facilitates crucial funding mechanisms such as the Global Environment Facility and the Green Climate Fund.

• The private sector, when enabled by supportive conditions, plays a crucial role as an off-taker in 4Ps. By committing to purchasing the products or services generated by these partnerships, companies provide a direct “skin in the game” that enhances projects viability. This secured off-take offers numerous benefits: it provides a guaranteed market for project outputs, reduces financial risks, and can attract additional investors by demonstrating long-term demand. For instance, in agricultural projects, a committed corporate buyer can provide smallholder farmers with the security they need to invest in sustainable practices. Moreover, this off-taker positions companies to leverage their expertise and resources in ways that drive innovation and efficiency. In many of our projects, especially under the umbrella of Danone Ecosystem, this often translates to increasing milk yield per cow, leading to productivity gains and lower resource input per liter of milk, in turn improving the livelihood of farmers.

• Philanthropic organizations bring unique strengths, particularly through their ability to provide risk-tolerant capital. They can fund early-stage projects that may not yet be commercially viable, thereby de-risking investments for other stakeholders. Their long-term vision allows them to focus on systemic change and address root causes rather than short-term symptoms. They also have strong convening power, acting as neutral facilitators to bring together diverse stakeholders.

It is crucial to recognize that these roles are not rigidly defined. The dynamic nature of global challenges often requires actors to adapt and assume new roles to address specific demands. The strength of 4Ps lies not just in the distinct capabilities of each sector but in their ability to flexibly combine and reconfigure these strengths as needed.

The Product of 4Ps: Pooled Funding

One of the most significant value-adds that 4Ps can provide lies in the collaborative financial pooling agreed upon by stakeholders. The need for this is clear and urgent. To address the interconnected global crises, trillions of dollars in funding must be mobilized. However, the current situation reveals that we are falling behind in financing efforts to achieve a 1.5°C limit in global temperature increase by 2050. In developing countries alone, the financing gap for the Sustainable Development Goals (SDGs) reached $3.9 trillion in 2020 (OECD 2022). In this context, 4Ps can play a crucial role as a catalyst, helping bridge this financing gap by providing innovative and tailored financing mechanisms.

The last fifteen years have seen a remarkable evolution in the ecosystem that makes these innovative financing mechanisms possible. Climate finance has grown exponentially in these years. While public climate finance (bilateral and multilateral attributable to developed countries) still accounts for almost 80 percent of the total, the share of finance mobilized by its private counterpart has grown by 52 percent from 2021 to 2022 (OECD 2024), signaling a change from the previous years of stagnation.

Furthermore, within the world of impact finance, a diverse array of financial instruments has emerged to facilitate the funding of sustainable and impactful projects. Thematic bonds, including green, blue, social, and sustainability bonds, have gained prominence as debt securities issued to finance projects with specific environmental or social benefits. These instruments have proven worthwhile in attracting investment from a wide spectrum of investors, especially those seeking to align their portfolios with sustainability objectives. Concurrently, risk mitigation tools such as first-loss capital, guarantees, and insurance have become instrumental in enhancing the attractiveness of high-impact projects to investors by providing a crucial safety net against potential losses.

However, it is when these instruments are in their “catalytic” form that the true collective strengths of all stakeholders in 4Ps can be harnessed. Catalytic finance represents a strategic approach to investment, aiming to generate positive social and environmental impacts alongside financial returns. The “catalytic” nature of this financing lies in its ability to attract additional investments, creating a multiplier effect that significantly amplifies the initial impact. The distinguishing feature of catalytic finance is its willingness to accept disproportionate risk or concessionary returns to unlock opportunities that might otherwise remain unfunded, setting it apart from traditional investment strategies and paving the way for more risk-averse investors to enter markets or support projects they would typically avoid.

In this context, one of the most innovative approaches to using catalytic capital is through blended finance. This approach combines capital with varying levels of risk to catalyze market-rate financing into impact-driven projects. More concretely, blended finance can be defined as “the strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries” (OECD 2018).

The blended finance model enables each partner in a 4P to leverage their unique strengths: public and philanthropic actors provide the foundational layer of the catalytic capital, often in the forms of concessional loans and grants, while private investors bringing in market-rate capital, secures off-taking, and contributes to scaling up the projects.

Case Studies

In this section, we present three case studies that highlight the versatility and adaptability of 4Ps in addressing diverse sustainable development challenges.

We begin with the Madre Tierra project in Mexico, a classic example of a 4Ps initiative as typically implemented by Danone Ecosystem, empowering local smallholder farmers directly on the ground. Next, we explore the Fairtrade Access Fund (FAF), which demonstrates how 4Ps can incorporate innovative financing mechanisms to expand impact across multiple developing countries by improving smallholder farmers’ access to finance. Finally, we examine the Land Degradation Neutrality (LDN) Fund, an initiative leveraging a blended finance approach to combat land degradation on a much larger, global scale.

Throughout this section, we illustrate how 4Ps can be tailored to address a wide range of sustainable development goals, ranging from localized agricultural initiatives to large-scale environmental funds. Each case study showcases how cross-sector collaboration and aligned interests can generate innovative solutions that drive meaningful impact, particularly in the Global South. We will also use this opportunity to examine the roles of each stakeholder in these partnerships, putting into practice the key concepts discussed in previous sections.

The Madre Tierra project in Mexico’s strawberry sector exemplifies the potential of 4Ps in tackling sustainable agriculture challenges. Launched in 2019, this initiative brings together a diverse group of stakeholders to empower smallholder strawberry farmers through a holistic approach that integrates training, technology, access to capital, and market connections.

The project addresses key challenges faced by Mexican smallholder farmers, including limited technical knowledge, low productivity, restricted market access, and unsustainable farming practices. By focusing on transitioning 140 farmers and farmworkers to regenerative agriculture practices over four years (2019–2023), the initiative has already demonstrated significant impact. Within just one year, participating farmers achieved 30–50 percent water savings in irrigation, showcasing the tangible benefits of sustainable practices.

At the heart of Madre Tierra’s success is its multi-sector collaboration. The German development agency GIZ, representing the public sector, provides in-kind contribution, leadership in communication, project coordination, as well as expertise in environmental and biodiversity actions. From the private sector, Danone and Danone Ecosystem contribute with expertise, know-how, and by off-taking the strawberries produced through the project. Finally, the philanthropic and not-for-profit sector plays a crucial role, with the Walmart Foundation providing funding and strategic support and TechnoServe (an international nonprofit organization focused on fighting poverty through economic development) implementing on-the-ground training. The partnership’s catalytic approach is evident in its ability to leverage initial investments to create broader impact, enabling comprehensive support including agronomic training, climate-smart practices, and business skills development.

Focusing on various regions in the Global South – and highlighting initiatives where Danone has not participated – the FAF illustrates how the 4Ps model can scale to meet the financing needs of smallholder farmers across multiple developing countries. Launched in 2012, the FAF provides a unique blend of short and long-term loans to producer organizations, small and medium enterprises, and agricultural-focused microfinance institutions. The FAF’s strength lies in its diverse stakeholder base. The philanthropic sector, in this case Grameen Foundation, provides technical expertise and social performance measurement support. The private sector’s involvement is crucial, with Incofin Investment Management managing the fund and companies serving as anchor investors. Public-sector participation comes through development finance institutions such as FMO, the Dutch development bank, which invested $5 million in Class B equity, catalyzing an additional $5 million in debt from other investors. Similarly, the Belgian Investment Company for Developing Countries (BIO) invested $3.52 million in equity.

