**4. Empirical evidence of development banks' innovation interventions**

The empirical literature examining the overall effectiveness of investments made by development banks is still limited. These financial institutions are highly heterogeneous across the different geographical areas and exhibit significant differences in their organizational structures and intervention methods [3]. However, some attempts have been made to systematize the empirical research on the activities of multilateral and national development banks worldwide. The official reports from development banks and the existence of academic studies on the subject provide valuable insights into the size of intervention of development banks, the operational scope of development banks (i.e., the specific areas of intervention), their effectiveness in leveraging private investments (i.e., the ability to attract and mobilize private resources), and the outcomes resulting from their actions (i.e., the impact of their interventions).

An increasing array of official reports at both national and international levels shed light on the magnitude of investments made by development banks globally. For example, the collective lending of multilateral development banks, encompassing the World Bank, regional development banks, and other intergovernmental agencies, was reported to amount to \$63 billion in 2017 [59]. In addition to this amount, significant resources are annually allocated by national development banks within their respective countries. The same reports also aid in the quantification of the development banks' support in specific areas of intervention. For example, the members of the International Development Finance Club report green finance commitments for more than \$1.2 trillion in the 2015–2021 period [60].

Development banks employ various approaches beyond direct lending in the pursuit of their objectives. European promotional banks, for example, actively manage EU financial instruments and implement programs to address the low level of investment by EU firms [11, 61]. In recent years, these banks have assumed a crucial role in supporting small-scale businesses that face challenges in obtaining bank financing, benefiting from direct access to capital markets and ECB liquidity measures. Notably, European promotional banks have been instrumental in mobilizing liquidity for micro, small, and medium enterprises, particularly in response to the COVID-19 crisis.

Empirical evidence also reveals the ability of the European development banks to use the corporate control market to shift financial resources toward specific areas of intervention. As revealed in [7], through acquisitions—i.e., obtaining majority equity stakes in target firms—European development banks redirect aggregate investments toward activities serving public interest, social utility, and sectors of general interest (ESGI), such as energy, infrastructure, telecommunications, and transportation. Similarly, by participating in minority stake investments in early-stage companies alongside venture capital or private equity firms, they channel investments toward R&D activities in biotechnology and natural sciences.

Official reports and academic research also testify the effectiveness of development banks in leveraging private investments. According to [59], multilateral development banks mobilized a significant amount of long-term private co-financing in 2017, totaling \$52 billion. Degl'Innocenti et al. [37] analyzes the impact of globally operating development banks on the syndicated loan market to assess their ability to attract other investors. Empirical evidence confirms their positive influence on the structure of syndicated loans by mitigating perceived risks for private investors and mobilizing additional financial resources. This effect is particularly pronounced in green sector enterprises, highlighting the critical role of these banks in addressing the new challenges posed by the SDGs.

Development banks go beyond merely shifting public and private investments from one sector to another. Clò et al. [62] presents empirical evidence indicating that development banks, through their participation as equity investors, have a significant impact on innovation in target firms by positively affecting their patenting activity. This impact is amplified when development banks collaborate with other investors, highlighting the importance of public-private partnerships in promoting innovation. This is particularly true for innovation aligned with the SDGs. Given the substantial investments required to achieve these goals, which often exceed the capacity of the public sector alone [63], such partnerships and collaborations are crucial.

Despite attempts to consider development banks as a whole and their common characteristics, most studies on their impact have focused on individual institutions and their specific traits (see, for example, [22, 64, 65] for the European Investment Bank; [66] for the Brazilian BNDES). Overall, these analyses provide mixed evidence on strengths and weaknesses of development banks all around the world, but they are useful in that they provide interesting case studies, useful benchmarks, and insights for future debates concerning the potential areas of intervention. Notably, the European Investment Bank (EIB) has been extensively researched, making it an interesting reference model for future research. The EIB supports innovation for economic growth, ranging from large-scale research to specialized spin-outs and digital networks in various sectors. Additionally, the EIB actively contributes to environmental projects to mitigate climate change and facilitate the transition to a low-carbon, environmentally friendly, and climate-resilient economy. It also provides support for transportation and sustainable urban infrastructure projects. In 2014, the EIB, in collaboration with the European Commission, launched InnovFin – EU Finance for Innovators, aimed at financing research and innovation by companies of all sizes, including startups and established firms, as well as research promoters. Since 1994, the EIB also established the European Investment Fund to support innovative high-tech SMEs in their early and growth phases, as well as technology transfer and business incubators. By promoting access to finance for SMEs and supporting innovation, the EIF contributes to fostering economic development within the European Union and to aligning its activities with the achievement of the SDGs. This function is enhanced by the concurrent support of promotional banks operating at the national level. Kreditanstalt für Wiederaufbau (KfW), for example, have been proven to have played a positive role in promoting green energy in Germany [67].

#### *Innovation and Global Sustainable Development: What Role for Development Banking? DOI: http://dx.doi.org/10.5772/intechopen.112062*

Despite the evident support provided by development banks to innovation, several instances exist of development banks misallocating resources to the benefit of politically connected firms and failing to manage efficiently their capital [58]. This evidence highlights the crucial need for sound management and effective risk monitoring in order to enhance the role of these banks in financing sustainable development. Moreover, citizens and researchers occasionally question the logic of political patronage and the spoils system in the appointment of key administrative positions within some development banks, as such behavior can influence investment priorities.

Overall, measuring the effectiveness of development bank interventions in terms of cost–benefit analysis presents a challenge that is common to all the research concerning entities whose sole objective is not profit maximization. While measuring profit is relatively straightforward, measuring environmental and social impacts is complex and an ongoing subject of study. However, many development banks are already adopting reporting practices to assess and disclose the environmental, social, and governance impacts of their lending activities and their support to the SDGs. In this regard, the field of research on innovation impact of development banks offers interesting analysis avenues. Indeed, in this field, empirical studies have proposed a number of useful indicators that may help to quantify the innovation activity, such as the quantity and quality of patents registered by invested firms, their growth in R&D investments, and intangible assets (see, for example, [62, 68–71] for a specific use of patents in the realm of development banks). In this context, given the existence of precise metrics, obtaining direct evidence on the effects of development bank interventions becomes more feasible. However, this requires researchers to have access to comprehensive databases containing precise information about investment portfolios and loans of the financial institutions under analysis.

The corporate control market, particularly private equity and venture capital, also presents an intriguing realm for analyzing the impact of investment by development banks. It allows observation of how many target companies of development bank investments achieve *successful exits* within a specified number of years. A successful exit signifies that the target company has experienced sufficient growth to attract additional private investors or even go public through an Initial Public Offering (IPO) (see, for example, [7] for an application to development banks). Interestingly, this potential area of analysis, with available and quantifiable information, aligns with similar studies already conducted on the impact of the so-called *government venture capital* [72].

Lastly, additional efforts are required to establish pertinent metrics and conduct evidence-based studies to better evaluate the effectiveness of development banks in achieving the SDGs. Furthermore, it is crucial for empirical analysis on the effectiveness of development banks to incorporate the more recent advancements in the econometrics of Difference-in-Differences (DiD) analyses or Synthetic Control Methods (SCM) for comparative studies [73, 74]. These advanced econometric approaches may result particularly useful in the realm of development banks and their various intervention areas, since the heterogeneity of these institutions and the characteristics of their interventions pose challenges for more traditional econometric approaches.
