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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership Team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape. 

Last week, we talked about a new report that found 2024 was the hottest year on record. As the world warms, physical climate risks are becoming more frequent and severe. And this means we need to mitigate or lower emissions. We also need to adapt and build resilience to prepare for the effects of climate change. And these measures require a lot of money, which brings us to another topic we frequently discuss on this podcast, climate finance.

The climate finance gap is huge, but a focus on practical solutions, coupled with increasing emission levels, could unlock meaningful private capital mobilization. This was a big focus at COP29, the UN's Climate Conference in Baku, Azerbaijan in late 2024, and it's potentially going to become an even bigger focus in 2025.

As expected, in his first week in office, U.S. President, Donald Trump, kicked off the yearlong process of withdrawing the U.S. from the Paris Agreement on climate change. He also said the U.S. will immediately cease or revoke financial commitments it made under the United Nations Framework Convention on Climate Change or UNFCCC.

Esther Whieldon: In 2025, we expect to see renewed pressure on stakeholders to find ways to address the widening climate finance funding gap. Today, we're talking to a guest working to bridge this gap with private capital. We speak to the Head of Private Finance for SDGs at the UNDP's Sustainable Finance Hub. SDGs are the UN's Sustainable Development Goals. There are 17 goals, and they're at the heart of the 2030 Agenda for Sustainable Development adopted by all UN member states in 2015. 

And the UNDP is the United Nations Development Programme. This is a UN agency that operates in about 170 countries and territories, working to eradicate poverty while protecting the planet. We spoke to UNDP's Assistant Secretary General during COP29, and we'll include a link in our show notes to that episode.

Lindsey Hall: In today's interview, we'll hear about the climate financing gap, the challenges around bringing private finance to the table and how companies can integrate sustainability into their operations. Here's my conversation.

Sebnem Sener: My name is Sebnem Sener. I'm the Head of Private Finance for the SDGs in UNDP, United Nations Development Programme, in Sustainable Finance Hub. The UNDP's mandate is to end poverty, build democratic governance, rule of law and inclusive institutions. We advocate for change while we as an institution change and adapt to disruptions, which happens quite often lately. And within the context we live in, namely mainly climate crisis, stressed food systems and increased poverty, in the Sustainable Finance Hub in UNDP, we believe it's critical to address these issues, and sustainable finance is needed to deal with these challenges.

There is a $4.2 trillion annual SDG financing gap, and public finance is not enough. And that's why I'm heading the private finance for the SDGs unit to really bring in private capital and private finance to bridge that gap. In a nutshell, in the private finance work, what we do, 2 things. We work towards redirecting significant financial flows towards sustainable development as well as realigning finance with sustainable outcomes. We do it in 2 ways very quickly, bottom-up and top-down approach, which I'd like to explain this way.

Bottom-up is really working to build a pipeline of scalable, bankable and impactful projects, especially in emerging markets, that are SDG-aligned and then connecting these opportunities and projects with the interested investors. Top-down is to work towards greater alignment between financial flows and sustainable development outcomes. It really aims to transform finance from not only being profit-focused but also consider people and planet.

Lindsey Hall: Thank you. And many of our listeners will be familiar, but for those who aren't, can you tell us, what should we understand at a high level about the UN's SDGs, the Sustainable Development Goals?

Sebnem Sener: The one thing that I want to highlight while talking about Sustainable Development Goals is the interconnectedness between these goals. They are the blueprint for the future of our world and the people. And thinking them separately do not work to achieve the sustainable future that we are aiming at. All these goals are interconnected to each other. And that's how we in the private finance for the SDGs bring this interconnectedness to the space for the private sector and for the finance to function that way and understand the interconnectedness and align the financial flows with the Sustainable Development Goals.

Lindsey Hall: This idea of interconnections comes up a lot on this podcast, especially in recent months as the UN hosted 3 different Conferences of the Parties or COPs to discuss the intertwined challenges of climate change, desertification and biodiversity loss. The UN describes these as existential challenges to humanity. And these 3 sister UN conventions are sometimes referred to as the Tri-COP agenda. I asked Sebnem about the role of private finance in all of this, and you'll hear her mention a couple of acronyms. VCE, that's venture capital, PE, that's private equity, and FDIs, that refers to foreign direct investments.

Sebnem Sener: Addressing biodiversity, climate and desertification is very much interconnected to each other. And our message is a unified call to action basically for all the stakeholders, including the private sector and private finance because without accelerated private finance, we simply cannot meet the demands in the areas related to climate action, which is SDG 13, biodiversity protection, which is SDG 15, and land restoration, which is SDG 2 and SDG 15. So we work at UNDP in many different ways to unlock the private capital that goes beyond profit and that actively contributes to sustainable growth for people and planet.

