I am delighted to be with you to address the 2019 Istanbul Development Dialogues.
I would like to in particular thank the Government of Turkey for their support as host country.
We enjoy excellent cooperation with Turkey as a development partner and we greatly appreciate their role as one of UNDP’s important donors.
It is a pleasure to share the stage with the other keynote speaker Mr. Naci Agbal Chief, Strategy and Budget, Presidency of the Republic of Turkey.
I would also like to thank the Ministry of Foreign Affairs of Turkey for their support in making this Conference possible.
I would like to thank the team at UNDP’s Istanbul Regional Hub for their organization of this event.
It is also great to be here at the home of UNDP’s Istanbul International Centre for Private Sector in Development. The centre aims at making a significant contribution to the implementation of the 2030 Agenda for Sustainable Development by mobilizing and supporting potential partners worldwide for implementing the global development agenda.
What I wish to address today is the topic of financing the Sustainable Development Goals (SDGs).
In particular, I would like to outline UNDP’s unique offer to mobilize and direct public and private sector finance towards a sustainable future and to achieve the SDGs.
That ‘offer’ involves concrete, straightforward assistance that we currently give to governments – helping you to finance the SDGs.
When it comes to financing the SDGs – it is crucial to think about mobilizing both private and public sector finance. It also is essential to look at domestic resources.
The positives and negatives of the current Global Financial System
Firstly, it is important to consider the overall context in which we must work.
The current global financial system has been both a key driver of; and a major constraint upon progress towards sustainable development.
It is also progressing in a somewhat unplanned manner.
On the plus side:
- The global value chains that have helped to lift billions out of poverty would not have been possible without corresponding global financial flows. For instance, and partly due to such flows, 271 million people escaped multidimensional poverty in India in a period of just ten years. It is a positive reminder that eliminating poverty in all its forms is in fact possible;
- Thanks to financial globalization, remittances from labour migrants that were formerly smuggled across borders are now sent home via bank transfers;
- Millions of small businesses now acquire finance and real-time market information at their fingertips via smartphones. However, there is much variety in the proliferation of such technology - from highs of 60% in South Africa and Brazil to a low of 24% in India – so there is much room for growth;
- Finance for green bonds, impact investments and social entrepreneurship is growing at a rapid pace – according to one forecast, green bonds will comprise a massive 15% of total global bond holdings by 2020 – indeed green bond holdings grew from practically zero in 2010 to US $200 billion in 2018;
- Global investors are increasingly looking for alignment with environmental, social and governance concerns, and ESG standards are being set by exchange operators;
- Climate risk is increasingly influencing asset prices and investment decisions.
However, on the other hand:
- The global financial crisis of 2008 to 2009 is still having a ripple effect and it is setting back development progress across the world;
- The global financial system continues to be plagued by illicit financial flows and external imbalances amongst leading economies – some of which have experienced damaging currency and financial instability. Indeed, one estimate concluded that net US $50 billion leaks out of the continent of Africa every year;
- To protect themselves against this instability, developing countries are unfortunately hoarding billions of dollars in foreign exchange reserves – these are resources that could otherwise be financing sustainable development;
- Corporate reporting continues to focus overwhelmingly on finance. Unfortunately, monitoring the environmental and social consequences of commercial activities too often remains an afterthought.
SDGs as a guiding roadmap
Given the somewhat haphazard nature of the evolution of the financial system – we have to do our best to drive it into the positive direction.
We are fortunate that the 2030 Agenda for Sustainable Development actually is guiding us, giving us much-needed direction.
The 2030 Agenda is about achieving economic growth and poverty reduction that does not come at the expense of environmental sustainability such as catastrophic climate change or drastic social and income inequalities.
The SDGs themselves provide us with the necessary global framework to capture the benefits and trade-offs of sustainable development.
Indeed, a study from JP Morgan from last year has described the SDGs as: ‘the most comprehensive set of targets’ available for tracking progress in sustainable development
Achieving the SDGs will create a world that is more sustainable, equitable, and prosperous.
Many countries are already starting to integrate SDGs into their future development plans.
