New framework aims to leverage US$2.5 trillion annually to meet 2030 target for Sustainable Development Goals.
The Organisation for Economic Cooperation and Development (OECD) and the United Nations Development Programme (UNDP) have launched a plan to enable public and private actors to identify and prioritise investments that align with the United Nations’ Sustainable Development Goals (SDGs).
The ‘Framework for SDG Aligned Finance’, presented at the Paris Peace Forum, includes key recommendations on ways to shift global capital towards sustainable investments and mobilise investments to support countries most in need.
According to data from OECD, Covid-19 is expected to set back external private finance to developing countries by US$700 billion, a drop of 60% more than the 2008 financial crisis. But leveraging a fraction of the trillions of dollars contained in the global financial system could help overcome the financing gap of US$2.5 trillion required each year to achieve SDGs.
Policies, standards and tools
Requested by France’s G7 presidency last year, the framework was informed by an 80-strong expert group from across the private and public sectors. It aims to remove obstacles to the alignment of finance to SDGs and support informed investment decisions, through three set of actions relating to policies, standards and tools.
In term of policy, the framework recommends domestic and international SDG financing strategies to be coordinated for greater coherence and calls for phasing out of subsidies on activities that cause a negative impact on SDGs.
“Governments need to signal their intent to promote SDG-alignment through regulation”, the framework document states, recommending use of regulation to offer greater rewards for supportive investment practices.
The framework also proposes use of common standards on definitions, reporting, impact measurement and rating methodologies to raise the bar on sustainability along the investment chain by supporting transparency and promoting best practices. It recommends independent benchmarking, evaluation and rating mechanisms to allow investors to make better-informed decisions and sanction ‘SDG-washing’.
Lastly, the framework details financial tools that further leverage public and private impact on SDGs. It suggests de-risking, digitisation, and partnerships to encourage the flow of finance to countries with larger SDG financing needs. It also recommends mapping a budget to track demand and supply of SDG financing, as well as tax reforms to better serve SDGs.
Make investments “work better”
New research from Standard Chartered says SDGs are not getting the investment needed to meet the targets by 2030. A survey of the world’s top 300 investment firms revealed that only 13% of their combined US$50 trillion in assets under management (AUM) is linked to the SDGs.
With 64% of survey participants’ combined AUM invested in Europe and America, only 5% is invested in Middle East and Africa, putting the chances of meeting the 2030 SDG deadline at risk.
“Over US$379 trillion of total assets are in the system held by banks, institutional investors and asset managers. Reallocating only 1.1% could be enough to fill the growing SDG financing gap. We need harmonised policies along the investment chain to make our savings and investments work better for people and the planet and build systemic resilience,” said OECD Secretary General Angel Gurria.
Proposed as a “living document”, the framework will be updated on a regular basis by the OECD and UNDP to reflect progress.
The framework was included as a key reference instrument in a declaration signed in Paris by 450 development banks at the Finance in Common Summit, the first global summit of Public Development Banks. The declaration affirmed banks’ willingness to collectively shift their strategies, investment patterns and operating modalities to align with sustainable finance principles and contribute to the achievement of the SDGs and the objectives of the Paris Agreement while responding to the COVID-19 crisis.
Separately, EU member states have approved the European Investment Bank’s (EIB) Climate Bank Roadmap (CBR), which sets out how the EIB will support the objectives of the European Green Deal and sustainable development outside the European Union.
By the end of the decade, the EIB aims to support at least €1 trillion in climate action and environmental sustainability investments, and has committed to align all its activities with the goals and principles of the Paris Agreement by the end of 2020. In addition, the bank committed to raising its annual financing for climate action and environmental sustainability to more than 50% of our business volumes by 2025, up from just over 30% today.