Citi Enables Financing to Support New UN Global Development Agenda
By Jay Collins, Vice Chairman, Corporate & Investment Bank, Citi September 23, 2015 12:00 PM
As global leaders gathered in Addis Ababa, Ethiopia in July for the Third Financing for Development Conference (FfD3) to discuss a new financing framework for sustainable development, it was natural for Citi to have a seat at the table. As a leading global financial institution, Citi has provided capital to governments, corporations and development organizations to support economic, social and environmental progress in the markets where we operate for more than 200 years. Now, Citi is again stepping up with a core philosophy that global businesses can collaborate with governments to “do well” and “do good” at the same time; this paradigm shift will be the only way for the world to meet its new financial development objectives.
This week, the United Nations will launch an ambitious set of sustainable development goals (SDGs) with an annual price tag well into the trillions. Public financing alone will not be sufficient to deliver against the 169 targets imbedded in the 17 different goals of the new SDGs. The estimate of the expected funding gap for the SDGs is $3 trillion per year, and many recognize that without the private sector, the SDGs will have little hope of being realized.
At FfD3, we at Citi were honored to share the stage at the Opening Plenary with key luminaries such as Jim Yong Kim, President of the World Bank, and Ban Ki-Moon, Secretary General of the United Nations, to discuss how the capital markets can help bridge the SDGs’ financing gap. As I explained on stage, the pure magnitude of the financial challenge will require the public sector to better leverage the private sector and to take full advantage of the power of capital markets. We will need to usher in a bold and creative new era of public private collaboration to reach these new ambitious objectives.
Through our core business, Citi has already helped to mobilize billions from the capital markets to support environmental and social progress. For example, in 2007, Citi set a 10-year, $50 billion Climate Finance goal. Proudly, we achieved $50 billion by 2013, significantly ahead of schedule. Subsequently, we launched a follow-up 10-year, $100 billion Environmental Finance goal, which will support investments in renewable energy, energy efficiency, water conservation, sustainable transportation, affordable green housing, green bonds and other environmentally positive activities. In our first year alone, we helped to lend, invest and facilitate nearly $24 billion to environmental projects and activities around the world.
We understand that the credibility to lead environmentally-friendly financial intermediation must begin with action at home; our new 5-year Sustainable Progress Strategy includes solid and ambitious footprint objectives for own operations and sustainable sourcing policies that meet high environmental and social performance standards for our suppliers. In addition, as part of our Citi for Cities company-wide initiative, we are partnering with local governments, businesses and communities to identify and implement innovative solutions that enable cities to solve their infrastructure, social, environmental and economic challenges. For example, we helped raise $862 million for Central America’s first urban rail system – the Panama Metro – which will cut greenhouse gas emissions and drastically reduces commute times for workers.
But to move developmental funding from billions to trillions, and provide a massive step up in the flow of capital to the newly crafted SDGs, Citi and other private sector participants will have to come up with even more creative and scaled financing structures. Blended finance solutions – which leverages grants or concessionary financing from philanthropic or public sources to make projects financially viable and “bankable” – will need to go viral. Financial structures that incorporate risk sharing with the public sector, enabling the private sector to achieve appropriate risk-adjusted returns, must be front and center.
Blended finance, conceptually, however, is not new. In fact, Citi has been partnering for years with the World Bank Group’s Multilateral Investment Guarantee Agency and with the U.S. Overseas Private Investment Corporation (OPIC) through dozens of risk-sharing guarantee arrangements around the world. Through these programs, Citi has provided capital to scale and accelerate microfinance lending and expand access to financial services for micro-and small businesses. Citi and other similar financial institutions would not have been able to do this on their own. The challenge, if not the imperative, going forward is for blended finance to go beyond simple guarantee structures to incorporate official development assistance as a way to provide a layer of risk capital upon which multiples of private sector capital can be further layered.
In order to promote these types of innovative solutions, and to take the theory into practice, Citi is also participating in a number of public-private partnerships that can be used to develop and innovate new blended finance solutions. One such example is the Sustainable Development Investment Partnership (SDIP) launched in Addis at FfD3; this partnership, which includes USAID, the OECD, the World Economic Forum and SIDA, among others, is targeting mobilization of over $100 billion in private financing over five years. SDIP will focus on infrastructure projects in developing countries by using development assistance to reduce risk and attract additional investors and capital to support the SDGs.
At the heart of new funding initiatives to achieve the SDGs are capital markets. Citi is a believer in the power of thematic bonds that combine development and sustainability themes with the power of global institutional markets. We began this journey with our innovation in the Green Bond space, underwriting green bonds for International Financial Institutions like the IFC. Thematic bonds done to date are only the tip of the iceberg, with local capital market variations and new SDG related themes continuing to emerge, as we saw recently with the Inter-American Development Banks’ EYE bond, dedicated to Education, Youth and Employment. Thematic bonds can also incorporate risk mitigation themes, such as the developing Catastrophic Bond market, designed to push natural disaster risk into the capital markets. We believe that the CAT bond experience will eventually progress into capital market funding solutions for pandemic risk.
Regardless of the theme and the format, the capital markets have scale, depth and potential to reach far beyond the current multi-billion dollar funding levels. They represent the hope and the teeth behind President Kim’s ambitious plan to go “from billions to trillions”. While global capital markets will be important, domestic resource mobilization and local capital market development will also be vital to support the SDGs. The IMF has done extraordinary work in demonstrating the historical developmental impact of local currency capital markets. This impact will only grow in the financial world of the future. And with Citi’s local, on-the-ground presence in many developing countries – including emerging and frontier markets – we are well-positioned to actively support the development of domestic capital markets.
Citi, of course, applauds global philanthropic efforts and the surge in global corporate social responsibility. We are, in fact, one of the top corporate donors in the United States – Citi and the Citi Foundation provided nearly $170 million in combined charitable giving in 2014. However, philanthropy and non-profit giving will not and cannot come close to the scale of global funding required to close the developmental funding gap. The only way to close that gap will be for global for-profit institutions – banks, corporations and institutional investors - to embrace the belief that social returns and financial returns are not incompatible. In fact, over the next decade and a half, the ability for the public sector to partner with the private sector in its development objectives, and for the private sector to simultaneously pursue social and financial returns will determine the success of the United Nations’ sustainability goals. Doing good while doing well must be the mantra for SDG success.