The fund’s catalytic approach is demonstrated through its layered capital structure, which includes different classes of shares (A and B) to accommodate various investor risk appetites. This structure has allowed the FAF to leverage public and philanthropic resources to attract private capital, resulting in a pooling of resources that no single actor could have achieved alone.

Taking the concept of 4Ps to an even larger scale, the LDN Fund showcases how these partnerships can address complex global environmental challenges. Launched in 2017 at the United Nations Convention on Combatting Desertification COP 13 in China, this innovative impact investment fund supports sustainable land use and restoration projects, primarily in developing countries. The LDN Fund focuses on financing profit-generating enterprises involved in sustainable land management and restoration, with a particular emphasis on agroforestry and sustainable forestry sectors.

The LDN Fund’s diverse stakeholder base includes the UNCCD providing the policy framework, public investors such as the European Investment Bank and the French Development Agency contributing capital, and private-sector involvement through Mirova, an affiliate of Natixis Investment Managers, managing the fund. Private institutional investors such as Fondaction, BNP Paribas Cardiff, and Allianz further bolster the fund’s resources. The philanthropic sector, represented by organizations such as The Rockefeller Foundation and Fondation de France, provides support for the fund’s initial design and investment, offering risk-tolerant capital that helps catalyze further investment.

The fund employs a blended finance strategy, using catalytic capital from public and philanthropic sources to attract additional investment by de-risking the venture for private investors. Its structure, featuring junior and senior tranches, allows for risk-sharing arrangements that encourage private capital participation. The LDN Fund offers long-term debt and equity financing for sustainable land use projects, with investment sizes typically ranging from $5 million to $20 million and tenors of 10 to 15 years, providing patient capital along with flexible repayment schedules and longer grace periods not readily available in the market.

These case studies illustrate how the 4Ps model effectively facilitates fund pooling at scale to address diverse sustainable development challenges. We have also provided concrete examples of the role each stakeholder plays within these collaborations. As previously noted, these roles are not rigid but rather dynamic, allowing partnerships to adapt and evolve over time, ensuring long-term success.

Why 4Ps Are Not Happening: Challenges

After exploring the potential of catalytic capital and reviewing concrete examples of its application, it is essential to address the barriers that hinder the development and large-scale implementation of 4Ps. Several significant obstacles slow down the formation and scaling of these partnerships.

One of the primary challenges in establishing 4Ps is the tension between profit motives and broader societal impact goals. Private-sector entities, driven by the need to generate returns for shareholders, may find their objectives misaligned with the long-term, often nonmonetary aims of public and philanthropic partners. This perceived conflict can discourage collaboration, as public and philanthropic entities may suspect that private-sector involvement is more self-serving than mission driven.

This perception ties into a broader misconception that such partnerships primarily benefit corporations at the expense of public interests, leading public and philanthropic actors to hesitate before engaging. However, it is crucial to acknowledge that the private sector does have a vested interest – “skin in the game” – in achieving sustainability targets and strengthening the resilience of its supply chains. Equally important, companies play a key role in ensuring that projects reach scale and achieve long-term financial viability, both of which are essential for meaningful and lasting impact.

However, corporations are simultaneously bound by profit and loss imperatives, often succumbing to short-term thinking and prioritizing flexibility over long-term commitment. It is in those instances that the public sector and philanthropy play a vital role, providing a longer-term framework for sustainable impact, as their unique position allows them to look beyond quarterly reports and annual profits, focusing instead on systemic change and lasting impact. The challenge lies in synchronizing these different timelines, leveraging the agility and resources of businesses while anchoring projects in a broader, long-term perspective. This balance is essential for creating 4Ps that can deliver both immediate results and sustainable, long-term impact.

As partnerships involve increasingly more than one private actor, it becomes important to have a clear distinction between pre-competitive and competitive activities. This is especially important in 4Ps that aim to bring about industry-wide changes, as these initiatives are most effective when adopted across the entire sector. Pre-competitive collaborations are a powerful tool for achieving such broad-based changes. However, companies often hesitate to collaborate with competitors, fearing that such partnerships could compromise their competitive advantage, ultimately hindering the establishment of effective 4Ps. Furthermore, the success of the collaboration might be jeopardized if all parties are not equally committed to making it work.

It is important to note that in some cases, a lack of supportive regulations can hamper the creation of these partnerships and their impact. For example, in the realm of plastic pollution, effective solutions often require legislative backing. It is for this reason that opportunities such as the one presented by the current negotiations of the Intergovernmental Negotiating Committee on Plastic Pollution global plastics treaty are of utmost importance. Without such frameworks, even the most well-intentioned partnerships may struggle to achieve widespread, systemic change.

Another significant challenge in the realm of 4Ps is the complexity of measuring impact. Impact measurement is crucial for demonstrating the values of these partnerships. However, the multifaceted nature of social and environmental challenges, combined with the varied objectives of public, private, and philanthropic partners, makes it difficult to establish a unified framework for impact assessment. As highlighted earlier, one of the primary difficulties lies in the divergent time horizons and metrics used by different sectors. Furthermore, the complexity of social and environmental issues addressed by 4Ps often defies simple quantification. For instance, measuring the impact of climate change mitigation efforts or biodiversity conservation initiatives requires sophisticated methodologies that can capture both immediate outcomes and long-term systemic changes. The lack of standardized metrics and measurement tools across sectors exacerbates this challenge, making it difficult to compare and aggregate impact data across different partnerships and projects.

Adding to this complexity is the tendency for organizations within collaborative projects to request an excessive number of key performance indicators (KPIs), many of which are overly complicated to measure or track. This proliferation of complex KPIs can divert focus and resources from the real objective of the project: creating meaningful impact. Thus, the challenge lies in striking a balance between comprehensive measurement and maintaining a clear focus on the most critical indicators of success. The issue of attribution also complicates impact measurement in 4Ps. With multiple stakeholders involved and various external factors at play, it can be challenging to determine the specific contribution of each partner or intervention to the overall impact. This ambiguity can lead to disputes over credit and responsibility, potentially straining partnerships’ ability to create meaningful and lasting change in addressing global challenges.

Finally, another critical concern is the persistent and often prolonged delays that hinder the negotiation and approval processes for 4Ps. The complex nature of these partnerships, involving multiple stakeholders with diverse interests and objectives, can result in protracted discussions and decision-making. Public-sector entities may have bureaucratic procedures that require multiple levels of approval, while private companies might need to satisfy their shareholders’ concerns. Philanthropic organizations, in turn, may have their own set of requirements, due diligence processes, and legal obligations to respect. These delays not only increase project costs but can also potentially deter private-sector participation, as companies may be hesitant to commit resources to initiatives with uncertain timelines. Compounding this challenge is the frequent lack of experience and skills in managing 4Ps among the various stakeholders. This is paired with the fact that 4Ps are not easy to manage but rather complex and costly, both in monetary and time-wise sense. Furthermore, transparency and accountability issues can significantly undermine trust in 4Ps. The involvement of multiple stakeholders can sometimes lead to a lack of clarity regarding roles, responsibilities, and decision-making processes. This opacity can breed suspicion and erode confidence in the partnership.

