Energy Future Coalition (EFC)

Traditional public foreign aid is too scarce to meet the developing world's urgent need for investment in sustainable development. Meeting the United Nations Millennium Development Goals with public foreign aid alone would require an additional $50 billion a year, roughly double the current amount. We should enlist instead the vast resources and the efficiency, judgment, skills, and creativity of private capital-market money managers in the effort to meet the world's development goals. Economic development abroad will also open up new export opportunities for U.S. businesses, create U.S. jobs, and generate tax revenue.

To date, the worldwide financing of sustainable development has been largely the domain of public-sector agencies. While private-sector investment in the developing world has surpassed official development assistance since the end of the 1980s, debt and equity flows have been volatile, trending downward since the late 1990s, and focused on selected regions. Engaging capital markets more broadly is a major challenge, especially tapping the large pools of capital managed by institutional investors that, by fiduciary duty, invest conservatively. Public-sector risk mitigation programs often are cumbersome and expensive because they are applied case-by-case and lack a systematized approach.

Private investment in the developing world poses unique types of risk. Insuring against political and foreign exchange risks has historically been expensive enough to discourage private investment. International public funding could play a limited but critical role by mitigating these types of risk, e.g., by providing political risk insurance and foreign exchange coverage. With the proper private-sector arrangements and public-sector enhancements, institutional investors could engage their assets in sustainable development. U.S. pension funds alone totaled $6.4 trillion in 2001.