**Abstract**

This chapter explores the potential role of development banks in fostering innovation within the context of sustainable development, considering their explicit mandates and collaborations with governments. Development banks are argued to play a pivotal role in supporting innovation by providing substantial financial resources to projects that address the complex challenges outlined in the Sustainable Development Goals (SDGs) while ensuring the preservation of natural resources for future generations. A critical review of economic literature examines the characteristics of development banks that enable them to fulfill their social mandate, including their expertise and ability to mobilize private finance. Collaboration with governments and risk mitigation for private investors are highlighted as means to facilitate the achievement of the SDGs. However, challenges associated with public intervention and state-owned enterprises, such as political opportunism and crowding-out of private sector investment, are acknowledged. By reviewing the literature, describing recent developments, and presenting empirical evidence, this research provides valuable insights for policymakers, scholars, and practitioners to critically evaluate the potential and effectiveness of development banks in promoting innovation.

**Keywords:** development banks, sustainable development financing, sustainable development goals, innovation, market failures, political failures