Conditions for 4Ps: How to Create Next-Level Alignment?

Before examining more operational recommendations for advancing a 4P, it is essential to ensure the partnership develops at the appropriate pace. To achieve this, it is crucial to recognize that perfect alignment among all partners is not always necessary or even desirable at the outset. Stakeholders should aim at being “aligned enough” to get started, focusing on core shared goals and a true participatory commitment. This approach allows partnerships to launch more quickly and adapt as they progress – essential in a rapidly changing landscape – without getting stuck in the initial, more complicated phases. Building on a preexisting base of relationships and initiatives can also significantly enhance the effectiveness of 4Ps.

Leveraging existing networks with collaborative efforts allows partnerships to hit the ground running, avoiding the pitfalls of starting from scratch. This approach not only saves time and resources but also builds on the trust and goodwill established in previous collaborations. It is within this context that networks and initiatives like the WBCSD, OP2B, DMAA, and GMH can serve as ideal platforms to create, develop, and nurture these relationships.

Once stakeholders have achieved a minimum level of alignment, a partnership can effectively move forward. While the active participation of all stakeholders is essential in any collaboration, every partnership must identify which “Ps” will concretely drive the project. This needs to be supported by strong governance, as the 4Ps are complex systems to manage. Therefore, it is crucial to have an actor who is both capable and willing to establish a structure that defines clear roles, responsibilities, and decision-making processes. The sooner this role is defined, the more smoothly the 4P will proceed.

Secondly, partners must align on a shared definition of success. As mentioned earlier, the public, private, and philanthropic sectors operate under different mandates, priorities, and timelines. These varying objectives can create misalignment, particularly regarding expected outcomes and time frames. To bridge these differences and synchronize timelines, partners must leverage the agility and resources of businesses while ensuring projects are anchored in a long-term, sustainable vision. A clear, mutually agreed-upon definition of success – combined with flexibility and adaptability – is essential to making the partnership work effectively.

Building on the previous section, we can further explore the challenge of unequal commitment among companies and stakeholders in a partnership. As noted, discrepancies in commitment can significantly hinder the effective implementation of a 4Ps initiative.

Once goal alignment is established, it is crucial to ensure that resources – financial or otherwise – are allocated appropriately to give the collaboration a real chance to achieve its impact objectives within a defined timeframe. This alignment of scale, timing, and impact is critical not only for delivering tangible and meaningful results but also for enhancing the partnership’s credibility, ultimately attracting further investment and long-term support.

Avoiding the over-proliferation and unnecessary use of redundant KPIs is critical to building a successful partnership. We must prioritize simplicity and focus on impact rather than burdening initiatives with excessive metrics. A Theory of Change approach helps map out how inputs and activities lead to desired outcomes and long-term impact, providing a structured framework for selecting the most relevant KPIs. This ensures we measure what truly matters in achieving our goals. As we have learned, demanding greater impact per dollar invested does not necessarily require more KPIs for that same dollar – it requires better KPIs.

Finally, while proving additionality is often regarded as a crucial component of 4Ps, an excessive focus on this aspect can sometimes hinder progress. The dialogue between public and private sectors around additionality can create a chicken-and-egg dilemma, where private-sector partners are asked to demonstrate what they would or would not do without public-sector involvement – a hypothetical scenario that is inherently difficult to prove.

We advocate for a shift in perspective. Rather than engaging in lengthy debates about the precise roles of public, private, and philanthropic actors – or hypothetical scenarios of what each would do independently – we should focus on how these sectors can collaborate most effectively to maximize impact.

Conclusion

The interconnected crises we face today demand an acceleration of 4Ps to address the complex challenges of climate change, biodiversity loss, and food security, particularly in the Global South. The urgency of our current situation calls for swift and decisive action, and we are witnessing unprecedented conversations and collaborations that were unimaginable even in the recent past. There is a growing willingness among stakeholders to break down the barriers that have historically hindered progress. We are seeing governments, businesses, and philanthropic organizations align their goals and combine their unique strengths in ways that promise transformative impact.

From local projects to global initiatives, 4Ps are demonstrating their potential to create sustainable, scalable solutions. However, the time for small-scale experimentation has passed. We must now leverage the lessons learned from these successful partnerships to implement large-scale, visible projects that can create systemic change. The alignment of interests, the innovative financing mechanisms, and the shared commitment to sustainable development provide a solid foundation for such ambitious endeavors.

We call to action all stakeholders involved in these conversations: let us turn our dialogue into tangible action by creating emblematic lighthouse projects that illuminate the path forward. Let us harness the power of 4Ps to launch big, impactful projects that address the root causes of our global challenges concretely providing evidence of what is possible when we combine our strengths and align our goals. The tools, the knowledge, and the will are all present. Now is the time to make it happen, to create partnerships that will not only mitigate current crises but also build resilience for the future. Let us seize this moment and transform our collective vision into reality.

Introduction: The Role of Business in System Change

In a world of “permacrisis”Footnote ¹ and a multi-trillion-dollar funding gap for achieving the United Nations Sustainable Development Goals (SDGs), evaluating the potential role of business in financing development and driving systemic change is essential. Overseas Development Assistance (ODA) and private philanthropy alone will be insufficient to meet the challenge. In 2023, ODA reached $224 billion,Footnote ² while total global philanthropic capital targeting development outcomes amounted to just 5 percent of that figure.Footnote ³

Given this gap, private investment – particularly from businesses and financial institutions – could be a critical lever in addressing global challenges. However, despite growing commitments to Environmental, Social, and Governance (ESG) metrics and sustainable business models, skepticism persists. Can the commercial sector – driven by profit and shareholder demands – truly contribute to social value creation?

At a global level, interconnected crises such as climate change, water scarcity, biodiversity loss, and land degradation are intensifying. These challenges are not isolated; they form a complex, interwoven web, amplifying each other’s effects and exacerbating risks to both human and ecological well-being. Addressing them requires an integrated, holistic response, especially in an era of geopolitical fragmentation, conflict, and disruptions to international trade. As businesses increasingly recognize these phenomena and collaborate with governments and civil society, acknowledging that they can contribute to tackling poverty, inequality, and climate change, their role in co-creating solutions and mitigating risks becomes increasingly inevitable.

Over the past few decades, corporations and financial institutions have significantly evolved their approach to social responsibility. Many are moving beyond traditional, low-impact CSR models toward strategic, inclusive, and integrated frameworks that embed sustainability into their core business strategies. By doing so they enhance the sustainability of their business models by strengthening their value chains, particularly their supply chains as off-takers. When executed effectively, this can also contribute to greater local community resilience.

Corporate philanthropy occupies a unique position at the intersection of business and community, creating synergies between social goals and commercial strategy.Footnote ⁴ When well structured, it has the potential to generate sustainable social returns while positively shaping the underlying business model. However, success in this regard depends on three core principles: a clear commitment to social and environmental goals, leveraging core business strengths for maximum social impact, and meaningful engagement with local communities.Footnote ⁵ These principles can be further amplified when corporate interventions are anchored in strong partnership models.

