Creating a global model of sustainable finance that can be copied

Agi Veres, Country Director of the United Nations Development Programme China

On March 7, the Workshop on Financing for Sustainable Development was held in Beijing, Agi Veres, Country Director of the United Nations Development Programme (UNDP) China, delivered the speech of "Creating a Global Model of Sustainable Finance That Can Be Copied".
 
What could be the greatest force for the wellbeing of our common community? An innovative answer for this is business and investment. Since countries around the world adopted the 2030 Agenda for Sustainable Development (2030 Agenda) in 2015, the 17 Sustainable Development Goals (SDGs) have become a unifying framework to meet economic prosperity, social inclusion and environmental sustainability. One challenge in achieving the SDGs will be attracting diverse actors including not only governments but also private businesses to invest in sustainable development for the future.
 
The World Investment Report has highlighted that the delivery of the SDGs needs global investment of between 5-7 trillion in US dollars annually, the majority of which is in developing countries. In the same year the 2030 Agenda launched, the Addis Ababa Action Agenda was adopted, which establishes a strong foundation that supports the implementation of the 2030 Agenda. It provides a new global framework for financing sustainable development by aligning all financing flows and policies with economic, social and environmental priorities.
 
Increasingly, investors are looking for both financial and social returns and aligning their strategies with Environmental, Social and Governance (ESG) criteria; emerging innovative financing instruments, such as green bonds and social bonds, are facilitating economic growth at lower social costs. However, to change behaviours is not an easy mission. Most global funds still allocate less than one per cent of investment towards green and social impact investment. Much more remains to be done in order to influence the necessary systemic change to ensure the interests of investors align with the interests of society.
 
In China, it is exciting to see growing momentum for investments in sustainable development. China has been "greening” its financial system since 2015. Its green bond market has been growing at an impressive pace, with annual total issuance passing 31 billion US dollars in 2018, representing the lion's share of the global market. Yet financing for low-carbon development should not be separated from the need for social inclusion. Food security, poverty reduction, urbanization, health and education, affordable housing, and other necessities require massive investment reaching at least USD 11 trillion from 2017 to 2022, which is equivalent to what the Chinese GDP was in 2015. An estimated $2.3 trillion worth of business opportunities in China is open for the private sector if it delivers the SDGs.
 
The challenge of poverty and inequality reduction is made more difficult by a lack of financial flows to related sectors where links between positive social impacts and economic returns are hard to build. This stems from a lack of clarity on SDG financing and a lack of policy to incentivize related investments. It is also due to the short supply of financial instruments that can simultaneously capture economic, social and environmental benefits, and the absence of standards for measuring and disclosing the impact of projects. We need clearer cases connecting sustainability and profitability to convince the finance community that investments towards sustainable outcomes do not have to come at a costly financial price. We also need stories to illustrate the basic truth that investment value in the form of currency is not enough. The consequences of not achieving sustainable development are enormous because no financial capital can thrive without a stable society and a healthy natural environment to sustain and underpin its growth.
 
This leads to my final point—the role of UNDP in promoting sustainable development and SDG aligned finance. Globally, UNDP has been working on promoting the 17 Sustainable Development Goals through awareness raising, integrating them into national and local development plans, and supporting SDG aligned budgeting since 2016. We work on thematic areas of development in green growth, social inclusion, and resilient livelihoods. All these themes call for an effective financing mechanism to sustain and underpin their enforcement.

(This image is from the Internet)

The Secretary-General convened a High-level Meeting on Financing the 2030 Agenda at the United Nations in New York on September 24, 2018. The meeting highlighted three priorities including aligning global financial and economic policies with the 2030 Agenda; enhancing sustainable financing strategies and seizing the potential of financial innovations to provide equal access to finance. Last year, UNDP headquarters launched the SDG Impact Platform to catalyze financial investments from the private sector. The platform advances the SDGs by promoting the development and adoption of universally agreed-to standards for SDG enabling investment and supporting private sector actors to adhere to these standards. 
 
At the country level, UNDP China has been convening and listening closely to our country partners, donors, private sector alliance, and beneficiaries. Together with our Window Government Counterpart, China International Center of Economic and Technology Exchange, attached to the Ministry of Commerce, we launched the project: "Research and Promotion on SDGs impact Financing" on November 1, 2018. We will support and forge creative partnerships; recommend guidance/principles to scale SDG aligned investment taxonomy; develop impact management and measurement methodology; and enable policy to innovate SDG impact-financing instruments in China.
 
In early March, the project successfully conducted the first advisory committee meeting, and technical committee meeting, engaging more than 50 advisors and experts in this domain. We discussed how to co-develop the tools required to catalogue SDG financing, support the private sector to monitor outcomes of investment, and authenticate investment contribution to achieving the SDGS. All experiences from the project will be applied to form replicable concrete examples of balancing bankability and sustainability, and lessons learnt will be documented to promote innovation on SDG aligned financing in China.
 
In the future, UNDP will provide expertise on SDGs to further promote the SDG financing agenda and offer advice for understanding the impact of finance for sustainable development on rural and urban development, environmental protection and sustainability. We look forward to having a stimulating discussion with you all and seeing everyone engaging to show the power of this agenda and the passion towards it.
 
(This article is authorized by the speaker. Source: China Sustainability Tribune)