Why is demonstrating impact imperative to advancing financing for sustainable development?

 Despite measurable signs of progress, investments that are critical to achieving sustainable development goals set by several development organisations (i.e.: World Bank, United Nations, African Development Bank etc), and yet these goals remain underfunded. Interest/s in sustainable (otherwise known as development) financing is growing increasingly, but the sustainability transition in the financial system is not happening at the appropriate scale. Systemic risks are rising and parts of the multilateral system are restrained.

 This article seeks to uncover the scale and urgency of the need to close the sustainable development investment gap. It will also address the one of several key question/s of – how can the development community ensure that financing for sustainable development is reaching the intended targets and outcomes? By doing so, this article should enlighten briefly on an opportunity for revisiting national and global approaches to sustainable finance.

Global objectives at risk:

  Presently, the world is ever-changing by rapid shifts in climate, technology, geo-politics and other factors. That said, there few encouraging signs. The inequality rate between countries has fallen and severe poverty continues to decline. Investment in few countries and regions has strengthened after a period of sluggish growth. Carbon prices are picking up slowly and there is growing interest in sustainable investing around the world.

  Nonetheless, several of the risks predicted previously are starting to surface and or intensify, hindering progress and raising the need for immediate action.

Achieving sustainable development requires: multilateral agency action to address global challenges (i.e.: the growing inequality rising in countries home to most people in the world and debt risks arising etc); strengthened regional and national action is needed, including adjusting policies and changing global landscape. It includes countering short-term behaviour on all levels and harnessing the potential of innovation while managing risks.

Recommit to multilateral action and revisit the global institutional architecture:             

Multilateral action/s is needed to address global risks in order to achieve long-term (and otherwise short-term) goals, including for instance combatting climate change. Governments should recommit to focus on regional goals which provides a global framework for financing sustainable development, and strengthen collective goal and action to address global challenges to sustainable development.

Globalization and technological change has contributed to reducing extreme poverty at the global level, nevertheless there is still uneven distribution of benefits which has left many behind and restrained support for the global architecture. The multilateral system is under pressure. But, in light of this difficulty may lie opportunity. For instance:

• The dysfunctionality of the multilateral trading system opens opportunity to revamp and make it fit for purpose for sustainable development.
• Challenges in sovereign debt restructuring, partially due to new instruments and rather unconventional creditors, have sensitized the international community to gaps in the recent architecture.
• Increasing vulnerabilities have underscored the importance of strengthening the global financial safety net.
• To achieve global SDG goals and to make impact imperative, global solutions need to be complemented by national/regional actions.

Counter short-term behaviour:

Achieving sustainable development – particularly eradicating poverty, reducing inequality, and combatting climate change requires a long-term strategy, with governments, the private sector, and the civil society working together to tackle global issues.

  Yet, with more uncertainties in the world – is what enables more short-term behaviour/s. For instance, several private businesses already face a range of short-term incentives, which triggers reluctance to commit funds to long-term investment projects. During periods of financial instability, several household often focus on their immediate needs. While policymakers are often swayed by short-term political cycles.

Actions are required across all levels. An increased stronghold of collective action/s can help achieve required sustainable development goals while reducing global uncertainty. To give an example – nationally, integrated financing frameworks will provide a foundation for long-term policymaking beyond political cycles. While for private investors and businesses, can make a contribution towards sustainable development through a shift towards long-term investment horizons, and sustainability as a central concern of investment decisions. This will require demands being aligned between public and private incentives with sustainable development, and better measuring the impacts on sustainability.

Adopt integrated national financing frameworks and adjust policies to new developments:

A comprehensive and unified nationally owned sustainable development strategies, supported by integrated national financing frameworks, should be at the heart of each individual nations’ efforts. Possibly, it’s the case where several nations have made new efforts and progress in advancing towards achieving sustainable development strategies. However, many of these strategies fail to have solid financing plans to fund their appropriate and instrumental implementation.

Some useful solutions moving forwards for every nation to advancing financing for their sustainable development in achieving the imperative impact will include: (i) Every nation should consider developing financing frameworks to enable their national development strategies. The international system should be strengthened in order for it to continue to support nations in endeavours such as these. (ii) Since financing policies doesn’t work in isolation – there needs to be an integrated financing frameworks that should not only respond to financing challenges, but also to the constant developments of the ever-changing global landscape. Essentially, governments must revisit their labour market policies, social protection systems, fiscal policies, competition policies, financial sector regulations and strategies, but also trade policies in order to ensure that all required focus points are all in line with all the new developments in the market. These initiative solutions should help to start off with on waving off the financing restrictions facing the progress of several nations around the world trying to achieve sustainability impacts.

Harness the potential of innovation while managing risks:

Financial innovation can help contribute to advancing financing for sustainable development to deliver the imperative impact across all levels. New technologies and innovation are constantly being developed and introduced to markets more recently, and its integration can improve the functioning of several markets. Financial technology otherwise known as fintech can enhance access to finance for millions of people around the world. Big data can contribute to an improved policymaking. Blended finance, when combined with the appropriate governance, can contribute to strengthening development finance. New instruments, improved sustainability reporting, combined with innovative policy solutions can enable an increasing number of investors to get improved financial returns with positive sustainable development impact.

        With that said, financial and sustainability risks do not disappear in its entirety with innovative forms of financial intermediation – credit risk still requires managing, and new technologies brings increased number of new risks.

              Non-bank financial institutions and fintech organisations may not be well positioned to manage risks such as these, and neither are regulators who have historically focused on traditional financial establishments. To address this, policymakers and regulators will need to constantly shift focus to considering the underlying risks associated with financial activities across all levels including all actors rather than looking at the type of institution. While doing this, they will also need to find a balance between emerging risks and enabling experimentation combined with innovation.

To conclude, it's possible that there are other useful points that may be highlighted under this discourse of why demonstrating impact is imperative, to advancing financing for sustainable development, however the author has decided to focus on the points above alone in this article for the sake of simplicity. It will be useful to know what the readers think.

Thanks for reading and sharing.