Achieving sustainable development depends on incremental investments in six priority transformations: building human capacities (health, education, new job skills); decarbonising energy; promoting sustainable agriculture and biodiversity; building smarter cities; implementing the circular economy; and harnessing the digital revolution. As such, sustainable development and the 17 Sustainable Development Goals (SDGs) in particular pose a financing challenge. There are three distinct financing conundrums to solve: financing complex infrastructure, financing public services and amenities, and shifting investments from unsustainable to sustainable technologies. I discuss these in turn.
Sustainable development requires new forms of sustainable infrastructure. Sustainable infrastructure projects include a wide range of activities, among them zero carbon energy sources, smart power grids, resilient coastal management, urban high-speed broadband, smart transport infrastructure, and others. All of these projects involve complex issues such as land rights, public-private interface, public acceptance, liability rules, and multi-jurisdiction politics that often include multiple cities within a single country or multiple countries within a transnational region. Renewable energy sources are often far from population centres, in deserts, mountains or offshore (wind), and therefore require long-distance transmission lines passing through several jurisdictions, each needing to give right of way.
The financing issues are therefore complex as well. The issue is not only how to raise the funds (public borrowing, private borrowing, blended, etc.) but more importantly how to plan, design, win public acceptance, organise the operating and legal responsibilities, and then implement the investments. Many development finance institutions, such as the World Bank, structure their lending to single member states and have great difficulty in structuring multi-country projects. The challenge in short is a lot more about project planning, design and organisation than about financing per se.
Our national governments are not very good at solving these problems, either. Many of them lack the planning institutions for long-term, complex projects. During the 1980s and 1990s, public investment planning agencies were often supplanted by the privatisation of infrastructure, only to discover that the private sector was far less able than the public sector to structure complex projects because of lack of public legitimacy, regulatory tools and practical experience.
A second SDG financing challenge revolves around core public services and amenities including health, education and public housing. Health and education are of course an investment in human capital. In the low-income countries, the basic hard truth is that national budgets lack the funding necessary to provide decent healthcare services and quality education through to secondary schooling. Either the rich countries help poor countries to fund education and healthcare, or poor children will continue to die from preventable causes and to lack adequate schooling.
Without larger flows of development assistance, low-income countries won’t come close to achieving universal health coverage (SDG 3) and 100% completion of secondary education (SDG 4). The rich world has long promised 0.7% of GNI in aid but typically delivers around 0.3% instead, for a shortfall of 0.4% of GNI. In today’s terms, that amounts to a gap of around USD 180 billion per year, easily enough to close the financing needs for health, education, and crucial local infrastructure (water, sanitation and electrification of all households). OECD countries must find alternative policy levers. Although not a substitute for ODA resources, one way to raise financing is to tap larger philanthropic flows from the world’s billionaires. There are now 2 208 billionaires, according to Forbes magazine, with a combined net worth of USD 9.1 trillion. Even just 1% per year of this net worth would reap USD 91 billion per year.
The third financing challenge is to shift investment flows from unsustainable to sustainable technologies. The world currently invests around USD 700 billion per year in fossil fuel exploration and development. There are similar investments in unsustainable land use, such as timber and ranching in protected areas. Such investments are contrary to the SDGs and the objectives of the Paris Agreement. The challenge here is not so much financing as it is curbing the power of incumbent sectors. When higher levels of taxation are needed to fund public services and provide greater transfers to those in need, tax cuts are often preferred over crucial tax increases. While this may look like a financing challenge, it is actually more a political economy challenge: that is, moving beyond politics as usual to steer the economy through regulation, corrective taxes, public procurement and budget policies towards the SDGs.
The SDGs are therefore certainly not free from political contention. In addition to requiring more planning and forward thinking and more co‑operation across regions and nations, the SDGs are a call for social justice. Achieving them requires a more equal sharing of income, wealth and power. Success will usher in a more prosperous, equitable, peaceful and sustainable world for current and future generations.
To learn more about this topic, check out the Global Outlook on Financing for Sustainable Development 2019.