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G20 Can Unleash Finance Flows to Close SDG Finance Gap

Cautious welcome for plans to develop an analytical framework for channelling finance to SDGs, amid calls for greater coordination between public and private sectors.

Plans by G20 finance ministers and central bank governors for a framework to accelerate investment into the UN Sustainable Development Goals (SDGs) must be backed up by coordinated policy action, including technology transfers, to release private capital, say experts.

Christian Hansmeyer, Head of Research at Force for Good, an impact-driven institution for a sustainable future, said:The unlocking and effective deployment of the roughly US$135 trillion needed to fund the SDGs depends on addressing a number of critical issues. These include the development of global standards for measuring and reporting impacts and risk, the creation of scaled funding pathways for each of the goals, and a high degree of coordination between and among public and private investors to ensure that capital is deployed most effectively.”

A summary of the G20’s first meeting under the new Indian presidency said its Sustainable Finance Working Group had been asked to develop framework for scaling up investment for SDGs, with an initial focus on nature-related data and reporting and social impact investing.

Hansmeyer said the working group must recognise that the majority all the incremental funding required to meet the SDGs will likely come from the private sector, given the ongoing public sector financial constraints across the world.

The G20 has proved a catalyst for private sector action on climate risks, establishing the Task Force on Climate-related Financial Disclosures (TCFD), under the auspices of the Financial Stability Board, the recommendations of which are being implemented into national law in several major jurisdictions.

“The G20 sustainable finance group led to the creation and adoption of TCFD, which for its time was quite transformational although we now realise that simply disclosing information is not enough,” Leila Pourarkin, Director of Research and Climate Finance at Kaya Advisory, told ESG Investor.You need forward looking planning, i.e. climate transition plans, so I guess you could say we have to learn the lessons of the TCFD process.”

The G20 encouraged members to share challenges and policy experiences to inform best practices for financing SDGs by jurisdictions, international organisations and the private sector.

SDG funding gap

The SDGs have faced a significant financing gap since their inception given that the majority of the required spending is in countries that have struggled to attract significant private investment, Hansmeyer told ESG Investor.

“The funding gap has continually widened since, due to the roll-over cost of ongoing underfunding, inflation, and the increasing cost of climate change commitments, among other things,” he said.

“Moreover, the impact of the coronavirus pandemic, the war in Ukraine and the resulting global disruptions has undone progress on key SDGs, widening the actual delivery gaps the goals are facing too.”

With governments facing funding constraints, Hansmeyer said they should focus efforts on coordinated action across economic, environmental and social policy to mobilise and direct capital flows.

“Successfully funding the SDGs is not just a question of securing the trillions required to close the funding gap, it also needs high impact and cost-effective solutions that address each of the 17 goals to be identified, scaled, and deployed,” he added.

“This will likely require massive global technology transfers to the global south, both from the global north as well as south-south transfers. India is likely to make this topic a priority for the G20 under its presidency, and its own experience in driving digital inclusion domestically is a great example of the types of solutions that will be needed to address the goals.”

A nature-positive development

Mark Fulton, Project Director at the Inevitable Policy Response, acknowledged the G20’s efforts to build finance pathways for the SDGs and, in particular, nature-related investment as a “positive”.

It is a further stage in the increased global focus on land use, agriculture and deforestation/afforestation being observed at recent COPs and attracting growing attention amongst investors,” he told ESG Investor.

Fulton said the climate and biodiversity crises were being regarded as requiring combined responses by policymakers and investors alike.

“SDGs 7 (affordable and clean energy), 12 (responsible consumption and production), 13 (climate action) and 15 (life and land) are increasingly interrelated. The latest G20 move is another example to investors of how climate has become a far broader geo-political and sustainability issue than ever before.”

Fulton added that “as with climate action, progress on SDGs remains behind targets”.

The 2030 Agenda for Sustainable Development, adopted by all UN member states in 2015, outlines a blueprint for peace and prosperity for people and planet for the future. At the centre of this plan are the 17 SDGs, which are call on all countries to take action to address these areas.

The SDGs recognise that addressing health, education, poverty, climate change and biodiversity loss, go hand-in-hand with strategies that spur economic growth.

In February, UN Secretary-General António Guterres highlighted the organisation’s priorities for 2023, stressing the importance of rescuing the SDGs – starting with the Summit of Least Developed Countries (LDC5) scheduled for 5-9 March and leading to September’s SDG Summit.

Although many investment vehicles have been created to target the SDGs, the Organisation for Economic Cooperation and Development (OECD) estimates a US$3.7 trillion funding gap between the annual financing needed to meet the SDGs by 2030 and what is provided by current investment levels, with macro shocks creating additional capital needs and reducing existing funding.

Guterres warned onlookers, that halfway to 2023, “the SDGs are disappearing in the rear-view mirror”.

Squaring the circle

Seb Beloe, Partner and Head of Research at WHEB Group, an impact focused boutique asset manager, said the development of an SDG framework by the G20 could help to drive “common approaches” to achieving sustainable outcomes.

But he noted that the SDGs are “not suited to the private sector” and admitted that it would be helpful if the G20 were able to “adapt them for private finance”.

“The SDGs were never written for investors, they were never even written for companies. They are, in large part, public policy objectives that are not suited to the private sector,” he said. “It would be really helpful to have a framework derived from the SDGs that are specifically aimed at private finance.

“It sounds like the G20’s working group could perhaps do that, which could mean taking the square shape of the existing SDGs and turning it into the round shape that the investment community needs.”

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