New technologies too are enabling systemic changes - bitcoin and blockchain technology, for example, can contribute to systemic transformation through changes in global payment systems, supply chain management, digital identities and access to finance.
There is potential to build from these initiatives and advocate and support systemic reforms that enable financing for an integrated approach to social, environmental and economic goals as envisaged in the UN Secretary-General’s Strategy for Financing the 2030 Agenda.
However, these initiatives are not yet impacting on finance at scale. Take for example, data shows that even since the Paris Agreement, almost US $2 trillion has been invested by global banks in fossil fuels. The International Monetary Fund said in their recent working paper that the fossil fuel industry received US $5.2 trillion in subsidies in 2017.
Indeed, according to ExxonMobil, global oil and gas demand will actually rise by 13% by 2030.
Nonetheless the private sector is beginning to recognize the economic opportunities within the 2030 Agenda. The renowned, serial investor Warren Buffett, who is known to be cautious with investments, is staking US $30 billon on clean energy.
By 2018, some US $30 trillion of assets were managed under some form of sustainable investment strategy. This is a massive 34% increase in just two years.
A broad range of stakeholders including banks, sovereign wealth funds, insurance companies, pension and mutual funds, and individual savers increasingly believe that a focus on social and environmental impact can be transformational if growth and sustainability are pursued in tandem.
Look at the fact that there are now more than 2,100 signatories to the UN’s Principles for Responsible Investing which commits asset owners and investment managers to more responsible investment practices. This represents a massive US $81 trillion of assets.
As a new report from the UN’s Inter-Agency Task Force on Financing for Development shows that 84 per cent of asset owners say they are pursuing or actively considering pursuing sustainable investments. Interest is growing, but the transition is not happening fast enough.
There are also a range of problems. For instance, there is no widely agreed upon global definition or standards for what qualifies as SDG-enabling investments. There is likewise no commonly accepted way to verify that investors and businesses take a holistic approach to manage positive and negative impacts on the SDGs.
The UNDP ‘Offer’
UNDP wants to bring tangible solutions to the table.
So, what in concrete terms is UN and the United Nations Development Programme (UNDP), the UN’s development arm, doing
What is the UNDP’s ‘offer’ and how do we finance the SDGs?
Recognizing the fact that UNDP has long-standing experience in this area and to advance our work, we created a new Finance Sector Hub, as an agile platform that will identify existing work across UNDP and support teams across the organization in scaling up their work on financing the SDGs.
We are utilizing our long-standing expertise in various critical areas. For instance, UNDP is engaging in varied work on the environment and climate change. With the largest climate action portfolio in the United Nations System, UNDP supports over 140 countries with a climate action portfolio of over US $3 billion. We can leverage such long-standing expertise and translate this knowledge into SDG financing.
In particular, UNDP will deliver on its ambition of putting SDGs at the heart of financial systems by providing services across seven strategic areas of engagement and taking an approach to strengthening effective governance across our engagements.
That is, we have put a ‘menu’ in place and UNDP can help you to finance the SDGs:
Countries will be able to access this menu on an à la carte basis.
UNDP is supporting governments to develop and implement integrated national financing frameworks (INFFs) and strategies, to finance their SDG-aligned National Development Plans.
Countries face a number of structural challenges to financing the 2030 Agenda within increasingly complex financing landscapes.
Key challenges include the misalignment of financing policies and development priorities, the lack of evidence on the contributions of public and private resources to SDG impact and lack of consensus among public and private actors about reform priorities.
To address this shortcoming, and building upon existing planning and financing processes, UNDP is supporting governments to develop and implement integrated national financing frameworks (INFFs) which will bring together public and private finance policy and institutions such as Ministries of Finance and Planning, among others, at either the level of the 2030 Agenda as a whole and national plans, or at the level of specific development priorities at the thematic or sector level.
Toward this end, UNDP experts working in the Asia-Pacific Development Effectiveness Facility, together with national staff, have conducted development finance assessments in some 30 low- and middle-income countries, including an initial assessment in Tajikistan.
Discussions on conducting similar assessments are on-going in a number of other countries in Europe and Central Asia, including Kazakhstan, Ukraine, and Uzbekistan.
