UN System inputs into the work of the Intergovernmental Committee of Experts on Sustainable Development Financing
Sunday, November 3, 2013 at 5:08PM A working group of the UN System Task Team (UNTT) has been set up to inform the on-going deliberations on the post-2015 development agenda, as well as to provide background work for the Intergovernmental Committee of Experts on Sustainable Development Financing. Its remit is to “produce background material on financing for sustainable development, taking as much as possible an integrated perspective that addresses social, environmental, and economic dimensions.”
Key insights
According to the UNTT working group on-going analytical work reveals the following key insights:
1. Financing needs for sustainable development are enormous. Different estimates of financing needs all confirm that there is a large requirement across all critical sectors…
2. Financing needs represent a relatively small portion of annual global savings estimated to be around $17 trillion, as of 2012. Global financial assets are estimated at around $218 trillion. Redirecting a small percentage of this investment toward sustainable development could thus have an enormous impact.
3. Both private and public financing from domestic and international sources are necessary, and both need to be effectively exploited to fill the large financing gap. Generally, public and private resources serve development goals better if they are seen as complements rather than substitutes, as each type of financing has unique objectives…
4. With regard to private financing, it is important to recognize that:
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- International institutional investors, which hold $75 to $85 billion in assets, are a critical source of financing for sustainable development. Yet their investment to date has been limited, in part due to a weak enabling environment, as well as general market failures, particularly with respect to low-carbon technologies.
- Moreover, for international institutional investors to finance long-term sustainable development on a large scale, there need to be changes in financial market incentives…
- Furthermore, in many developing countries an institutional investor base largely has yet to be developed. The challenge lies in building a domestic institutional investor base with a long-term investment horizon.
- Domestic financial systems also have to ensure inclusivity, providing access to poor households and small and medium enterprises, since these enterprises are critical for sustainable growth and development.
5. Overall, policies to facilitate investment need to take a multi-faceted approach, including: (i) reducing risks by creating an enabling environment; (ii) sharing risks to leverage private resources with public funds; (iii) restructuring investor incentives to reduce short- term oriented behaviour; and (iv) balancing regulations to ensure financial sector stability with access to credit and financial services.
6. Ensuring long-term investment and credit for sustainable development will increase financial stability. Stability and sustainability are therefore mutually reinforcing.
7. Public financing on the national, regional, and international levels is indispensable for reducing poverty and achieving global goals, such as the MDGs, as well as for financing public goods.
1. For developing countries, and in particular for the most vulnerable among them, ODA remains critical. Yet, ODA has been falling in real terms, notably for least developed countries, landlocked developing countries and small island development states, and for Sub-Saharan Africa. South-south cooperation has increased, but should not be seen as a substitute for ODA. Innovative sources can also raise additional resources. Donors need to deliver on their commitments, particularly for the most vulnerable countries, and increase coordination; while recipient countries need to develop a structured approach to managing diverse financing sources.
2. ODA is increasingly looked toward to leverage private finance. In addition, the share of financing for global public goods has increased substantially. While there are large overlaps between financing for poverty reduction and for public goods, the challenge lies in ensuring that traditional ODA for poverty reduction and development cooperation is not crowded out.
3. Domestic public finance is a critical component of resource mobilization for sustainable development. There is a significant gap between the capacity of developed and developing countries to raise public revenues. On average, tax to GDP ratios are 13 per cent in low income countries compared to 35.4 per cent in OECD countries. A challenge lies in designing policies to scale up tax revenues in the poorest countries. Tackling illicit financial flows can also play an important role in mobilizing public sector resources.
4. Ultimately, domestic resource mobilization will come from domestic growth. Macroeconomic and other policies are crucial, as is a global enabling environment which allows for necessary policy space.
8. Comprehensive carbon pricing policies, such as carbon taxes or emissions trading combined with the auctioning of allowances are viewed as a promising option to mobilize larger low-carbon investments. To date, climate and other environmental financing have evolved largely on a separate track from conventional development finance. However, a comprehensive financing strategy will need to integrate all the dimensions of sustainable development into mainstream financing.
For full Executive Summary click here.
See also the following papers:
UNTT - Chapter 1 – Review of global investment requirement estimates
Intergovernmental Committee of Experts on Sustainable Development
The World Bank also released its report Financing for Development Post-2015. The report includes both existing and potential financing sources and tools, including domestic resource mobilization; emerging donors; and private finance, as well as innovative sources of financing.