Managing Risks and Leveraging Opportunities: Strengthening Public and Private Finance Foundations for a More Resilient and Prosperous Future
Why This Matters: The Economic and Environmental Imperative
The world is facing unprecedented economic instability, financial fragmentation, and intensifying environmental crises. Inflation, debt distress, widening income inequality and geopolitical tensions are eroding economic and financial stability while worsening climate disasters, biodiversity loss and a looming threat of pollution and rising toxicity threaten to reverse decades of progress in advancing human well-being. The gap between rising financial needs and shrinking development and environmental finance is widening, forcing many countries into reactive crisis management instead of long-term growth and prosperity. At the same time, too many economies—especially in low- and middle-income countries—remain unable to unlock their full development potential due to underinvestment in innovation, data, and institutional capacity.
The cost of inaction is clear—economic downturns, lost livelihoods, ‘un-insurability’ in some areas due to growing severity of climatic extremes and growing fiscal pressures. Without a fundamental shift in how finance is structured and deployed, countries will remain vulnerable to systemic shocks. A resilience-first approach is not just necessary—it is the only viable path forward. Governments must fortify domestic finance, integrate systemic risks, and mobilize investment at scale to withstand shocks, protect fiscal space, expand financial markets, and drive sustainable development.
Against this backdrop, UNEP proposes five priorities to guide global action, which taken together can build a financial architecture that is stable, equitable, and lasting benefits for people and planet.
Priorities for Strengthening Public and Private Finance – Five “Asks” for FfD 4
1. Rethink Private Finance: Prioritize Stable and Sound Financial System with a Strategic Role for Blended Finance. Private finance can become an engine of sustainable development – but requires an effective enabling environment and sound public finance management. While blended finance has shown potential in select contexts, evidence suggests its ability to scale and meet systemic needs remains limited (UNDESA, 2025). Blended finance approaches may play a useful role when deployed strategically, targeted at high-risk, high-impact sectors where market failures persist—particularly for nature and adaptation investments. Real transformation however will require fundamental financial sector reforms and a whole-of-government approach that integrates sustainable finance policy and prudential regulations with broader economic policies for sustainable consumption and production.
These include:
- Emphasizing the critical need for stable and sound financial markets - foundational to achieving the SDGs by better addressing systemic environmental risks, particularly since climate and environmental risks will intensify throughout this century.
- Strengthening financial sector policies—better risk pricing, stable regulations, and incentives for long-term capital will drive investment into productive, resilient industries. Integrating sustainability, climate, and nature risks into financial stability assessments is a foundation for promoting transition planning for financial institutions aligned with national pathways and global goals.
- Advancing globally recognized corporate disclosure and due diligence standards, risk and impact management, harmonized taxonomies, realignment of incentives towards sustainable consumption and production, and transition pathways across high-impact sectors are essential for transparency and finance mobilization. Legislation must balance impact and financial materiality while ensuring proportionality, national relevance, and global methodological interoperability.
2. Strengthen Public Finance: Resilience Must Be Built In, Not Bolted On. In an age of escalating economic volatility, tightening fiscal constraints, and unpredictable aid flows, governments must prioritize resilience in their financial systems rather than treating it as an afterthought. To navigate growing uncertainty, public finance must be optimized for economic, social, and environmental returns through strategic resource allocation that ensures long-term stability. This includes:
- Integrating sustainability into fiscal planning—using tools like the Sustainable Budgeting Approach (SBA) ensures that budgets drive decision-making support for resilience and durable growth, not just track/tag spending (Green Fiscal Policy Network, 2024). Countries should be equipped with tools that help them assess and align spending with development, environmental, and resilience objectives. If it’s not in the budget – it’s not a priority.
- Breaking the climate debt trap—reallocating scarce public finance toward investments that drive higher-quality, more resilient growth strengthens economic fundamentals (World Bank, 2019). This approach enhances long-term debt sustainability while lowering vulnerabilities, ensuring countries can finance critical development priorities without falling into cycles of unsustainable borrowing.(Green Fiscal Policy Network, 2024).
