Financing a fairer future

Torry Berntsen Executive Vice-Chairman, CIB Europe, Americas, the Middle East & Africa

3 Jul 2023

The UN’s Sustainable Development Goals are in jeopardy with a lack of finance stalling progress. So how can the problem be fixed?

The warning from the UN could hardly be starker. The plan for financing its Sustainable Development Goals (SDGs) is badly off-track, the UN’s Inter-Agency Taskforce on Financing for Development warned in spring 2022. While the world is now supposed to be halfway towards its aim of achieving the SDGs by 2030, the Covid-19 pandemic, war in Ukraine and other economic headwinds have all hindered progress. Developing nations have seen indebtedness soar; developed nations are struggling with constrained public finances.

“We must invest in access for decent and green jobs, social protection and education, leaving no one behind.”

In theory, no one disputes the importance of the SDGs, which in 2015 set 169 targets across 17 crucial areas – from eradicating poverty to acting on climate change. But in practice, UN Deputy Secretary-General Amina Mohammed fears what a lack of financing could mean. “There is no excuse for inaction at this defining moment of collective responsibility to ensure hundreds of millions of people are lifted out of hunger and poverty,” she said of the UN’s research into progress so far. “We must invest in access for decent and green jobs, social protection and education, leaving no one behind.”

The question now is what will break the logjam. Inter-governmental agreements on financing the SDGs – as well as climate change deals forged at summits such as COP27 in Egypt in November 2022 – have prompted commitments from developed countries. But those pledges have not always been met. Increasingly, the challenge is to stimulate additional private sector investment in areas crucial to achieving the SDGs.

“It will be challenging but I’m hopeful governments and private sector investors can collaborate and align strategy and policy with finance,” argues Torry Berntsen, CEO, Europe and Americas at Standard Chartered. “The stakes for failing to align are monumental.”

Bridging the gap

Without such investment, achieving the SDGs by 2030 looks extremely unlikely. The yearly gap in financing the SDGs for developing countries is now estimated at between $2.5tn and $3.6tn a year at best, say funding experts. Development capital in the form of aid and public funds can only cover half of this gap.

The good news is that private sector investors are beginning to mobilise. Groups such as the Global Investors for Sustainable Development Alliance, a coalition of companies and asset owners that control $16tn, have developed standardised criteria for investments that are aligned with the SDGs. The UN Development Programme has also piloted schemes to help developing countries raise debt finance which has seen success thus far.

The key will be to accelerate such investment, says Sara Pantuliano, CEO of the Overseas Development Institute. “The political challenges in some places remain very challenging for investors, so we may need mechanisms that provide greater security,” she argues, pointing out that without such support, calls for funding will simply fall back on the public purse. But in other developing nations – Rwanda is one example, she suggests – investors are working well with state actors.

“We’re uniquely positioned to connect the world’s emerging and high-growth markets with more established economies”

The banking sector clearly has a crucial role to play, both as a provider of funding and as a facilitator of support from other investors. Standard Chartered’s Berntsen recognises that responsibility: “As a global trade bank, we’re uniquely positioned to connect the world’s emerging and high-growth markets with more established economies, allowing us to channel capital where it’s needed most,” he says. “Our long-term ambition is to use this influence to help tackle climate change, inequality and unfair aspects of globalisation. We want to lead by example and are strongly encouraging our clients, colleagues and competitors to come with us on this journey.”

Developing opportunities

Crucially, this represents a golden opportunity to do well from doing good. The economic case for investing in the SDGs is powerful. Looking simply at climate, for example, the World Bank argues that every $1 invested in the transition to a green economy yields $4 of economic benefit.

Moreover, there may be an opportunity in many developing nations to leapfrog the west and focus on clean power generation from wind, solar and hydroelectric systems. For example, research from the World Economic Forum points to the way in which Morocco has installed renewable energy infrastructure that now provides two-fifths of its energy capacity, helping to insulate it from volatile energy prices.

Many investors are eager to explore such opportunities. The rapid growth in demand for environmental, social and governance (ESG) investments has prompted a broad range of financial institutions to focus on sustainability and impact. Developing mechanisms to unlock this demand – everything from support for blended finance to improved benchmarking and measurement of ESG performance – could prove powerful.

“The vision is clear. The world needs more finance specifically aligned to SDGs.”

Indeed, Pantuliano believes these private sector actors, used to managing risk, could bring a fresh approach to financing the SDGs. The state-backed development banks and financing institutions are surprisingly risk-averse, she says. “There is a little bit of hiding behind their stakeholders and an unwillingness to take risk,” she argues.

“The vision is clear. The world needs more finance specifically aligned to SDGs,” concludes Berntsen. The question now is whether private sector finance can be engaged with sufficient speed to get the SDGs back on track.

Read more about dynamic markets.

This content was paid for and produced by Standard Chartered in partnership with the Commercial Department of the Financial Times.