Does anyone have $100 trillion dollars?
May 21st, 2018 | By: José Luis Chicoma
Searching for funding for the Sustainable Development Goals.
*Originally published in Huffington Post Mexico in Spanish.
Currently, it is estimated that $100 trillion dollars are needed in order to meet the Sustainable Development Goals (SDGs) by 2030. It’s a difficult figure to fathom; there are a whole lot of zeroes to count. It’s greater than the nominal gross world product!
The SDGs represent the most ambitious and comprehensive joint agenda in history; promoted by the United Nations, the SDGs are also supported by an extensive network of governments, international organizations, and other actors. They consist of 17 different objectives focused on diverse issues, ranging from poverty to hunger, climate change to innovation, and involve almost every sector imaginable within the development space. Each objective has clear indicators that will be measured periodically through 2030.
However, the SDGs’ funding goal seems impossible. The traditional combination of sources used for the Millennium Development Goals – public resources, international cooperation, and debt relief programs – isn’t enough. The funding needs of the SDGs have blown past billions and are now well into trillions of dollars.
Where to find more resources? Some of the primary development funding sources include the private sector, social impact investing funds, and philanthropy. The SDGs include an objective specifically focused on developing partnerships and alliances among diverse actors in order to encourage these actors to contribute resources, knowledge, and innovation in order to improve the efficiency and results of SDG efforts. The basic conditions necessary to facilitate these investments are well known: rule of law, stability, and anti-corruption measures.
However, much more is needed beyond these basic conditions in order for the SDGs to be successful, including facilitating public-private partnerships (PPPs) for large-scale investment projects in sectors beyond those in which they have traditionally been used (i.e. highways, ports, and airports). PPPs can be used to encourage projects focused on innovation, science and technology, energy efficiency, and more, and they represent the perfect combination necessary to encourage sustainable investment: long-term time frames, co-investment, and risk distribution. As a funding instrument, PPPs force politicians, bureaucrats, and investors to think in with a focus on long-term horizons and results. However, PPPs have an image problem in Latin America; years of improper use, lack of transparency, and corruption have generated a rejection of PPPs, and many people detest them. Adequate implementation, oversight, and dissemination of the impact of the PPP structure will be needed in order to increase their acceptance.
In order to encourage and leverage results-based investments, other innovative instruments should also continue to be explored. Social impact bonds (SIBs) – a results-based funding mechanism that allows governments to finance private investment – still have much to prove regarding their potential. The transaction costs associated with SIBs have been a major obstacle to their implementation, particularly in developing countries, primarily due to the various studies required (financial, feasibility, etc.) and the long, drawn-out negotiation processes. However, conceptually, they continue to be a strong structure that encourages collaboration between public and private actors and boosts results.
The use of blended finance, the funding instrument of the moment, should also be accelerated. This structure strategically uses development funds to mobilize private financial resources. For decades, there has been significant fragmentation between public resources and international cooperation vs. private investments. The leverage that can be achieved through joint and/or sequential coordination and investment can be used to efficiently address global development goals. Over the last five years, the size of the market has doubled to reach US $50 billion, and its growth is expected to continue to accelerate.
On the other hand, there is a wave of excitement regarding the new philosophy of impact investing and its focus on sustainable development. In the past few years, the impact investing market has grown significantly, and 60% of impact investors affirmed in a survey that they consider the SDGs (or plan to do so in the future) when monitoring the results of their investments. Focus has also been placed on the “greatest inter-generational transfer of wealth,” in which more than 400 billionaires are expected to pass down US $2.1 trillion to their heirs over the course of the next 20 years. The assumption here is that this new generation has a set of values that is more aligned with development objectives.
This combination of investment instruments, collaboration, and new investors sounds very promising. However, it is important not to ignore certain realities. Focusing on impact can be an incredibly successful marketing strategy. 78% of investors that consider the SDGs in their investment decisions acknowledged that they did so in order to better market themselves. Impact investing doesn’t necessarily attract new investment, but it is an excellent way to improve an investor’s image.
There is also no evidence of real change in the values held by the new generations. They say what they are expected to say when asked about their interest in sustainability and development. Saying no would be like saying that they didn’t care about world peace. As long as there is no significant change in investment decisions (not just a change in aspirations), betting on a ‘generational shift’ really doesn’t make sense.
Lastly, it is clear that it is impossible to reach the SDGs by 2030 without support from the private sector, but many private interests are not aligned with the development agenda. Take, for example, a beverage company that wants to contribute to the SDGs by encouraging physical exercise to improve health indicators, and yet its products are a leading cause of obesity and diabetes worldwide. Or another company that says it wants to contribute to eliminating hunger by increasing crop yields using its genetically modified products, and yet its actions hurt small-scale agriculture, promote monoculture and negatively impact biodiversity, and generate dependencies on pesticides that can be harmful to farmers and the general public.
The 2030 Agenda can be a true catalyst for public-private collaboration, facilitating access to the $100 trillion dollars necessary to implement the Agenda and/or encouraging collaboration on other ways to achieve the SDGs. But it is very important that ensure that the 2030 Agenda does not become a Trojan horse for other interests.