- Maximizing efficiency of domestic fiscal strategies—as development, climate and nature finance contract relative to rising needs, countries must strengthen fiscal foundations by optimizing revenue and spending while investing in long-term economic resilience. Redirecting inefficient subsidies to climate resilience, renewables, and biodiversity strengthens economies and societies (IISD, 2017).
- Leveraging sustainable public procurement—as a strategic tool for directing public expenditure toward resilient, low-carbon, and circular economies. SPP enables governments to use their purchasing power to create demand for sustainable goods, services, and infrastructure, improving the value-for-money equation while delivering environmental and social co-benefits (United Nations Environment Programme (2022).
3. Integrate Environmental & Systemic Risks into Financial Decision-Making: Mitigating is more cost-effective than mispricing risks. Ignoring climate and nature as systemic risks today means paying a much higher price tomorrow. Governments must embed sustainability risk management into financial decision-making to protect economic stability. This means:
- Embedding economic and environmental risks into fiscal and debt frameworks—sovereign debt instruments must reflect broader systemic risks to prevent long-term fiscal distress. Countries can explore GDP-linked bonds, resilience bonds, or sustainability-linked debt instruments that adjust repayment terms based on economic and environmental stability. (UNEP and University of Oxford, 2025)
- Providing open-access risk data and decision-support tools—countries need planetary risk-adjusted debt sustainability tools and integrated economic risk assessment frameworks to proactively manage financial risks and reduce exposure to geo-economic shocks (World Bank, 2019). By aligning long-term growth strategies with climate adaptation, nations can transform financial vulnerabilities into economic opportunities (Independent Expert Group on Debt, Nature, and Climate, 2024).
- Enhancing risk disclosure and accountability—tracking climate, nature, and pollution risks systematically ensures smarter investment decisions and economic resilience and financial stability. Central banks are starting to acknowledge the necessity of tracking nature-related financial risks. (UNEP FI, 2024)
4. Invest in the transition to sustainable production and consumption in the Real Economy: Creating the long-term foundations for prosperity. In the current volatile global economy, building resilient national business ecosystems is critical for GDP growth, productivity, job-creation and long-term security. Governments must support SMEs and scalable business models that drive sustainable development by:
- Avoiding fragmented climate and development finance—because scattered efforts mean scattered impact. Pool resources into coordinated investments that create significant economic transformation, resource efficiency, and environmental benefits.
- Building sound regulatory and fiscal frameworks, implement effective market incentives, and invest in infrastructure that fosters sustainable business growth and promote the innovations that are needed to transition away from the linear economy.
- Scaling investments in critical industries—strategic investment in clean energy, infrastructure, green and sustainable chemistry & circular economy innovations drives resilience and inclusive growth.
5. Grow Capacities for Inclusive Innovation: Unlock Development Potential through Digital, Social, and Institutional Transformation. Low- and middle-income countries hold immense potential for inclusive, sustainable growth—but realizing this requires targeted investments in capabilities, innovation systems, and access to data. This means that:
- Unlocking this potential will reinforce the other four priorities. Strengthened public finance can allocate resources more strategically when governments have the institutional and digital infrastructure to plan, track, and evaluate spending.
- More resilient private finance ecosystems emerge when local enterprises and bottom-of-the-pyramid markets are enabled to innovate and participate. Integrated risk systems become actionable when countries have the tools and skills to produce, interpret, and use risk and asset inventory data. And investment in the real economy becomes more catalytic when it is paired with capacity-building and locally driven innovation.
- Fostering inclusive innovation—through digital access, localized risk and asset data systems, social and bottom-up business models, and institutional strengthening—expands opportunities for climate-resilient development, supports green industrial policy, and brings transition planning closer to those most affected by environmental and economic change, this is including through facilitating better access to finance to local and regional governments (Local2030, 2025; United Nations, 2025).
In sum, five asks for FfD4: Rethink, Strengthen, Integrate, Invest, Grow
Want to know more? Contact: himanshu.sharma[at]un.org
UNEP Contributions to the Five Asks
