**1. Introduction**

The present chapter aims to analyze the potential role played by a specific economic-financial actor, namely development banks, in the context of innovation. These financial entities receive specific mandates from governments to pursue medium- to long-term growth within a particular territory and support significant social and global challenges. The importance of these public mandates is particularly relevant considering the ambitious 17 Sustainable Development Goals (SDGs) established by the United Nations in their 2030 Agenda for Sustainable Development. Global Sustainable Development (GSD) refers to a conceptual and methodological framework that seeks to achieve long-term, equitable, and environmentally responsible development on a global scale. The Global Sustainable Development Report [1] identifies six key areas that serve as *entry points* for transformative action

in sustainable development: (i) enhancing human well-being and capabilities, (ii) promoting sustainable and equitable economies, (iii) transforming food systems and nutrition patterns, (iv) decarbonizing energy while ensuring universal access, (v) fostering urban and peri-urban development, and (vi) safeguarding global environmental commons. Additionally, it highlights four *critical levers* that must be strategically employed across these areas to drive the necessary transformations: governance; economy and finance; individual and collective action; science and technology.

These levers form the foundation of this chapter's contribution. Emphasizing the relevance of economic policies and financial flows to propel progress toward the SDGs, they underscore the indispensable role of substantial public finance and appropriate governance in bridging the investment gap related to SDG implementation. Indeed, these elements facilitate long-term investment decision-making and attract private capital toward the directions desired. Even if governments play a primary role in policy design and implementation, their effectiveness requires constant collaboration and knowledge-sharing with other key stakeholders such as the private sector, civil society organizations, and regional, multilateral, and international entities.

Within this context, *development finance institutions*, including public development banks at the multilateral, national, and regional levels, can play a pivotal role. These institutions can foster alliances between traditional and emerging actors, such as governments, universities, science institutions, cities, citizens, and the private sector. Simultaneously, they channel the necessary resources to effectively address the SDGs. By leveraging these alliances and resources, the collective effort toward sustainable development can be enhanced.

If governments want the development banks to successfully contribute to the SDGs, they must place science and technology at the core of their mandates. Indeed, it is essential that the innovation processes function within a coherent framework that aligns with the goals of the societies. In this context, innovation transcends its traditional role as a fundamental prerequisite for long-term economic growth. By enabling the implementation of new technologies, practices, and solutions, innovation can enhance productivity and incomes while preserving natural resources and minimizing adverse environmental impacts. In so doing, it shapes the technological frontier on which the well-being of current and future generations is determined.

In this context, the role played by development banks can be of paramount importance. On the one hand, by closely collaborating with governments, development banks can contribute to shaping policies that foster innovation in sectors and projects that align with the SDGs. On the other hand, by mitigating the perceived risk for private investors, development banks can stimulate and mobilize additional resources that facilitate the accomplishment of the SDGs. Development banks possess the capacity to provide substantial financial resources in support of innovation initiatives. They have the ability to extend loans, grants, and investment capital to innovative projects and businesses that prioritize sustainable development. Through facilitating access to funding, development banks can bridge the financing gap commonly encountered by innovative solutions and facilitate their implementation on a large scale. Furthermore, as their primary objective is oriented toward goals beyond profit maximization, development banks are more inclined to promote the adoption of sustainable technologies and practices that align with their public mandate.

Despite these challenging and socially meritorious objectives, development banks predominantly remain entities with public participation, thereby potentially subject to the problems and deficiencies that economic literature often identifies and highlights regarding public participation in the economy and state-owned enterprises. It is

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

therefore essential to carefully consider the benefits and costs of the presence of public banks in the economy and assess whether the support they can provide to innovation is overall positive, even considering potential inefficiencies. Consequently, this contribution aims to examine the state of the art in the existing economic literature concerning the role that development banks can play in contemporary society and the economy, particularly in promoting innovation and the pursuit of SDG objectives. In doing so, it can serve as a potential reference for future research agendas on these topics.

The chapter is structured as follows. Firstly, Section 2 provides the historical and institutional background of development banks, aiming to clarify their nature, how their role has evolved over time, and the increasing emphasis on innovation. Subsequently, Section 3 introduces the economic fundamentals that can justify the presence and intervention of development banks in the economy. This section also briefly discusses potential inefficiencies arising from public intervention in the economy and explains how development banks may possess characteristics capable of mitigating some of these limitations compared to other forms of intervention. Section 4 presents concrete evidence of development banks' intervention in the field of innovation, referring to both empirical economic literature and specific case studies. In Section 5, an attempt is made to summarize the remaining open questions regarding the key determinants of the effectiveness of development banks in pursuing their objectives and, in particular, in supporting innovation processes aligned with the SDGs. These questions provide ample room for ongoing and extensive debate among policymakers and academics, as we will finally discuss in the conclusions of Section 6.