I just want to mention at this point one thing because I think it's important. We always talk about contribution, sustainable development outcomes from the private sector. But one question which rightly so the private sector should ask and is asking is, what is in it for them? Because we don't want private sector to function for philanthropy, right? We want the private sector to exist to actually contribute to the sustainable development outcome. So profitability needs to be there.

How we see it, it's really strategic to think about the sustainable outcomes. And there are strategic benefits for businesses engaging with these Tri-COP themes, namely biodiversity, climate and desertification because for businesses, aligning with the Tri-COP agendas means managing risks and tapping into new opportunities. Just as an example, as the climate risks increase, as we know, those with strong environmental practices will be better positioned to maintain operations, to avoid the costs that would and could incur because of any climate-related event and obviously increase profitability in that sense in the longer run.

Again, similar companies investing in sustainable land use practices, biodiversity conservation and climate resilience, they not only contribute to global agenda, but they really future-proof their operations. And forward-thinking companies should align profit goals with environmental stewardship, and we have seen a lot of examples. We have seen sustainable investment funds that are focused on climate, biodiversity and land increasing popularity. And so how we see is that the most successful companies in the coming years will likely be those that integrate sustainability at their core of operations in the future.

Lindsey Hall: I'd like to dig in more about this topic you said, the private sector also looking to make a return. Can you talk to me a little bit about what you've seen work well in the work that you're doing with the private sector?

Sebnem Sener: Yes. Let me first talk about what we mean by private sector, right? There are many different actors. We have been working and have worked with different actors, including some private equity funds, including organizations, companies, businesses and including bond issuers, sovereign mainly, the governments. But coming back to how we work with them mainly with the funds and companies, we are helping them to think about sustainability as the core of their operations.

How I like to explain this to a CEO or a decision-maker is, we have a framework, and this framework helps CEOs to make decisions. One of the key elements that they always keep in mind while making decisions is the financial risk. So our framework help the CEOs to make decisions, thinking about obviously the financial risk but also the impact risk, exactly the same way they think about financial risk. So in this way, we help the system to be embedded into their internal management practices to make decisions, both profitable but also impactful for the people and planet. So this is how we work with them.

And for that, I mentioned we have a framework, and there's an exciting news happened. A couple of months ago in September, we have launched a new guidelines with the International Standards Organization. It's ISO/UNDP Guidelines for the SDGs, which is built on our thinking and framework that helps the companies to actually embed this framework into their day-to-day operations. ISO is a very well-known standard-setting organization, and these guidelines will turn into the first-ever management system standards for the companies to adopt.

Lindsey Hall: What should listeners understand about what's included in that framework?

Sebnem Sener: Yes, sure. So the guidelines, ISO/UNDP SDG guidelines or in general the UNDP framework, I can mention 4 key elements and how they help and how they function. Number one is that guidelines offer a clear framework to integrate SDG principles into everyday operations of the company. They serve as a blueprint, and this step comes before reporting and disclosure. And Lindsey, this is very important because a lot of companies and private-sector players rightly so very much focused on reporting and disclosure because of the upcoming tightening regulations and compliance requirements.

But if you do not have good internal management practices, you won't have good reporting. So it will be garbage in, garbage out. So internal management precedes reporting, and good internal management results in good reporting. So if -- and some companies do see reporting as a tick-box exercise, nothing will change, status quo will continue, and we won't achieve any of the sustainable outcomes that we aim or strive to achieve.

What is needed is moving beyond reporting to truly sustainable decision-making. And these guidelines provide that step-by-step concrete actions for the companies to be able to take and to change kind of their internal management processes to be able to report in an integral way.

Number two is that a benefit of the guidelines is their ability to bring alignment between the global goals and national priorities. UNDP country offices and the ISO national members will work at the country level together to provide a framework to collaborate with the governments and other stakeholders to build a stronger national standards and policies at the national level because the policies, the compliance requirements and regulations globally tightens, but at the national level, governments start or develop their own policies and regulations. So the guidelines will serve as a blueprint for that.

Third one is the stakeholder trust. This is also extremely important because we see and know that businesses increasingly face pressure from consumers, investors, regulators to demonstrate their sustainability commitments in a transparent way. And the guidelines help the companies to improve their sustainable management practices and their reporting.

