Blended finance is not working; It is time for a new approach for mobilizing private finance for the SDGs at FfD4

By Mariana Mazzucato, Professor in the Economics of Innovation and Public Value, University College London (UCL); Founding Director of the UCL Institute for Innovation and Public Purpose; Member of the UN High-Level Advisory Board for Economic and Social Affairs

The Sustainable Development Goals (SDGs) are dangerously off track. With only five years remaining until 2030, nearly half of the SDG targets are either stagnant or regressing. Hunger levels have regressed to those of 2005, and no target under SDG 13 (Climate Action) is on course. These alarming trends reflect more than just missed milestones; they expose a systemic failure to embed the SDGs into the DNA of our economic and financial systems.

Yet, the global response remains fixated on filling the financing gap. In a forthcoming policy brief from the UN Department of Economic and Social Affairs and the UCL Institute for Innovation and Public Purpose (IIPP), I set out why the prevailing "gap-filling" approach has failed to deliver the scale, impact, or equity required. 

Blended finance, often championed as a silver bullet for addressing the SDG financing gap, has plainly fallen short of its promise. Over the past 15 years, annual volumes of blended finance have stagnated at approximately $15 billion—a far cry from the $5-7 trillion needed annually to meet the SDGs. Even within this limited scope, private capital’s contributions to blended finance remain marginal, accounting for only 38% of total mobilized funds and just 16% for climate finance. Worse still, blended finance is diverting scarce concessional resources toward de-risking privately initiated deals in lower-risk regions, and sectors. Low-income countries (LICs), for instance, mobilize only $0.37 of private capital for every $1 of public financing, compared to $1.06 in lower-middle-income countries (LMICs). This inequity exposes the fundamental flaw in blended finance: it prioritizes de-risking over tackling the real challenges of sustainable development.

Now, as the Fourth International Conference on Financing for Development (FfD4) approaches, we have a unique opportunity to change course and adopt a transformative approach to financing the SDGs. FfD4, set for 30 June – 3 July 2024 in Seville, Spain, represents a pivotal moment for global economic and financial systems to realign with the SDGs. This conference must be more than a venue for reiterating past commitments; it must be a launchpad for systemic changes in how we finance development. To accelerate progress, we need to reimagine the role of public and private finance and move away from mechanisms that have proven inadequate.

To address these challenges, we need a fundamental shift in the role of public finance. First, the SDGs must be placed at the center of economic planning. This requires robust public investment pipelines explicitly aligned with the SDGs and Nationally Determined Contributions (NDCs). Such pipelines enable the public sector to strategically guide private investment toward high-impact, mission-driven strategies.

For example, Germany’s Energiewende and the KfW, its public development bank, demonstrate how mission-oriented public finance can mobilize private capital for renewable energy initiatives, creating a first-mover advantage in green technology markets. Similarly, the Development Bank of Southern Africa’s Climate Finance Facility attracted $110 million in initial funding to support climate-resilient infrastructure, showcasing the multiplier effect of aligning public and private resources toward shared goals.

Second, conditionalities can be embedded across all levels of blended finance to ensure alignment with societal objectives. Public financing should be tied to explicit targets, such as decarbonization or equitable healthcare access, compelling private partners to focus on high-impact, mission-aligned outcomes. 

Conditionalities also help address a critical flaw in current blended finance models: the lack of additionality. Evidence shows that many projects supported by blended finance would have proceeded without public intervention, resulting in the inefficient allocation of scarce resources. Embedding conditionalities ensures that public finance drives transformation rather than merely subsidizing private sector activities.

Third, we need to socialize risks and rewards in public-private ventures through a portfolio approach. By pooling risks and reinvesting rewards, we can scale transformative SDG financing and amplify its multiplier effect. Public Development Banks (PDBs) and Multilateral Development Banks (MDBs), which collectively manage over $22.5 trillion in assets, are uniquely positioned to lead this effort. 

Tools like equity stakes, royalties, and profit-sharing agreements can ensure that public contributions yield tangible returns, enabling public entities to offset losses in less successful projects and reinvest in new opportunities. This approach transitions blended finance from a reactive mechanism to a proactive, strategic lever for sustainable development.

The upcoming FfD4 is an opportunity to recalibrate our approach to financing the SDGs. To succeed, our financial systems must be as ambitious as the SDGs themselves. This means prioritizing impact over scale, aligning public and private resources through mission-driven frameworks, and embedding accountability at every level. Only by fundamentally reimagining the role of public finance can we mobilize the transformative investments needed to deliver on the SDGs’ promise. The time for incremental change has passed; FfD4 must mark the beginning of a bold, new approach to sustainable development financing.

Mariana Mazzucato (PhD) is Professor in the Economics of Innovation and Public Value at University College London (UCL), where she is Founding Director of the UCL Institute for Innovation & Public Purpose. She is winner of international prizes including the Grande Ufficiale Ordine al Merito della Repubblica Italiana in 2021, Italy's highest civilian honour, the 2020 John von Neumann Award, the 2019 All European Academies Madame de Staël Prize for Cultural Values, and 2018 Leontief Prize for Advancing the Frontiers of Economic Thought. Most recently, Pope Francis appointed her to the Pontifical Academy for Life for bringing ‘more humanity’ to the world. 

* The views expressed in this blog are the author’s and do not necessarily reflect the opinion of UN DESA.