The third annual OECD conference on private finance for sustainable development brought together more than 600 public and private actors to determine the next steps.
There is an urgent need for the private sector to devote more resources to sustainable development. At the 2020 OECD Conference on Private Finance for Sustainable Development (PF4SD), there was an urgent need to find ways to stay ahead of global trends by using global finance smarter.
The world is 10 years away from achieving the SDGs, including the goal of eradicating extreme poverty. This means lifting just under 10 percent of the world’s population – about 700 million women and men – out of poverty over the next decade. In the meantime, the climate crisis threatens to eclipse all development challenges and reverse hard-won gains.
According to the World Bank, the worsening impacts of climate change could force more than 140 million people to leave their homes by 2050. In addition, the planet’s main survival system, the ocean, is under constant pressure. previous.
There are direct implications for 40 percent of the world’s population: those who live within 100 km of the coast. It is no longer enough to react to crises as they arise. Strategic investments in sustainable development are needed, and that means thinking outside the box.
It means changing the culture of profit; give new meaning to returns on investment and create incentives accordingly. It means understanding and shaping how the next generation defines the value of people and the planet.
Private financing for sustainable development is increasing, but gaps remain.
Jorge Moreira da Silva, left with OECD Secretary-General Angel Gurría, center
Moving just one percent of total global financial assets – estimated at $ 382 billion – could close the current annual investment gap of $ 2.5 billion to meet the targets. The good news is that shareholders are gradually moving from a simple profit to a profit and a goal.
They reorient management towards more sustainable business practices to meet ESG challenges. The sector has grown in recent years, reaching nearly $ 18 billion in assets, with an additional $ 6 billion in sustainable investments to capture an ESG component. This is a sizeable amount of the $ 30 billion “sustainable investment universe”, suggesting that ESG is more than a fad.
Impact investing is also attracting the growing attention of traditional investors, whose market size is estimated at over $ 500 billion and continues to grow. For many impact investors, the SDGs have become a guideline for key performance indicators. At the conference, Travis Spence, Managing Director of JP Morgan Asset Management, highlighted a shift in the dialogue around ESG from a “nice to have” to a “must have”.
In investment portfolios, ESG criteria are material factors and the main drivers that shape portfolios.
Long way to go
International financial markets have never seen as much investment as they do today. However, too few of these flows are at the service of the well-being of people and the planet. Recently released data on blended finance shows that private finance, leveraged through development finance, reached $ 205 billion between 2012 and 2018.
But less than six percent went to the least developed countries and less than six percent to social services such as education and health. The majority went to economic infrastructure. It defeats the goal of leaving no one behind.
The PF4SD conference also looked at the alignment of private finance with specific SDGs.
Gender equality – SDG 5
Gender equality is a prerequisite for sustainable development, and interest in gender-sensitive investments is growing. Financial institutions accepted the “2X Challenge: Funding for Women” and mobilized $ 2.5 million towards the $ 3 billion target. India launched the world’s first funded SDG bond to help tribal women become self-reliant. As a minimum requirement and a first step, investors should ensure that their activities do not compromise the empowerment of women.
Climate action – SDG 13
The majority of private financing mobilized for development continues to be channeled to economic infrastructure. Sustainable infrastructure will be the foundation for the transformation to low-emission, climate-resilient development pathways. There are improved estimates of the additional benefits of climate action, such as reduced pollution and improved land use. With global interest rates low and the window closing on whether to limit rising temperatures to below 1.5 ° C, now is the time to close the investment gap. Technology is on our side, but all the funding pools and all the players need to work together. It starts with governments.
Life underwater – SDG 14
The “ocean economy” is expected to grow rapidly until 2030 (OECD, 2016) and as more and more capital enters ocean-based industries, it is essential that investments are geared towards improved sustainability. But the majority of investors are unaware of the impact of their investments on the marine environment, and how a degrading ocean can subsequently affect the performance and value of their portfolios.
Decent work and economic growth – SDG 8
With 30 million young Africans expected to enter the workforce each year until 2030, SDG 8 is one of the most pressing challenges. SDG 8 calls for reducing informal employment, closing the gender pay gap and improving working conditions. The ILO’s Decent Work Agenda stresses the importance of promoting sustainable enterprises for innovation and growth. High impact investments create quality jobs. Strengthening social dialogue is a key lever to achieve this agenda, and governments should invest in institutions that underpin multi-stakeholder engagement and social dialogue.
Aligning private finance with the SDGs requires open dialogue and the establishment of a climate of trust between public and private actors. The Kampala Principles on Effective Private Sector Engagement in Development Cooperation specifically aim to guide collective work to make private sector partnerships more effective while ensuring inclusiveness at the country level.
The road ahead
After five years of slow progress towards financing the SDGs, there is a clear need for more decisive action.
Governments have the primary responsibility. Public policies and regulations must foster public and private investments that are truly aligned with the SDGs. Allocating capital to sustainable development means encouraging long-term green investments and channeling existing finance.
G7 Development Ministers called for a financial framework compatible with the SDGs to make private investment and savings work better for the goals. During the PF4SD conference, Cyrille Pierre, Deputy Director of Global Affairs, Culture, Education and International Development at the French Ministry for Europe and Foreign Affairs said he was ready to take the leadership here. , with the support of the G7, the G20, the UN and the OECD.
Scaling up private finance for sustainable development requires data to make the link between understanding, measuring and disclosing risk. The OECD is working to promote more consistent and standardized measurement of all types of flows for financing, monitoring and reporting on the SDGs, as well as all financing through the new Total Public Support for Sustainable Development (TOSSD ).
Financial institutions, public and private, must rethink their models and incentives, and better team up to assume the risks of investing in difficult contexts – and there are many of them. When looking at megatrends, these risks cannot be ignored. We need to invest in stability. With 85 percent of the poorest people living in the 20 worst-affected countries, the economic and environmental instability of these countries cannot be subsidized through non-renewable activities. Finance must align with sustainable development in the most difficult contexts. The cost to global economic, environmental and social stability is too high and the benefits are too great.
The Conference on Private Finance for Sustainable Development (PF4SD) is an annual OECD event that provides a forum to share success stories in changing incentives, better targeting investments and improving operations for sustainable development.
The inaugural PF4SD conference in 2018 explored new ways to mobilize more and better funding. The 2019 edition underscored the need for universal measures of the social and environmental impacts of development finance. In 2020, the theme was the alignment of finance with the SDGs, bringing together public and private actors committed to working together to promote better alignment of global financial flows with Agenda 2030 in developing countries, including finance. development, private investment flows and commercial activities. I
About the Author
Since November 2016, Jorge Moreira da Silva was Director of the Development Co-operation Directorate (DCD) at the OECD. From 2013 to 2015, he was Portuguese Minister of Environment, Energy and Spatial Planning.
About the OECD
The OECD’s Development Co-operation Directorate promotes coordinated and innovative international action to accelerate progress towards the United Nations Sustainable Development Goals (SDGs).
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