Integrating SDGs into domestic public finance through budget reform
Government budgets are one of the primary tools for advancing progress toward the 2030 Agenda at the national level and implementing the INFFs. Yet there is often a disconnect between the aspirations of the 2030 Agenda, typically expressed through national plans, and budget processes at national, let alone the sub-national, levels.
In response to these challenges, UNDP will support countries to strengthen SDG budgeting.
The services offered will support stronger accountability and scrutiny over the budget, working with actors such as parliaments and through mechanisms such as citizen’s SDG budgets as well as Supreme Audit Institutions in SDG performance auditing for example.
In these ways, UNDP will offer tailored support to governments and other national stakeholders to enhance the impact of public spending through stronger, SDG-aligned budgeting, while also providing governments with capacity-building.
UNDP and its partners will bring its relationships with key government institutions to promote SDG-aligned fiscal instruments
Fiscal instruments are a key part of the SDG financing imperative. They are the means by which governments mobilize resources for budgets, provide the finance to deliver services and make investments that will drive forward progress into the future.
They are an important means for advancing the SDGs and aligning incentives and finance within the private sector and society writ large with social, environmental and economic objectives.
UNDP and its partners will bring its relationships with key government institutions to ‘join the dots’ between fiscal policy and the SDGs, through supporting tax reforms; as well as facilitating the restructuring of debt. UNDP is also working closely with ministries of finance to align public expenditures with SDGs.
In respect to taxation, UNDP will build capacities to address tax avoidance and evasion, and tax expenditures through analytics, awareness raising, building institutions and strengthening governance systems for more effective enforcement.
On tax evasion already, UNDP is engaging in other vital support programmes to the public sector. For instance, we are seeing concrete results from UNDP-OECD Tax Inspectors Without Borders (TIWB) programme which inter alia helps reduce illicit financial flows and supports domestic resource mobilization in developing countries. Increased tax revenues directly attributable to TIWB programmes come to hundreds of millions of dollars which can then be used to finance sustainable development.
TIWB returns a massive US $100 of revenue to developing nations for every US $1 of investment from donor countries
In relation to debt instruments, UNDP will support governments and corporations to develop SDG related frameworks for the issuance of innovative and thematic bonds as well as supporting monitoring and reporting.
UNDP will work with countries and its international finance partners to enhance the role of international public finance in meeting the challenges of financing the SDGs.
International public finance has an important role to play supporting reforms and catalysing wider resources to advance the 2030 Agenda.
A growing number of emerging economies are becoming more active and are offering new sources of finance. International Finance Institutions, Regional Development Banks, Vertical Funds, South-South Cooperation and OECD development cooperation agencies all work to channel public finance – often quite separately.
UNDP will work with countries and its international finance partners to enhance the role of international public finance in meeting the challenges of financing the SDGs.
This support will focus on increasing country access to international public finance, particularly in ways that not only fill fiscal gaps but also leverage other sources of public and private finance through blended finance modalities and impacts on broader governance arrangements for financing the SDGs.
We are helping to unlocking private finance for the SDGs
These challenges in private sector misalignment with the 2030 Agenda are rooted in policy and regulatory frameworks – for instance in relationships with government and limited participation in policy development. There is also a lack of awareness among investors about the opportunities that SDG-aligned markets and investors present.
In addition, private investors perceive significant risks to investing in contexts of poverty or geographies prone to disaster and conflict. In 2017, a tiny 2% of global Foreign Direct Investment flows – or around US $26 billion - went to the world’s 47 Least Developed Countries.
Even where they are willing there is a lack of a SDG oriented pipeline for investors to align behind or a lack of understanding of what SDG investments entail.
UNDP will support reforms that can unlock and transform the alignment of private investment with the 2030 Agenda. UNDP will provide a brokering service that actively connects national actors, their projects and initiatives, with finance and investment at all levels.
UNDP will also support strengthened policies, regulation and institutional capacities to align and enable the flow of private capital to the SDGs. It will engage asset owners to mobilize and invest capital in a ready pipeline of SDG oriented investments and support the development of instruments that lower risks for SDG aligned investments.