And fourth is the compliance. The sustainability regulations continue to tighten globally. And UNDP actually is the Secretariat of Sustainable Finance Working Group at G20, and the seeds are planted there. So from these high-level G20 conversations, then the national governments take these and adopt in their -- according to their own country context and come up with compliance and regulations, all those requirements. So our message to the world is that adopting the guidelines and adopting the UNDP framework will help any company or any fund or any private-sector player to comply with whatever regulation is coming.

Lindsey Hall: So looking at this Tri-COP agenda that we've been talking about, a lot of the discussion that I hear, whether it's talking about biodiversity or whether it's talking about climate, et cetera, what are the discussions you're hearing about the finance gap? And what are some of the things that you're doing or that the private sector is doing to help close that gap?

Sebnem Sener: In general, achieving the sustainable development outcomes or goals requires USD 4.2 trillion annually. That's the financing gap, yes. And that's why private sector is needed because it's impossible to close this gap only with public funds. There are challenges for the private sector to come in. And most of the challenges that we hear and we face are similar to each other, although from region to region and country to country, it changes slightly, but there are some general challenges that we know of and we hear.

First one is the perceived risk. And this is one of the biggest challenge we face. When it comes to investing in sustainable projects, especially in emerging markets, the perceived risk is huge. And this perception is often tied to concerns around political instability, regulatory uncertainty or regulatory burden even in countries that FDI is coming in or economic volatility, currency crises. All these things makes investors hesitant to commit.

Second one is lack of derisking mechanisms. In some countries, it's easier to attract pure private-sector investment because the environment is ripe, it's more stable. But in most of the countries that we, the UNDP, works in, it's not easy to bring pure private investment without sufficient derisking mechanisms such as guarantees or blended finance or even bringing the social impact bonds in. So many investors prefer to wait until projects have already demonstrated their viability, which really slows down the progress.

The third one is information gap. And I just had a conversation with the private equity fund functioning in the entire Africa yesterday actually. And this came very strong from them. Reliable market intelligence and data are still lacking in many regions, especially industry-specific information, sector-specific information and information about enabling environments at the country level. So investors need better access to information about the risks and opportunities that are associated with the investments that they are going to make.

And fourth one is the ticket size of these investments. It's not a thing that I can say in general true for all regions and countries, but especially, I would say, in Africa, it's true, the ticket size of the investments that come in from $5 million to $100 million, which is relatively small for the big institutional investors, but then in this case, they are more fit for a VC or PE type of investment. But then the challenge comes, it needs to be high risk, high return and then how do you make sure that it's high risk, high return but, at the same time, impactful? What I mean by impactful is that sustainable projects, right?

So these are the challenges. There are opportunities as well. There's a lot of demand for sustainable investment. Investors are more and more looking for those kind of investors. There are a lot of untapped sectors with high growth potential, especially in renewable energy, biodiversity again and land restoration in the context of these Tri-COPs. And public-private partnerships is another opportunity. Obviously, it's a powerful way to unlock new investment opportunities.

In UNDP, we do things that help to solve these challenges and bring the opportunities for the investors. And I have to emphasize, UNDP is not a financial institution, right? We are a development institution. So we don't deal with any financial due diligence or dealmaking. But we bring on -- the information side, we bring tools and market intelligence at the country level to investors.

We have a platform called SDG Investor Platform. We have information at the country level for 45 or more than 45 countries. The market intelligence that I'm talking about is about information about enabling environment, information about if there are any incentives if you invest in such a specific sector or industry, information about if you invest in such a specific industry, for example, payment system infrastructure, what would be the development outcomes of your investment? What is the expected return on investment even?

We get this information through our country offices at the country level. We have 170 country offices globally, and our country offices collect this information based on research data and based on conversations with the private sector themselves and with the governments. So it's quite deep and granular information at the country level and industry-specific.

Building on this information, we also overcome pipeline building, as I mentioned. We try to build pipeline of projects that are sustainable, SDG-aligned, that are bankable and that are scalable. And for them to be bankable, depending on the country context, we also bring instruments such as blended finance or guarantees and bring people together to make this happen. And after building a pipeline of projects, I think our main power is convening. We connect these projects with the interested investors to then for them to go and make the deals, hopefully.

Sometimes we also work with third-party intermediaries who could come in the financial side of things, but this is what we do. And obviously, on top of all these, we also work with the governments for creating an enabling environment for sustainable investments. We work, we align the policies of different ministries. We advocate or support the governments on if a regulation or policy needs to be changed to attract more foreign direct investment or make the private sector more comfortable to come in, we support the governments on that as well.

