Who Will Pay for the SDGs?

This July, governments and business leaders met in Ethiopia to work out how to finance a significantly more ambitious development agenda, launching the Addis Ababa Action Agenda, a document that articulates a common position on how the draft Sustainable Development Goals should be funded. Hundreds of billions of dollars in direct and indirect funding was announced at the conference, building momentum ahead of the SDG Summit in September, and the Conference of the Parties climate change meeting in Paris in December.

Encompassing a wide spectrum of climate and development targets, the Action Agenda acknowledges that cooperation between governments and the private sector will be key to meeting the SDGs, bringing business into the heart of the new development paradigm.

The final few months of negotiations around the Post-2015 agenda will be critical for the private sector, as the SDGs will, perhaps for the first time, create a practical definition of sustainable development that is globally-accepted. For business, this means that there will be a yardstick against which to measure their own policies and practices, and help them to align their own sustainability strategies with international priorities.

Business has an important role in the formulation and the achievement of the SDGs. Companies have recognised that their long-term interests are aligned with those of inclusive, healthy societies, and that climate change is a universal and existential challenge. Progressive companies realise that stable, peaceful and resilient societies are fundamental to their continued success, and that an enabling environment for development is often the same as an enabling environment for business.

At the same time, international development institutions realise that business is fundamental to achieving social progress. The private sector creates sustainable, productive employment and prosperity, driving the virtuous circle of development.

The Addis Ababa Action Agenda not only reiterates governments’ commitments to the SDG agenda, it also acknowledges the role of coherent policymaking, good governance and strong institutions in building an enabling environment for investment and development financing.

Critically for business, the Action Agenda states that: “private business activity, investment, and innovation are major drivers of productivity, inclusive economic growth and job creation”, and issues a call to action to companies of all sizes to “apply their creativity and innovation toward solving sustainable development challenges.”

The Action Agenda welcomes the growth in foreign direct investment (FDI) into developing countries over the past decade, but warns that private sector investment into the developing world has often been concentrated in a small number of sectors, is sometimes short-term in its outlook, and has largely bypassed the most vulnerable of countries. It “encourages” business to commit to investments in areas critical to development, and to move towards more socially and environmentally sustainable practices.

On a practical level, for business, the Action Agenda commits governments to:

• Develop enabling policies and strengthen regulation to “better align private sector incentives with public goals” and to build more stable and predictable environment for business.
• Push for financial literacy and inclusion for all, and focus in particular in redressing the gender imbalance in the financial system; to encourage commercial banks to innovate to serve the bottom of the pyramid and expand into under-served communities and social segments.
• Promote gender equality in political and economic decision making, and ensure that women are equal participants in business and finance.
• Increase access to finance for micro, small and medium-sized enterprises (MSMEs), particularly those owned by women, through risk-sharing between commercial and parastatal institutions, the establishment of credit bureaus and capacity building; to promote innovative new financing vehicles and instruments.
• Use blended financing and public-private partnership to share risks in infrastructure projects; to improve PPP rules and improve transparency and accountability in the PPP process.
• Promote public and private investment in renewable energy, and to drive towards universal access to affordable, reliable and sustainable energy by 2030; to enhance access to and funding for research and development into renewable energy.

Importantly, the Action Agenda acknowledges that mobilising financial resources for development will mean continuing and closer collaboration between the public sector and businesses. It shows that governments and international development organisations recognise that there is a need for risk-sharing and innovative public-private partnerships in developing countries – a critical step in bridging the current gap between the expectations placed on businesses and their capacity to sustainably invest in frontier markets.

Alongside the Action Agenda, a $100 billion initiative, the Sustainable Development Investment Partnership (SDIP), was launched by a coalition of businesses, governments and public financing bodies. The partnership includes the governments of Canada, Denmark, the Netherlands, Norway, Sweden, the US and the UK; companies including Citi, Deutsche Bank, Standard Chartered and Sumitomo Mitsui Banking Corporation – and development organisations including the Bill and Melinda Gates Foundation and the Development Bank of South Africa.

The World Economic Forum and the Organisation for Economic Cooperation and Development are providing institutional support for the initiative, which acknowledges that achieving the SDGs will require public and private investments totalling trillions of dollars. Mobilising such large amounts of capital in uncertain economic times could be challenging, but there is enormous opportunity for companies who are able to take a long-term, strategic view of development.