UNDP will take a holistic view of private finance for the SDGs, looking also at Islamic finance, remittances and sources of philanthropy for examples.
In this area, UNDP has supported the Government of Indonesia’s issuance of Green Sukuk (bonds) by supporting the development of an impact measurement framework. The five-year issuance raised US $1.25 billion and was oversubscribed. It signals the growing market demand for sustainable and responsible investments.
We will harness innovation and the potential of digital financing to unlock new markets and boost alignment to the 2030 Agenda.
Look at the new UNDP initiative, SDG Impact which will advance a unified, global effort to authenticate SDG-enabling investment.
It aims to leverage significant volumes of private sector financing for achievement of the SDGs in developing countries. The initiative works in three inter-related areas:
- Strengthening impact management practices to ensure that investments contribute to the SDGs. The main focus here is on the development of globally accepted standards for how investors and enterprises manage their SDG impacts in a holistic way. These standards will then be the basis for a third-party certification system for SDG-enabling investments;
- Preparing intelligence and data in the form of ‘SDG Investor Maps’ that help developing countries attract SDG enabling private sector investments. These maps will translate country-level SDG priorities into investment opportunities and provide data that help highlight the business case and the development impact of such investments;
- Based on the ‘SDG Investor Maps’, UNDP Country Offices and their partners will then convene SDG investor forums. These forums will enable ‘matchmaking’ between investors and enterprises working to achieve SDGs and to discuss policy measures to scale-up sustainable investments.
We at UNDP believe that SDG Impact is the initiative that private sector companies should rally behind.
We are aiming to align business strategies and operations for the SDGs
Private sector growth has been a key driver of economic development and job creation in many contexts, yet this growth has in many instances been associated with rising inequality, environmental degradation, discrimination against women, use of forced labour, corruption and other issues.
There is a need to realign business models, so all outputs of a business, promote the SDGs and with them human rights, good governance, integrity, gender equality and inclusion and environmental sustainability, to enhance the impact of private sector growth on all dimensions of the 2030 Agenda.
One main force driving this transformation is the growing proof that integrating environmental, social and governance issues and addressing material sustainability impacts translate into financial returns. Businesses that use resources more efficiently – energy, water, materials – will see large efficiency gains as well as cost savings.
Companies that ensure diversity, equality and labour rights protection in their workforce enhance productivity, improve their reputation and become more competitive and resilient.
Look for instance at a McKinsey estimate that advancing gender equality could add US $12 trillion to global growth. So, to not integrate economic, social and governance issues and to not take action on the SDGs is a major missed business opportunity that increases financial risks.
UNDP will work with both governments and businesses to strengthen the environment and business practices for greater alignment with all dimensions of the 2030 Agenda. UNDP will include an emphasis on strengthening policy, regulatory frameworks including appropriate tax incentives for SDG oriented business practice.
Impact measurement and reporting for financing the SDGs
Many governments and private sector lack the systems and capacity for effective outcome monitoring results and its alignment to the 2030 Agenda.
Systems for collecting and compiling timely data may be weak and many governments lack systems that track spending or outcomes in cross-cutting aspects of the 2030 Agenda such as gender equality or climate change. This limits the ability of governments to understand where they are being most effective.
UNDP will work with governments, businesses and other actors including Multilateral and National Development Banks to strengthen systems and establish norms for monitoring and managing SDG impact.
As it can be ascertained from this overview, UNDP’ approach to SDG financing is methodical and multi-pronged.
UNDP Country Offices will be able to tailor the menu of services into an appropriate package for their context.
Deepening public-private collaboration will be central to the ambition of everything UNDP does to channel finance for the SDGs.
The ultimate goal is to provide more durable, resilient and sustainable financial outcomes.
In an overall sense, it is fantastic to see increasing recognition that sustainable investment is good for business from a government side.
There are also lots of reasons to be optimistic about how the future deepening of public-private collaboration as well as the international community’s efforts to put money to work for sustainable societies.
I believe that this year’s edition of the Istanbul Development Dialogues can play a vital role in pushing forward this conversation at the global level and it can serve as the springboard to translate words into concrete results.