Within this context, public–private–philanthropic partnerships (PPPPs) can offer a powerful framework for aligning goals and leveraging resources. As highlighted in the case studies presented later in the chapter (and other chapters in this book), these partnerships can take various forms. From large-scale public–private collaborations to impact-driven investments – where corporate patient capital (through philanthropy and impact investing) helps de-risk investments – these partnerships can help unlock catalytic financial and nonfinancial resources. The true strength of PPPPs lies in their ability to mobilize additional investment through catalytic finance, bridging critical funding gaps and scaling high-impact solutions in underserved regions. By integrating blended finance and assuming greater risk, when necessary, PPPPs can create a multiplier effect that drives sustainable development at scale.Footnote ⁶

Corporate philanthropy also brings unique institutional capacity. Directing philanthropic capital through well-structured, institutionally mature businesses creates new systemic opportunities for impact – opportunities that third-sector organizations, which may lack the necessary capacity, might struggle to achieve on their own. Furthermore, when linked to a corporate parent, blended capital approaches become significantly more effective, providing access to a broader range of financial instruments through corporate impact investing practicesFootnote ⁷ and reinforcing long-term corporate sustainability commitments.

This chapter examines these hypotheses through case studies of global corporations and financial institutions that have deployed catalytic capital to develop more sustainable, integrated, and systemic business models. It explores both challenges and opportunities, offering sector-wide insights into what works – and what doesn’t. Based on extensive discussions with the institutions showcased in the case studies and an analysis of broader ecosystem collaborations, this chapter demonstrates how diverse actors with differing goals can align along the continuum of capital (see Figure 3.1) to deliver transformative impact.

Figure 3.1 Continuum of capital.

Source: Impact Europe.

Figure 3.1Long description

The linear progression starts with grant-making on the far left. This leads to catalytic grant-making, which then transitions into Impact investing. Impact investing is associated with three key characteristics, namely, intentionality, measurability, and additionality. Following impact investing is sustainable investing, which then leads to responsible investing. Finally, the progression concludes with traditional investing on the far right. A curved line originates from additionality and extends to the text below that reads, while intentionality and measurability are requisite characteristics of impact investing, additionality is optional. Nonetheless, additionality is desirable due to its transformative potential.

Catalytic Finance Case Studies

Conclusion: Shaping the Future of Impact Finance

The case studies in this chapter highlight key lessons in catalytic finance, demonstrating how corporations, philanthropists, and investors can mobilize patient capital to drive systemic impact.

A central takeaway is the importance of embedding social impact into business strategy. Companies like Philips illustrate how integrating business and social goals creates mutually reinforcing benefits, enhancing resilience, profitability, and long-term sustainability. When social impact is embedded as a core value proposition rather than treated as a secondary “add-on,” it strengthens business models while delivering both social and environmental benefits.

Blended finance plays a transformative role in this process. Initiatives such as the SDG Loan Fund, BNP Development Impact Bonds, and the UBS Optimus Foundation’s collectives demonstrate how this approach is particularly effective in emerging markets, where capital is scarce.

Collaboration between businesses, governments, nonprofits, and impact investors is a key driver of success. Multi-sector partnerships enable each actor to leverage its unique strengths – whether financial resources, technical expertise, or local knowledge – to develop more sustainable and scalable solutions. The Philips collaboration with AfricInvest and the Health Finance Coalition exemplifies how pooled resources can address complex financing challenges in sub-Saharan Africa. Similarly, the UBS Climate Collective showcases how coalitions of public, private, and philanthropic actors can mobilize capital and expertise for nature-based solutions.

Long-term success also hinges on innovation. Companies are setting new standards by linking financial returns to measurable social outcomes, fostering new business models. The rise of outcomes-based financing and contracts demonstrates how financial incentives can be tied directly to social performance, creating a feedback loop that drives continuous improvement and scale.

Flexibility is equally crucial. The concept of “double-blended” finance, as demonstrated by Philips, shows how first-loss capital and revenue blending can de-risk investments and bridge funding gaps, tailoring financial structures to sector-specific needs while maximizing social impact.

Taken together, the case studies in this chapter provide key lessons and strategic considerations for engaging in catalytic finance. The following four principles summarize these insights:

1. 1. Defining Clear Objectives and Measuring Impact: Before designing a financing model, it is essential to establish clear social and environmental objectives that align with global goals such as the SDGs. Each stakeholder must define their role and contribution, ensuring commitment to impact measurement and financial accountability. Transparency in tracking both social outcomes and financial returns is crucial for building trust among investors, partners, and beneficiaries.

   Many impact professionals recommend using a limited set of well-defined KPIs, focusing on metrics that drive real impact rather than an overly broad set of indicators. By streamlining measurement frameworks, businesses and investors can better evaluate the success of partnerships and projects, reinforcing long-term engagement.

2. 2. Managing and Mitigating Risk: Investing in systemic change, particularly in emerging markets or underserved sectors, comes with inherent risks. Therefore, stakeholders must develop robust risk management strategies that balance innovation with financial sustainability.

   Blended finance models can help mitigate risks through mechanisms such as first-loss capital, concessional funding, or risk-sharing partnerships. These approaches provide investors with downside protection, making high-impact investments more attractive. By absorbing initial risk, catalytic capital unlocks additional commercial investments, allowing solutions to scale more effectively.

3. 3. Building Strong Trust-Based Partnerships: Effective partnerships require time, shared vision, and trust. This is especially important when working with local communities or governments, where long-term relationships are critical to success. Engaging in co-design processes, ensuring transparency, and maintaining continuous dialogue with stakeholders can strengthen trust and increase the likelihood of project success. By involving local actors in the decision-making process, partnerships become more sustainable and resilient, ultimately leading to greater impact.

4. 4. Leveraging Technical Capacity and Sector Expertise: True systemic change requires more than just capital; it demands expertise. The case studies in this chapter emphasize that specialized knowledge – whether from nongovernmental organizations, academic institutions, or industry experts – is crucial in informing investment decisions and ensuring project success. All demonstrate that leveraging technical expertise enhances investment strategies, ensuring that funding is allocated effectively and efficiently. Strategic partnerships with community experts and sector specialists provide critical insights that help businesses and investors navigate market complexities, leading to more impactful and scalable solutions.

By embracing these key principles, businesses and investors can drive transformational change, ensuring that impact finance not only mobilizes capital but also delivers sustainable, measurable progress toward the SDGs and beyond. As impact investing continues to evolve, collaboration between corporates, financial institutions, governments, and philanthropists will be essential in shaping innovative financing models that scale solutions, enhance resilience, and drive systemic change. These case studies serve as both inspiration and a road map, offering a scalable blueprint for leveraging impact-driven finance to create lasting social and environmental benefits while ensuring financial sustainability.

Introduction

Despite notable strides, the world is still falling short of meeting the United Nations’ Sustainable Development Goals (SDGs). According to the 2024 SDG Report, only 17 percent of SDGs are on track to meet their 2030 targets. Alarmingly, the financing gap to achieve these goals has expanded dramatically, increasing from $2.5 trillion before the COVID-19 pandemic to $4.2 trillion in its aftermath (UN 2024). Of the seventeen goals, SDG #3: Health and Well-being is one of six flagged as facing “major challenges” in reaching its 2030 targets (UN 2024). The pandemic has further strained fragile health infrastructures, reversing progress in areas such as life expectancy and maternal mortality reduction (UN 2024).

