The State Secretariat for Economic Affairs (SECO) launched on 1 December 2021 an impact finance initiative with UBS and Credit Suisse focusing on the United Nation’s Sustainable Development Goals (SDGs). The target is to raise 100 million Swiss francs that will unlock up to 1 billion francs in additional capital going towards the global sustainable development goals.
Governments won’t be able to foot the bill to meet the ambitious development goals on their own. (See fact box) It is here that impact finance comes into the picture. Impact investors seek to achieve specific and measurable goals that are beneficial to society at large and, or the environment, alongside a financial return. They often use the UN’s 17 SDGs as framework for investments.
The SDG funding gap in developing countries is estimated to exceed 2.5 trillion US dollars per year (2.3 billion Swiss francs) – excluding any emergency spending on Covid-19 measures. The funding gap may 2020 have increased by as much as 1.7 trillion US dollars in developing countries, due to the pandemic. So, capital from both public and private actors is required, that’s where SECO’s initiative comes in.
19.5 million – 100 million – 1 billion
The SDG Impact Finance Initiative, as the new scheme is called, is a collaboration between SECO, the UBS Optimus Foundation, the Credit Suisse Foundation and the Swiss Agency for Development and Cooperation (SDC). Their shared target is to raise 100 million Swiss francs (107 million US dollars) or more in contributions that in turn will unlock up to 1 billion Swiss francs supporting the United Nation’s global SDGs.
“It is all about collaboration and joining forces between public, philanthropic and private actors to mobilize more finance to the SDGs in the developing countries. The 19.5 million Swiss francs approved by President Guy Parmelin underscore SECO's commitment,” says Marie-Gabrielle Ineichen-Fleisch, State Secretary and Director of SECO.
Switzerland, a buzzing impact finance hub
The Swiss financial center is already home to a dynamic ecosystem for impact finance. Financial and international organizations come together to co-create new financial solutions. Funds invested in impact investments last year grew by 70 percent to 86 billion Swiss francs, according to the Swiss Sustainable Investment Market Study 2021. The SDG Impact Finance Initiative aims to support this ecosystem, by incentivizing a closer collaboration between the impact finance sector and international and Swiss social, private, and public organizations.
Interest in impact finance growing rapidly
Even though impact investing has grown in scale in recent years, do investors cite numerous hurdles to deploying more capital. The issues faced range from the small deal sizes of the projects to inadequate regulations and unfavorable risk-return profiles. The initiative’s objective is to give private and institutional investors access to a broad range of impact-driven investment products financing the SDGs in developing countries. Financial solutions such as design, grant and seed funding, community building and collaboration are just some of the activities planned by the initiative.
“The SDG Impact Finance Initiative aims to attract additional funding from a broad range of public, private and international actors that share the objectives and vision of the initiative. Initially, we expect banks’ foundations or philanthropic organizations as well as development agencies, both in Switzerland and internationally, to come in. The goal is to get banks and impact investors involved as we aim to seed fund commercially viable investment products,” explains Liliana de Sá Kirchknopf, Head of the Private Sector Development unit of SECO’s Economic Cooperation and Development division.
Call for first proposals early 2022
SIFI will pick out innovative and scalable solutions delivering measurable impact through competitive calls for (project) proposals. The first call will take place early next year in collaboration with one of the initiative’s partners, Convergence. The Canada-based organization is a global network for blended finance, composed of public, private, and philanthropic investors. Blended finance enables organizations with different objectives to invest alongside each other while achieving their own objectives – financial return, social impact, or a mix of both.
“Our stakeholder outreach in 2020 showed that there is an interest and need for such an initiative. That same outreach has ultimately led to the partnership with the UBS Optimus and Credit Suisse foundations in jointly founding the SDG Impact Finance Initiative. We have also been discussing with other foundations that we hope will join us soon,” says de Sá Kirchknopf.