In this blog series, our experts share their thoughts and lessons learned on key financing for development issues, in the run-up to the UN’s Financing for Development conference in July.
Unmet investment needs in the Sustainable Development Goals (SDGs) are estimated in the range of USD 3-7 trillion a year in developing countries alone with an annual gap estimated at about USD 2.5 trillion (PDF). Not everyone agrees on costing the SDGs (see this mea culpa), but these numbers clearly point to the scale of the challenge.
A large share of the resources needed to fund the new agenda will come from the private sector - businesses, foundations and investors. Governments will need to implement policies that align larger shares of private flows to the SDGs. The challenge for the private sector is to move towards inclusive and sustainable business models - thus going beyond the concept of philanthropy and voluntary corporate social responsibility - without undermining profitability. How to achieve this?
Within businesses themselves, solutions lie in innovation, new business models, and the right leadership. This needs to be combined with better regulatory frameworks, smart public incentives, and changes in consumer demand. What can be done to foster these changes?
First, the private sector can be supported to invest in sustainable development in sectors and countries where it is more difficult due to weak regulatory environments, perceived high risk or other factors (look @ de-risking renewable energy investment in Tunisia).
At the same time, we need to reduce investments in areas that can be harmful to the SDGs (enforcing legislation in Environmental and Social Performance Standards and Assessments could support this aim), as well as phase out harmful subsidies in areas such as fossil fuels (prize to the most recent efforts of Malaysia, India and Indonesia). Not all businesses are created equal, and policies need to be differentiated of course but they should demonstrate the viability of new business models.
Second, domestic public finance, Official Development Assistance, impact investment and new financial mechanisms can be used to provide incentives when social outcomes outperform profits but the business case is not sufficiently strong (look @ Guarantees for Development).
Last, the principles of sustainable development should be better internalized in market processes (either demand or supply) via endogenous changes in business models and via a shift in consumers’ preferences (look @ impact of fair trade and @ Business Call to Action).
The goods news is that we already see companies stepping up to the challenge.
The Cocoa Life initiative by Mondelez International (PDF) aims to improve the economic, social and environmental conditions of around a million cocoa farmers and their communities in Ghana, India, South East Asia and the Caribbean. Mondolez has been working with UNDP’s Green Commodity Program in other key commodities too.
The U.S.-based food company Sambazon (PDF), meanwhile trains communities in the Amazon Estuary region on organic and environmentally responsible production and non-invasive harvesting of açaí fruit.
These examples demonstrate that companies can invest in the health of the supply chain to secure their current and future business. These are only two of many cases we have seen at UNDP that demonstrate that companies can pursue a business case while aligning their investment with development.
In Addis, when the 3rd Financing for Development Conference convenes, we hope a conversation on the evolution of business models combined with smart regulations and incentives can take place.