Even prior to the pandemic, the financial landscape for global health was precarious. The World Bank estimated an annual deficit of $176 billion for its International Development Association (IDA), which supports health initiatives in the world’s poorest countries (World Bank Group 2019). The economic fallout from COVID-19 has exacerbated this situation, leaving many low- and lower-middle-income countries (LMICs) grappling with competing priorities. Low-income economies are struggling to prioritize investments in improving the health of their citizens versus paying off insurmountable debt incurred during the pandemic (IHME 2023).

Despite these challenges, the case for global health investment is strong. A study conducted by Arrow in Reference Arrow, Dasgupta, Goulder, Mumford and Oleson2012 estimated that the value of health capital exceeds the value of all other forms of capital combined (Arrow Reference Arrow, Dasgupta, Goulder, Mumford and Oleson2012). The recent COVID-19 pandemic starkly illustrated the profound societal, economic, and geopolitical consequences of inadequate health systems. New efforts to prepare for pandemics, increase coordination, and accelerate response have been piloted and implemented.

Despite the mortality and morbidity caused by COVID-19, the global health community has achieved demonstrable impact, an important reminder that progress is attainable. Life expectancy has improved by 23 years since 1950 (Schumacher Reference Schumacher, Kyu and Aali2024). Under-five mortality has decreased by more than 50 percent since 2000 (Azevedo Reference Azevedo, Banerjee and Wilmoth2024). A recent Lancet publication (Jamison Reference Jamison, Summers and Chang2024) emphasizes the potential for targeted investments to yield significant improvements in human welfare, including increased life expectancy and a 50 percent reduction in premature deaths by 2050.

Despite the evidence, financing gaps persist, and a pivotal question remains: How do we bridge this deficit? Given forecasted flatlining of development assistance and other major philanthropic sources (IHME 2024), it is imperative to explore alternative funding mechanisms to close this gap. Before addressing the “how,” it is essential to examine “why” this gap exists. Why is capital either missing, unavailable, or inaccessible, particularly in financing health in the Global South? A holistic understanding of these gaps can inform actionable solutions and frameworks to correct course. This is imperative if health targets and the 2030 SDGs are to be met in the next five years.

Unlocking health financing requires understanding various sources of capital and their accessibility in Global South markets. A deeper analysis is needed to determine why private capital – commonly leveraged in such sectors as energy and climate – remains underutilized in health. Harnessing these sources could diversify global health funding, catalyze public–private partnerships, and enhance sustainability through market-based solutions. However, the barriers keeping these sources locked are multifaceted and complex.

The global development community stands at an inflection point, facing imminent risks from geopolitical instability, environmental changes, and a shifting climate. This chapter explores these challenges and highlights the urgency of prioritizing human and planetary health. It argues that strengthening health systems now is essential to equipping humanity to navigate and overcome the risks ahead.

Understanding Current Health Financing: Traditional Sources of Capital

Four main sources of funding contribute to the majority of health financing for the Global South: domestic government funds, out-of-pocket payments, prepaid private spending, and development assistance for health (DAH) (IHME 2024). As described in the Institute for Health Metrics and Evaluation (IHME) Global Health Data Exchange (GHDx), government health spending is derived from domestic sources, which includes funding for public health infrastructure and government-provided social health insurance (IHME 2024).

Out-of-pocket payments comprise payments made by an individual for any health-related costs incurred by themselves or by their caretakers. Prepaid private spending comprises health spending sources from nonpublic programs that are funded prior to obtaining health care, such as private health insurance and services provided for free by nongovernmental agencies. DAH encompasses financial and in-kind resources that are transferred through international development agencies to LMICs for the primary purpose of maintaining or improving health. Despite the high visibility of DAH in the form of overseas grants from principally G7 governments and some philanthropic capital, the majority of health financing for both lower-middle-income and low-income countries comes from non-DAH sources as can be seen in Figure 4.1.

Figure 4.1 Percentage of total health expenditure by source of fundings (2021 actual data).

Source: Data – IHME Global Health Data Exchange.

Summary figure – Agarwal, 2024.

Figure 4.1Long description

The graph plots government, out-of-pocket, prepaid private, and D A H. The values are 0%, 23%, 12%, and 65% for H I C. 0%, 12%, 30%, and 58% for U M I C. 7%, 9%, 47%, and 37% for L M I C. 38%, 4%, 36%, and 21% for L I C, respectively.

As further seen in Table 4.1, 58 percent of total health financing for upper-middle-income countries comes from domestic government sources while for lower-middle-income countries it is 37 percent. Only 12 percent, or $9 billion comes from DAH, while for lower-middle income countries it is 7 percent, or $24 billion. Despite middle-income countries being home to roughly 70 percent of the world’s poor, as defined by living on less than $2.15 per day (World Bank 2022), the total DAH they receive is 0.4 percent of the total health financing available in high income countries. The total health financing available to high-income countries ($7.9 trillion) is roughly four-fold higher than all other countries combined ($2.2 trillion) (IHME GHDx 2024).

As evidenced by Table 4.1, DAH, despite the high visibility it receives, has historically been a small fraction of the total health financing available to the Global South. Unfortunately, this is not expected to change. IHME predicts that DAH peaked in 2021 at $84 billion and is not expected to reach this level again by 2030 or even 2050. Unlike other forms of aid, such as remittances, as will be discussed in the next section, DAH has not shown to be resilient to macroeconomics or national emergencies (Ratha Reference Ratha2023). LMICs have long known that DAH is neither the solution to the financing gap nor the answer to creating self-sufficiency (Moghalu Reference Moghalu2014).

Out-of-pocket and prepaid private financing account for a significant share of total health expenditures, comprising 40 percent in low-income countries, 56 percent in lower-middle-income countries, and 42 percent in upper-middle-income countries (IHME 2024). These costs are incurred directly by individuals and households and in most cases are not reimbursable. Out-of-pocket health expenses pose financial strain on individuals and households. Medical costs are often unexpected and are paid out of family savings (Qin Reference Qin, Hone and Millett2019). Out-of-pocket costs generally perpetuate inequalities, as access to health is contingent on one’s income level and ability to pay. While IHME expects out-of-pocket costs to decrease overtime for high-income countries, out-of-pocket costs are expected to continue increasing in LMICs (IHME 2024), further keeping quality health care out of reach for the world’s poor.

Domestic sources of financing, though steady in comparison to DAH (IHME 2024), continue to fall short of health financing needs. In 2010, the WHO estimated that providing universal health coverage will generally require governments to spend 5 percent of their GDP on health care (WHO 2017). Unsurprisingly, no low-income countries and only six lower-middle-income countries met the 5 percent benchmarkFootnote ¹ (Human Rights Watch Reference Edwards2024). Traditional sources of capital, as explored in this section, are insufficient to achieve health-related SDG targets. To effectively advance health and well-being alongside economic growth, additional resources must be identified, mobilized, and integrated with existing funding mechanisms.

Integrating Nontraditional Health Capital Private Sources

Global health is highly siloed due to several systemic and structural factors. Key contributors include divisions between public and private health care systems, a disease-centric rather than a human-centric approach, and incohesive donor priorities (Hanson Reference Hanson, Brikci and Erlangga2022). At the core of these challenges lies the issue of fragmented health financing, which perpetuates these siloes and undermines cohesive global health efforts.

