Amid a global financing landscape where low- and lower-middle-income countries (L-LMICs) face an annual funding gap of approximately US$3.9 trillion to achieve the Sustainable Development Goals (SDGs), sovereign thematic bonds have emerged as a transformative instrument. In an environment of fiscal constraints and evolving development priorities, sovereign thematic bonds offer a dual advantage: they enable sovereign issuers to tap into private capital at scale and help embed sustainability objectives into national fiscal strategies.

This report, funded by Open Society Foundations, commissioned by the United Nations Development Programme (UNDP) and developed by Impact Investment Exchange (IIX), discusses how these innovative debt instruments can mobilize private capital at scale and accelerate sustainable development. It examines market dynamics, structural barriers, and the critical role of de-risking mechanisms, technical assistance (TA) programs, and multilateral development banks (MDBs) in scaling the bond.

The report also provides several recommendations for policymakers, MDBs, investors, and development agencies to accelerate the expansion of sovereign thematic bond market in L-LMICs. The study highlights the critical need for innovative financial instruments, regulatory harmonization, and institutional capacity-building to ensure that sovereign issuers can effectively leverage thematic bonds to finance sustainable development at scale.