Green Market-Makers: Sovereigns as Catalysts for Sustainable Development

Abstract

Sovereign investors are increasingly engaged in sustainable investing in both international markets and their own domestic markets. This paper argues that sovereigns are uniquely positioned to spark sustainable investment and explains why sovereign-led development of sustainable markets will be key to achieving the UN’s Sustainable Development Goals (SDGs). Sovereigns employ four primary market-making strategies — issuing securities, investing in private markets, brokering green deals, and creating green finance regulatory structures — to both create and sustain conditions suitable for the development of green finance and to create conditions that will foster the development of investible projects. The strategies often operate independently, through different arms of the government. While this specialization allows for synergies in catalyzing investment in sustainable development, sovereigns often also fail to coordinate their activities in ways that will maximize the impact of their diverse efforts. Sovereign sustainability investment also brings risks, including corruption, politicization, and the crowding-out of private investment. This paper outlines the steps taken by sovereign investors and government regulators to mitigate these risks.