Date of Award
Jan Kregel, Ph.D.
Since the establishment of the Post–2015 Development Agenda and the 2030 Sustainable Development Goals (SDGs), the international community has considerably maintained that private sector leadership will be a crucial factor in supporting sustainable development, especially in emerging and developing economies. Since 2008 many traditional commercial banks who are crucial financial actors have retreated from the capital markets due to increased regulations and mandatory capital ratios. Additionally, government expenditure has also decreased due to budget constraints in the post-crisis years. This retraction of traditional sources of finance, combined with a significant increase in the demand for capital has created multiple financing gaps throughout different markets. Considering this, the most considerable financing gap prevalent in the markets today is in infrastructure expenditure and long–term sustainable assets in developing markets. A potential solution to alleviate these long–term infrastructure and sustainable development funding gaps is unlocking the large pool of private sector capital, mostly in the hands of private institutional investors, such as pension funds, mutual funds, and sovereign wealth funds (SWFs). Considering the importance of institutional investors in development finance, I identify some critical obstacles that institutional investors are having when considering long-term alternative market investments in developing economies. Many of these obstacles deal with the misalignment between investor mandate and the characteristics of long-term sustainable assets. To overcome this problem, I argue that SWFs are more effective in funding the infrastructure financing gap than other institutional investors. The inherent characteristics of SWFs and their governance structure makes them perfect candidates to provide the long-term financing needed to transition into a sustainable economy. This paper shows how SWFs are a necessary apparatus in reaching our global environmental and shared economic objectives.
Fanelli, Jordan, "Aspects of Institutional Finance in Sustainable Development" (2019). Masters of Science in Economic Theory and Policy. 19.