Financing the Sustainable Development Agenda Goals: Role and Challenges for the Private Sector and DFI

Financing the Sustainable Development Agenda Goals: Role and Challenges for the Private Sector and DFI

Bernardo Ivo-Cruz (Political Studies Institute Research Centre, Portuguese Catholic University, Portugal) and Sónia Ribeiro (Political Studies Institute Research Centre, Portuguese Catholic University, Portugal)
DOI: 10.4018/978-1-5225-9885-5.ch004

Abstract

The 2030 Agenda is comprehensive, universal, and ambitious. To reach its goals, the world needs to invest US$5 to 7 trillion/year. To finance it, the private sector must be involved. This chapter considers the motivations of business and corporations to incorporate the SDG in their investment agenda and the role DFIs can play in providing financing to their projects. It acknowledges that the private sector is a key element for long-term sustainable development and highlights the difficulties of DFI in assessing impact in risk analysis and therefore financing private investments for sustainable development. Finally, it finds that the international community and developing countries need to work together to improve the business environment on those countries, and concludes that the international community and the banking system do not know how to assess the role and impact of business and corporations projects in the agenda, and that the risk mitigation policy does not consider the nature of DFIs. Looking into the future, the authors present future research topics needed on this subject.
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Introduction

Until 2015, the mechanisms to support international development were a one-way street from developed countries into developing countries reserved to traditional actors, namely the States, International Organisations, NGOs and Third Sector Organisations. In 2015, The UN approved a new agenda for development that is a game changer. In fact, the 2030 Agenda is comprehensive - for it covers all the key elements of human progress; universal - for it sets goals for all the nations and all the people; and ambitious - by demanding a lot in a short period of time.

But to reach the general goals of environmental sustainability, social development and economic growth for all, the World needs to invest US$5 to 7 trillion every year and, according to the UN, the existing Official Development Aid totalled US$149 billion in 2018.

There are, indeed, significant challenges to financing the Sustainable Development Goals (SDG) agenda and it is no longer possible to rely on the traditional approach to development. New actors must be brought, as the International Community recognised in 2015 in the Addis Ababa Action Agenda, namely the Private Sector. Indeed, the Agenda is unique in the way the International Community decided to incorporate the private sector, which is called upon to work side-by-side with the States, the International Organisations, the NGOs and the Not-For-Profit Organisations.

This chapter considers the motivations of business and corporations to incorporate the SDG in their agenda, their investments and their impact. It recognises that, contrary to the traditional development actors, Business and Corporations, large and small, need to make money, for without profit the private sector fails. That is the nature of the private sector. But it also acknowledges that business and corporations are a key element for long-term sustainable development and that, regardless of their motivations - be that a modern understanding of Corporation Social Responsibility, or because legislation and consumers so impose it or even because there are profits to be made and financing available in sustainable business - the role of the private sector in SDG agenda is expected to become ever more relevant, though a methodology that allows business and corporations to identify and quantify the real impact of their investments in sustainable development is still under debate. In fact, as recognised by the UN, sustainable private investment in developing countries is still far from the desirable numbers, calling into question the ability to achieve the objectives set. UN IATF, among other agencies and international organisations, has been questioning this situation, seeking to find the causes for this reality. The chapter focuses on this effort, and the causes already identified, namely the role DFIs may play in helping increase sustainable investment in developing countries. The chapter argues that, due to the difficulties DFIs face in assessing impact in risk analysis and therefore financing private investments for sustainable development, a new approach is necessary that clearly separates Developing Banks from Commercial ones.

This study looks at the role of private sector in sustainable development. It starts by identifying the changes in the International Community vis-a-vis the actors for development and contribution that business and corporations are expected to give in for the implementation of the new 2030 Agenda. Later, the chapter consideres the reasons that drive the private sector and developing countries to incorporate the Sustainable Development Goals in their investment strategies and finally, the chapter considers the difficulties that business and corporations face when contributing to the SDG Agenda, in particular the issues surrounding the instruments for financing private investments. The Chapter closes by raising three further research areas, thus contributing to this new but ongoing conversation.

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