The field of financing for sustainable development is experiencing something of a golden age. Each month brings more news of global private investors, including asset managers and institutional investors, making public commitments to align their investments with the United Nations Sustainable Development Goals (SDGs). Ideally, this momentum should help make globalization and international capital markets work for the world’s poorest and work to close the inequality gap that is causing seismic political backlashes all around the world.

Unfortunately, this has not been the case. As global investors seek to align capital with purpose, the world’s 47 Least Developed Countries (LDCs), continue being left behind. A report launched this week by the United Nations Capital Development Fund (UNCDF) and the OECD showed that only 6% of all private finance mobilized by official development finance between 2012-2017 reached the poorest countries.

While we aim to increase the funds dedicated to achieving SDGs from the proverbial ‘billions to trillions’, the call for more financing is not just about quantity; we must focus on quality, with a strategic impact focus. Despite the rapid growth of small- and medium-scale development finance and other impact investments, the traditional absence of investable deals in LDCs makes the conversation about directing capital to these markets a non-starter for most asset managers and institutional investors.

A key question, therefore, is how to redirect large-scale global capital flows to support the sustainable development achievement of LDCs.

A first area of innovation is the issuance of sovereign bonds that enable investors to finance the sustainable and inclusive growth of industry sectors. The Republic of Seychelles, with the support of the World Bank, became the first sovereign state to launch a ‘blue bond’ as a way to tap into capital markets to fund the sustainable management of its fisheries and marine resources. While it is not an LDC, the Republic of Seychelles has sent a powerful signal that sovereign bonds can be an innovative financial tool for poorer nations to attract finance to support clean energy, climate resilience, and water sustainability, among other goals.

Another area of innovation taking place at the global level is the partnership between Swiss investment bank, UBS, and the World Bank to increase the accessibility of private capital to highly-rated sustainable development debt from multilateral development banks. This is intended to increase the shift of investments away from safer government bonds and towards debt instruments that can finance sustainable development projects on a larger scale; in addition, it demonstrates a way to target investments finance to benefit those traditionally underserved by the global financial architecture. However, for this trend to meaningfully help LDCs, governments and issuers should include rigorous impact reporting requirements that make it clear how the capital will be used to support inclusive industries.

A final area of innovation in global markets is public equity exchange-traded funds (ETFs) that support SDG impacts. In late 2018, UNCDF worked with Impact Shares, a non-profit fund manager supported by the Rockefeller Foundation, to launch the first-ever UN-affiliated ETF (NYSE: SDGA) that includes companies that create a positive economic impact in the world’s poorest countries. The net management fees from the fund will be donated to UNCDF to support its work in LDCs: helping individuals access savings and credit; catalyzing investments for women-owned and women-led businesses; lending to small and mid-size businesses in frontier markets; and supporting local governments to manage their public finances in transparent and accountable ways.

Mainstream institutional investors and asset managers are acting on new commitments to invest in line with the SDGs. Maintaining this momentum will require greater transparency and accountability for impact. It will also require a strategic focus on innovation to ensure that global capital is effectively driving more sustainable economic growth around the world, particularly in the world’s poorest countries. Working together, we can ensure that this next era of innovative financing benefits the world’s poorest citizens and countries.