To begin with, the authoritative sources for health financing data, such as IHME’s GHDx and the WHO’s Global Health Expenditure Database, do not account for capital investments or private sources of capital fueling health. Though the reasons for this are logical and well documented – namely, that these databases lack methodologies to track private sector financing and cannot account for the financial returns on investments – this does result in a critical blind spot.

Remittances – money or goods that migrants send back to their home countries – are also an overlooked source of funding that, as discussed subsequently, is a significant and stable source of support for many living in the Global South (Ratha Reference Ratha2023). This section will attempt to summarize notable sources of capital that have been missing in the discourse and the potential for these sources to fill the financing gap.

Four main sources of nontraditional capital will be explored as significant opportunities to augment traditional funding. These four were selected based on market capitalization, or potential market capitalization, and relevance to health in the Global South. They comprise corporate social responsibility (CSR) coupled with environmental, social, and governance (ESG) funding; remittances; impact investments; and blended finance.

While community-based financing, crowdsourcing, and social insurance schemes are worth exploring, limited data exclude them from this chapter. Venture capital, though valuable for early-stage, high-growth innovations, is also out of scope due to its smaller market capitalization. However, the opportunities and challenges associated with venture finance are analogous to impact investing, which is discussed in detail.

CSR and ESG

CSR refers to the mostly voluntary actions that companies undertake to positively impact society reflecting a belief that businesses have a responsibility to make social and environmental impact alongside economic returns. In 2013, India became the first and only country to mandate CSR under the Companies Act, requiring companies meeting specific thresholds to allocate a minimum of 2 percent of their average net profits from the preceding three years to CSR activities (The Companies Act 2013). A key requirement of the Companies Act is that CSR funding must go to locally registered entities in India. This provision was key to promoting localization and alignment with domestic priorities.

In India, CSR generated roughly $1.2 billion in 2014, which has grown to $3.1 billion in 2021 (Singh Reference Singh2024). According to a recent analysis, roughly 30 percent of CSR funds in 2021 were dedicated to health, the largest sector recipient of CSR funds, with education as second (Singh Reference Singh2024). As described previously, the four traditional forms of health financing in India amounted to $106 billion in 2021 (IHME 2024). This implies CSR funds, within a decade, have grown to represent approximately 1 percent of India’s total traditional health financing. Though currently a small share, as DAH declines, CSR offers a growing, sustainable, and domestic source of health financing.

Globally, CSR is not mandated but is actively promoted in high-income countries such as the United States, EU nations, Japan, and the United Kingdom through voluntary reporting frameworks and advocacy. Middle-income countries such as Brazil, Indonesia, China, and South Africa also encourage CSR. Notably, in South Africa, publicly listed companies on the Johannesburg Stock Exchange must report on their CSR activities as part of compliance with the King IV Report on Corporate Governance (PWC 2017).

Despite its widespread adoption, CSR faces challenges in measuring and tracking its impact, as evaluation frameworks vary widely. Over the past two decades, CSR has evolved into the broader ESG framework, particularly in high-income countries. Driven by investor demands for long-term sustainability and responsible investing, ESG integrates sustainability into core business operations rather than treating it as a separate or philanthropic activity. This enables greater transparency and accountability (Kaźmierczak Reference Kaźmierczak2022). In addition, ESG benefits from better-defined normative guidance and regulations, such as the UN guidance on reporting, monitoring, and evaluation of impacts, though many argue that enforcement of regulations still requires strengthening (OECD 2023).

ESG investments have shown growing interest in addressing health equity. For instance, global corporations such as JPMorgan Chase have invested $250 billion toward improving health outcomes and equity via improvements in health infrastructure and technology solutions (Renjen Reference Renjen2022). However, the lack of robust data reporting infrastructure in LMICs combined with the lack of alignment on health metrics to track and measure limits the ability to quantify ESG’s contributions to health outcomes, particularly in resource-constrained settings. Addressing these gaps presents a significant opportunity to unlock additional ESG investments for health.

The future success of CSR and ESG in contributing to global development goals will depend on the establishment of global standards for alignment with sustainable development priorities, robust frameworks for monitoring and evaluation, and greater transparency in reporting outcomes. India’s decade of experience with mandated CSR provides a compelling model, having successfully mobilized approximately $3 billion in additional financing annually (Singh Reference Singh2024). This demonstrates the potential of structured and regulated CSR programs to unlock substantial resources.

Other countries, particularly in the Global South, should explore similar approaches while tailoring them to their unique contexts. Facilitating South-to-South knowledge exchange through communities of practice can accelerate learning and adaptation of successful strategies. Strengthening these elements not only enhances the effectiveness of CSR and ESG but also ensures they become powerful tools for channelling additional resources to underfunded regions and sectors. By prioritizing these advancements, significant new avenues for financing sustainable development in the Global South can be unlocked.

Remittances

Remittances refer to the money or goods that migrants send back to their home countries. These funds are a vital source of income for millions of households worldwide and especially in LMICs. According to the World Bank’s 2023 brief on migration and development, remittances to the Global South amounted to $656 billion (World Bank 2023). This is roughly threefold the total overseas direct assistance (ODA) in the same year. Unlike ODA, remittances remained resilient during the recent COVID-19 pandemic and the 2008 financial crisis (Ratha Reference Ratha2023).

It is estimated that 75 percent of remittances are used to cover essential necessities such as food, medical expenses, school costs, and housing. The remaining 25 percent is expected to be used as savings or investments (United Nations 2019). While the proportion of remittances used for health care in LMICs is not widely studied or well documented, several small studies indicate a positive correlation. One study found that households receiving remittances allocate more funds to primary health care expenses compared to households that do not receive remittances (Frank Reference Frank, Palma-Coca and Rauda-Esquivel2009). A meta-analysis found that remittances had a positive effect on health care utilization in three out of the five countries studied; Armenia, Ecuador, and Mexico (Awojobi Reference Awojobi2019). In Sri Lanka, children living in households that received remittances were found to have higher birth weight (Ratha Reference Ratha2009).

There is compelling evidence that remittances are associated with accelerated poverty reduction, improved access to education and health services, and economic development (United Nations 2019). Global stakeholders have recognized the outsized role remittances play for the Global South. Yet many obstacles impede financial flows.

According to the World Bank, the average cost of sending $200 overseas was 6.4 percent, or roughly $13 (World Bank 2023). For reference, the SDG target is 3 percent (Edwards Reference Edwards2024). Global efforts to reduce remittance costs include global competition in the remittance markets, improving access to bank accounts, and avoiding exclusivity between transfer companies and post offices (Malpass Reference Malpass2022).

Increasing digital banking and digital transfer is also expected to decrease costs. As of today, digital channels make up less than 1 percent of all transfers – the rest are still cash (Malpass Reference Malpass2022). The World Bank continues to advocate for remittance services and calls for greater efforts to increase the financial inclusion of poor people and improve access to correspondent banking for new money transfer companies (Malpass Reference Malpass2022). Policies that decrease the cost and increase the flow of remittances are needed to unlock this critical and resilient source of capital for the Global South.

