Executive summary
The Decade of Action for the Sustainable Development Goals (SDGs) is mired by uncertainty. As COVID-19 unfolds, financing for sustainable development is at risk of collapse, with all resources available to developing countries under stress. The ‘scissor effect’ of SDG financing – increasing needs and declining resources already observed in previous years - has been magnified. Poverty levels are on the rise and livelihoods are at stake. The increased risk of climate-related disasters, future pandemics, and other shocks provides a stark reminder that one country’s progress to achieve the SDGs will impact our collective efforts.
Investing in the SDGs and “leaving no one behind” go beyond an ethical imperative; they are also a risk mitigation strategy and a business opportunity. However, the trillions held in the financial system continue to fuel inequalities and unsustainable investments. On the one hand, a debt crisis looms in developing countries who lack financial reserves to implement a greener and more resilient recovery. On the other hand, a black box surrounds the actual environmental and social impact of investments. The fragmentation of the different measurements of the quality or sustainability of financing have led to challenges to assess SDG alignment across different sources of financing, increasing the risk of SDG washing and threatening the long-term value of assets.
While providers of development finance must continue to leverage the billions in public finance, looking at SDG alignment through the lens of development co-operation alone misses the big picture. Misalignment starts at home, and domestic policies in OECD and other countries, as well as international regulations, guide private sector decisions to invest at their source. Trillions of dollars in recovery and stimulus packages as well as financial assets held by banks, institutional investors or asset managers are increasing their sustainability focus, i.e. the twin goals of financial and non-financial returns. With the right guidance and incentives these resources could make a tremendous contribution to a better world. The role of governments and regulators is not to force the shift but to increase the efficiency of markets and remedy their failures to leave no one and no goal behind.
The next frontier to finance sustainable development means bringing all actors along the investment chain behind the SDGs to respond to the crisis in the short-term and rebuild over the long-term for a more resilient and sustainable future. Support for misalignment must be phased out. The COVID-19 crisis provides a singular opportunity for governments to develop a common SDG alignment framework translated into concrete actions for the different actors. All relevant stakeholders must be on board to securely place people and planet at the heart of the global financial system.