Financial intermediation plays a critical role in providing private capital for the SDGs when capital markets are not available, and it can be the basis for a compelling SDG impact theory.

Private banks and financial institutions provide a critical link between the global capital markets and SDG investment opportunities. Their capital ensures deeper access to finance in private markets, transferring risk and transforming the duration of financial liabilities.

Banks and insurance companies raise financing on global or local capital markets (equity, bond, and repository markets) or from depositors. In turn, they use these funds to provide loans or other financial services in support of SDG-relevant activities such as developing and implementing new technologies and business models, bolstering underbanked markets (including emerging markets and LDCs), and providing consumer finance to expand access to essential products and services.

Financial engineering by banks and insurance companies can also change the financial characteristics of investments to make them more attractive to institutional investors. In this intermediation process, funds raised are transformed or grouped together according to their due date, volume, and degree of risk.

In both cases, financial intermediation has a multiplication effect where in the original investment is leveraged into several additional investments or financing, increasing the potential for SDG impact. If implemented at the local level, financial intermediation can also result in a local transfer of ownership of real and financial assets, driving further economic and social development.

‍Examples of SDG Contribution Through Financial Intermediation

Please refer to the UN Global Compact: Scaling Finance for the Sustainable Development Goals: Part II: Financial Intermediation, pages 21‒29, for various types of financial intermediation and how they can help scale SDG finance:

• banking
• trade finance
• insurance and guarantees
• hedging and securitization

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‍Leveraging Financial Intermediation for Impact

Please refer to the UN Global Compact: Scaling Finance for the Sustainable Development Goals: Part II: Financial Intermediation, pages 21‒29, for the process of intermediation as an instrument to maximize impacts on the SDGs:

• corporate level
• product level
• standardization