Impact investing

Impact investing involves channelling capital into ventures that generate measurable social or environmental benefits alongside financial returns. The Global Impact Investing Network (GIIN) estimates that the market reached $1.571 trillion by 2023, with a compound annual growth rate of nearly 18 percent over five years (Hand Reference Hand, Ulanow, Pan and Xiao2024). Approximately 57 percent of impact investments are directed to the Global South, with health care comprising 9 percent of total impact investments (Hand Reference Hand, Sunderji and Pardo2023). This implies that health care investments in the Global South represent around 5 percent of the total impact investing market, equivalent to $80 billion. For comparison, global DAH peaked at $84 billion in 2021 (IHME 2024).

Despite its scale and comparability to DAH, impact investments are not typically accounted for in global health funding analyses due to reasons discussed previously. Consequently, impact investments are not integrated into global health ecosystems and thus run the same risks as other forms of siloed financing: duplication of efforts, inefficiencies, fragmented health systems, and parallel data systems (Brown Reference Brown, Rhodes and Tacheva2023).

Although impact funding directed at emerging economies has increased, many investors remain hesitant to allocate capital to the Global South, favoring investments in the Global North (Hand Reference Hand, Sunderji and Pardo2023). A significant barrier is the widespread perception of risk and instability associated with emerging markets. While the validity of these perceptions varies by local context, the generalized view of emerging economies as high risk continues to impede efforts to mobilize capital and drive meaningful impact in the Global South (Economist 2024). For example, the cost of capital in Africa is 16 percent, which is roughly three times higher than in the Global North (Dato Reference Dato, Dioha and Hessou2024).

The Economist referred to this disparity as the “African premium,” highlighting the financial penalty imposed by capital markets in Africa. As Gagan Gupta stated in The Economist (2024), “The concept of risk is completely invented to ensure that investment doesn’t come to Africa.” A critical gap in assessing true risks is the lack of high-quality data and the infrastructure needed to collect it (Economist 2024). In the absence of reliable data to challenge these perceptions, misguided beliefs about risk persist.

This lack of robust data infrastructure is a key barrier to mobilizing investment capital in the Global South, as impact investments require rigorous baseline evidence, reliable monitoring systems, and governance frameworks to validate financial and social returns (GIIN 2019). Furthermore, measuring health outcomes, as will be discussed in a subsequent section, is inherently complex and lacks alignment across investors and global health stakeholders. This contributes complexity in measuring and reporting health impact and ultimately the performance of impact funds.

Without strong demand or signals from investors, countries in the Global South are not incentivized to prioritize building the required infrastructure to absorb such investments, creating a self-reinforcing cycle of limited investment and weak data systems. This cycle needs to be broken to unlock greater investment capital into emerging markets (Hand Reference Hand, Sunderji and Pardo2023).

Examining the sources of capital that fuel impact investment funds provides insight into the risk profiles of those funds. Pension funds represent the largest share of impact investment financing, accounting for approximately 20 percent of total contributions. Other contributors, such as foundations and high-net-worth individuals – often associated with a stronger focus on generating social impact – each contribute around 3 percent to these funds (GIIN 2023). Notably, pension funds are predominantly allocated to market-rate investments. In contrast, high-net-worth individuals are nearly twelve times more likely to finance below-market-rate investments (GIIN 2023).

Such preferences underscore the need for targeted advocacy and education to align investor priorities with opportunities for impact in emerging economies. Addressing these disparities offers a critical avenue to unlock greater investment potential in the Global South and improve sustainability.

Governments and philanthropy also play an important role in promoting investments for certain social causes. They can also foster interagency partnerships to catalyze grant capital to de-risk private sector investment.

Blended Financing

As described in Chapter 1, blended finance is an innovative approach that strategically combines these funding sources to create a “capital stack” – a structure that mitigates risk and attracts private sector participation by aligning different investors’ risk tolerance and return expectations (Zelenczuk Reference Zelenczuk2023).

Blended finance fills the financing void for initiatives with high social impact potential that are too large to be sustained by public or philanthropic funds alone and yet are not lucrative enough to attract venture capital or private equity. These investments often carry significant risk, making them commercially unfeasible due to prohibitively high capital costs. By blending different types of capital in customized proportions, blended finance structures ensure that each investor’s goals are met while enabling projects that would otherwise struggle to secure funding (Convergence 2022).

In 2022, a first-of-its-kind Africa-focused blended finance fund was created to provide debt and mezzanine financing to scale locally led health enterprises in Africa (see also Chapter 3). The fund, known as the Transform Health Fund, was the result of more than three years of fundraising and negotiations that ultimately led to a final closing of $111 million, exceeding its original $100 million target (AfricInvest 2024). More than a dozen institutions provided commercial capital including development finance institutions such as the United States Development Finance Corporation (DFC) and the International Finance Corporation (IFC); corporate partners such as Merck & Co; philanthropic partners and foundations such as the Skoll Foundation, Grand Challenges Canada, and UBS Optimus Foundation; impact investors such as the Global Health Investment Corporation (GHIC); and several others (AfricInvest 2024).

The interest and momentum by so many partners can be credited, first, to the concessionary capital provided by the USAID as a $1 million grant, second to the catalytic investment from the DFC in the form of a $10 million equity investment (DFC 2022), and third to philanthropic contributions. These concessionary and catalytic capital sources helped lower the overall cost of capital for the investment. DFC, specifically, played the role of a first-loss investor, agreeing to absorb potential losses in the blended finance structure, helping reduce the risk for other investors. As a result of this creative structuring, the Transform Health Fund successfully crowded in funding from more than a dozen financing institutions and is one of the largest locally focused and locally managed health funds in Africa.

While there are many instances of successful blended financing approaches in global health, less than 6 percent of all blended financing deals are in the health sector (Convergence Primer 2025). One barrier to the volume of health-focused blended financing deals is that many relevant partners in the global health sector lack knowledge and expertise to identify, structure, and implement blended financing approaches (Convergence Primer 2025). Similar to challenges with impact investing, blended financing also lacks evidence and benchmarks for risk-adjusted returns resulting from blended finance transactions. Without concrete data, perceived risk often outweighs actual risk – an issue that, as discussed earlier, disproportionately affects investments in the Global South (Economist 2024). Lastly, unlike various other forms of financing discussed, blended financing inherently involves multisectoral partnerships across diverse stakeholders. Structuring bilateral deals is complex on its own. Multilateral deal structuring can be even more tedious and time consuming, requiring patience, trust, and leadership buy-in. Overcoming these challenges will require not only stronger data and evidence but also capacity-building efforts to equip stakeholders with the tools to effectively navigate blended finance structures and unlock their full potential for global health.

Unlocking Capital: Challenges and Opportunities

The preceding sections explored the potential of augmenting and integrating four traditional forms of health financing – domestic government funds, out-of-pocket payments, prepaid private spending, and DAH – with nontraditional private capital to help close the health financing gap. However, significant challenges remain in unlocking and integrating these sources, despite their potential to diversify funding and drive financial growth.

These challenges can be categorized into three key barriers: financial and market-based barriers, data and measurement barriers, and policy and advocacy barriers. To effectively unlock and catalyze new sources of capital, all three must be addressed.

Overcoming Financial and Market-Based Barriers. As discussed, many investors remain hesitant to invest in the Global South due to both real and perceived risks. This reluctance impacts credit ratings, raises the cost of capital, exacerbates the debt burden of many LMICs, and ultimately hinders the latter’s participation in global markets. To address these challenges, effective risk mitigation instruments must be deployed, including political risk insurance, credit guarantees, and first-loss guarantees.