Lindsey Hall: I asked Sebnem to describe, what needs to happen to make projects bankable and scalable? And what are the hurdles to getting more private finance flowing?

Sebnem Sener: It really changes from region to region and country to country. I mean it's very different to answer to this question for Asia than in Africa or Latin America. But in general, I think these projects and these businesses need acceleration. And that's what we do. We provide technical assistance to an accelerating environment for these projects, not only for them to become pitch-worthy to the investors in the financial sense of things but more on the impact side of things.

We are helping them to understand how to become more sustainable and how to think about sustainability and how to make sure that they can be -- confidently talk about their business actually contribute to the sustainable development outcomes, whatever they are aiming at, right? And this is critical because although sometimes it seems like it's another layer of work for these businesses, how I'd like to explain to them is like it's actually expanding their investor base. Because as I mentioned, we see a lot of investor demand for truly sustainable projects. And if these companies and projects understand the importance of it, they actually expand their investor base.

They can confidently go to many other investors that are interested to explain their thesis, investment thesis and impact thesis. So this is one thing that is needed. In general, as I mentioned, we help the businesses to become more ready to attract investment. And this is on the impact side, we do, but we also advise them and bring again other actors together if there is a blended mechanism is needed or if there's a guarantee is needed to come in first and to put investors at ease as well.

Lindsey Hall: Okay. You mentioned blended finance a couple of times. Can you tell our listeners a little bit more about what should they understand about the outlook for blended finance, what's working, where you see more opportunity on the horizon?

Sebnem Sener: Yes. Again, in some of the markets that I mentioned, there's the perceived risk, there are real risks that the investors are hesitant to come in at first. So what is it is that there is some concessional finances needed at first, right, to make investors to come in more easily in that sense. And that's how we advice and create a structure and bring the right people in. In some cases, there's a guarantee needed. So we try to bring another partner in, a donor, a government, to provide that guarantee for the private sector to come in.

In many markets that we work in, it's the case. But also there are some markets like Nigeria, for example, we had worked with an intermediary firm to build a pipeline of projects. We have now $100 million worth investment opportunity ready to invest, and $15 million of deals were closed, and it's pure private capital, no blended, no guarantees, nothing, so because Nigeria was more easy market relative to some others that we work in. So we do that as well.

And in Asia, we started a similar program in 3, 4 countries to, again, build a pipeline of investable projects, pure private investment, again, with a partner with an intermediary firm to build this pipeline of projects. So there are many different things that we do. It's really difficult, Lindsey, to come up with a general statement about, this is the challenge and this is the solution. If that was that easy, I think we wouldn't be here talking about this now. It's really country-specific.

And I think UNDP's strength is exactly this because we exist in 170 countries. We know the country conditions. We have great relationships with the stakeholders, including the government, the private sector at the country level, and we have a huge convening power.

Lindsey Hall: Many of our listeners are members of the business community. Our audience also includes a lot of financial institutions and investors. For this audience, for these listeners, what would be your message about the importance of aligning their work with the UN's Sustainable Development Goals?

Sebnem Sener: I think my message is that we all need to rethink how we create value. The businesses, the investors need to rethink how they create value to achieve the SDGs while keeping their profitability obviously. This means putting sustainability at the heart of their business decisions, at the heart of their day-to-day operations. And there is often a strong business case for sustainability.

I mentioned before, right, there will be a lot of costs avoided and it boosts profits while helping the people and planet. And it's really thinking a little bit about long term and forward thinking for the businesses. And I think those who do that will gain in the future. I see it as a big chance for businesses and investors to get ahead actually. And now it's the time to make sustainability a key part of their business plans and using the SDGs as a guide.

Lindsey Hall: Well, thank you so much for sharing your time and perspective, and it was great talking to you.

Sebnem Sener: Thank you so much. Thank you for having me.

Lindsey Hall: So today, we heard about the role that private finance can play in closing the funding gap for climate and also for other interconnected sustainability issues like biodiversity loss and desertification. We also heard about some of the challenges related to bringing private investors to the table. And it stood out to me what Sebnem said about the role of the private sector. She said, it's not supposed to function like philanthropy and the profitability needs to be there. This is a topic we'll continue to track in 2025, how do companies bring long-term sustainability thinking in line with shorter-term demands on profitability?

Esther Whieldon: And please check out our show notes for a link to register for our upcoming live podcast event in New York City on February 6. We'll be celebrating our seventh-year podcast anniversary with an in-person recording session, a big relaunch, networking, and we'll be unveiling our new podcast name. You don't want to miss it.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcasts.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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