Editorial
Some have called the COVID-19 the great equaliser, because its impacts transcend borders. But this assumes an equal playing field, which doesn’t exist. Even before the onset of the pandemic, progress to achieve the United Nations Sustainable Development Goals (SDGs) was starkly uneven across the targets and countries. The onset of the COVID-19 pandemic further eroded progress and is driving up costs to achieve the universal goals by 2030. One hundred million people have been pushed into extreme poverty and job losses have occurred across all sectors. Developing countries are still bracing for the worst, with growth prospects at their lowest level since World War II. While OECD countries are deploying trillions of dollars for recovery, fiscal space in developing countries is limited. The Global Outlook on Financing for Sustainable Development 2021 finds that recovery spending in developing countries was USD 1 trillion less than the magnitude of spending carried out in OECD countries. Sub-Saharan Africa, as a whole, would need to increase its spending packages by about 6% of its GDP. In addition, there is a risk of external private finance collapsing; already we are facing a USD 700 billion drop, 60% greater than during the global financial crisis.
Business as usual will lead to a net negative. The current context requires real changes in how global finance is designed to support sustainable development. We are at a tipping point, where the paradoxes of financing for people and planet must be addressed. Mobilising greater quantities of resources will be counter-productive if the activity they support is unsustainable. The ambition for official development assistance must go beyond maintaining current levels, it must be better leveraged and targeted to where the needs are greatest, and redirected away from unsustainable activity. This includes increasing the share of development finance that supports climate objectives. Based on the most recent available data, only 20% of development finance provided each year includes a focus on climate change. Debt initiatives should be expanded, but care should be taken that these initiatives do not result in defaults or fossil fuel extraction increasing to service these debts - to the detriment of a more sustainable and resilient recovery. Taxation policies and co-operation should continue to raise more public revenues and tackle avoidance and evasion, but policy makers cannot continue to allow wasteful incentives such as lowering tax revenue without increasing investment. Remittance volumes were on the rise prior to the crisis, yet the cost of transfer, at 7% on average in 2017-19 or between USD 30.26 billion and USD 31.15 billion annually, is leaking crucial financing away from households to financial intermediaries. Global financial assets are at their highest value since before the global financial crisis (USD 379 trillion), yet 80% are held in the richest countries, and very little is known about their sustainable development impact.
Overcoming these paradoxes means invoking the Addis Ababa Action Agenda to align better all forms of financing in support of the 2030 Agenda. Business and finance communities are moving the dial on mitigating non-financial risks and ensuring that financing is sustainable. Why? Because achieving the twin goals of financial and non-financial returns preserves the long-term value of assets. However, a proliferation of sustainability measurements and standards is contributing to market asymmetry and the risk of “SDG washing.” We have no idea how much financing is contributing to good and how much to greater inequalities and unsustainable ends. The private sector is calling on government to help strengthen the SDG financing market.
Governments have a singular role and opportunity to avoid the collapse in financing for sustainable development in developing countries and enable changes to the way global finance is invested. Overcoming the financing paradoxes through better incentives to correct market failures means removing obstacles to transparency and building greater accountability of different finance flows. Collective action across the different stakeholder communities is needed to translate the SDGs into their language and better assess impact. Misalignment starts at home: domestic policies in OECD and other countries, in addition to international regulations, guide where, in what and how investments are made. The Global Outlook on Financing for Sustainable Development 2021 promotes an SDG alignment framework that brings together all relevant stakeholders, led by OECD members and broader actors to agree on concrete joint actions to change the way we invest for global good.