Blended finance should be leveraged to use public or philanthropic capital to de-risk private investments, thereby expanding the pool of market-rate investors in the Global South. Foreign exchange volatility remains a major concern for overseas investors, disproportionately affecting middle-income countries with high external debt and economic instability (Prasad Reference Prasad, Rajan, Birdsall and Rojas-Suarez2004). To mitigate this, multilateral banks such as the World Bank, the Asian Development Bank, and the African Development Bank, along with international financial institutions such as the International Monetary Fund, should take the lead in establishing facilities to hedge against foreign exchange volatility.

Finally, given the proven impact and resilience of remittances, transaction costs for cash transfers must be reduced, and digital transfer mechanisms must be made more accessible to a broader segment of migrants (Francois Reference Francois, Ahmad, Keinsley and Nti-Addae2022).

Overcoming Data and Measurement Barriers.A significant hurdle to increasing capital investments in health is the misalignment of expected outcomes and the insufficient infrastructure to effectively measure them (Economist 2024). Economic metrics, such as gross domestic product (GDP) and gross national income (GNI), are often used as proxies for health outcomes because they are easier to measure and widely available. GDP, for example, quantifies the monetary value of goods and services produced within a nation, while GNI incorporates both domestic and international income. The appropriateness of GDP as a proxy for health outcomes warrants scrutiny, as the relationship between economic growth and population health outcomes is complex and dependent on several factors including wealth distribution, health infrastructure, and rates of industrialization (Patterson Reference Patterson2023). Even Simon Kuznets, the creator of GDP, cautioned against its use beyond the measurement of economic activity (Costanza Reference Costanza, Hart, Kubiszewski and Talberth2014).

Using GDP has several flaws. First, economic growth, while promoting health in some cases, “does not by itself improve population health generally speaking” (Patterson Reference Patterson2023). GDP primarily reflects market-driven activities, whereas many determinants of health – such as public health infrastructure, education, environmental quality, and cultural factors – are not directly tied to economic output. In some cases, economic growth driven by industrialization and urbanization has had negative effects on population health, leading to pollution, the spread of communicable diseases, and lifestyle-related noncommunicable diseases (Patterson Reference Patterson2023).

Second, GDP is an aggregate measure that conceals disparities within countries. This is particularly problematic for middle-income countries, which house 70 percent of the world’s poor but also exhibit significant economic inequities (Nassiri-Ansari and Lehtimäki 2024). These disparities often mean that despite higher GDP classifications, substantial portions of the population lack access to adequate health care. A further paradox is that having a higher GDP classification and “graduating” into middle-income World Bank status renders them ineligible for aid from most bilateral and multilateral aid agencies.

Many organizations have proposed alternatives to GDP, including the Probability of Premature Death (PPD) – the likelihood of dying before age seventy (Jamison Reference Jamison, Summers and Chang2024). PPD is linked to life expectancy at birth while also accounting for improvements in survival across all age groups under seventy. Another increasingly recognized measure is the Multidimensional Poverty Index (MPI), which assesses deprivation rather than development and has been implemented by the UNDP and fifty governments (Nassiri-Ansari Reference Nassiri-Ansari, Lehtimaki and Schwalbe2024).

A 2024 report summarized sixty-five proposals for augmenting or replacing GDP (Jansen Reference Jansen, Wang, Behrens and Hoekstra2024). Investors can and should take the lead in identifying practical, investment-relevant indices. Metrics tailored to investment needs – paired with initiatives to standardize and share performance data – can help drive greater capital flows to underserved regions. Investors are well positioned to lead this dialogue, but domestic governments and philanthropic institutions must also invest in strengthening national health data systems. This includes capacity-building initiatives, such as training programs, to foster a data-driven culture that prioritizes robust data collection, analysis, monitoring, and evaluation (GIIN 2019; Economist 2024).

Overcoming Policy and Advocacy Barriers. As discussed previously, the health sector is highly fragmented and siloed. Though efforts to coordinate have been plentiful, they need to further center around the needs and priorities of the Global South. Public–private partnerships need to evolve to allow governments to set the health agenda. Once these have been set, the government, with the ministry of health in the lead, should determine the partnership structure and roles and responsibilities. Donors and philanthropists should be willing to provide flexible funds that governments can apply toward their domestic priorities and to augment domestic sources of financing.

Financial policies must also become more inclusive. For example, the US Securities Exchange Commission still restricts private investments to accredited investors with a net worth that exceeds $1,000,000 or an annual income more than $200,000. This accreditation was first introduced in 1982 to define individuals with enough financial sophistication to be able to participate in private markets (Schulp Reference Schulp2023). This policy is highly discriminatory and creates unnecessary barriers, particularly for Global South investors, to access private capital markets. Policies such as this need to be changed to be more inclusive.

As discussed previously, advocacy and educational efforts need to target those managing impact investing funds, and in particular pension funds, to increase awareness of the opportunities for impact in the health sector. Global South governments, in partnership with implementing partners, need to identify and create business cases for bankable initiatives that have both impact and financial return potential. Efforts to matchmake investors and investable projects are needed through increased discourse. Capacity building is needed on both sides: for investors to understand the opportunities and risks in the Global South and for investees to build the necessary infrastructure, implement robust metrics, and understand what attracts investors. Many partners including the International Finance Corporation (IFC) and the World Bank have hosted convenings to spark such dialogue; however, the global community needs to translate dialogue into action by executing more deals and sharing lessons learned across the sector. Government incentives, particularly from G7 nations, should also be implemented to encourage investors to diversify their investments into the Global South, take calculated risks, and align investment strategies to the SDGs.

Call to Action

Unlocking the potential of innovative health financing requires addressing interconnected financial, data, and policy barriers that hinder investment flows into the Global South. By deploying risk mitigation instruments, enhancing measurement frameworks, and reforming discriminatory financial policies, we can catalyze greater investment into health systems, close the financing gap, and be back on track in reaching health-related SDGs. Multilateral institutions, governments, philanthropic organizations, and the private sector must unite to develop tailored financial tools, robust health data systems, and equitable policies.

Bridging the health financing gap requires unlocking new sources of private capital while addressing significant financial, data, and policy barriers. Financially, risk mitigation tools such as political risk insurance, credit guarantees, and blended finance must be deployed to attract investors to the Global South. Additionally, multilateral banks must create facilities to hedge foreign exchange volatility, and digital remittances must be made more accessible and affordable.

To overcome data barriers, investors need standardized, investment-appropriate health metrics that capture the complexity of health outcomes. Domestic governments should strengthen national health data systems to provide reliable, timely data, fostering investor confidence. Collaborative efforts are essential to develop indices that reflect health progress and investment potential.

Policy reform is critical to creating inclusive financial markets that enable broader participation from Global South investors. Public–private partnerships must align with national health priorities, with donors offering flexible funding. Advocacy efforts should engage impact investors, while capacity-building initiatives must support both investors and investees.

Immediate action from governments, financial institutions, and the private sector is essential to mobilize sustainable health investments and achieve global health equity. These efforts will not only attract funding but also empower LMIC governments to take ownership of their health systems. The path forward requires decisive action: breaking down silos, aligning priorities, and fostering collaboration to close the health financing gap and improve outcomes for billions.