SDG Knowledge Weekly: Financing Sustainable Development and Climate Action, Continued
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Reports and blogs by staff from the Overseas Development Institute, International Institute for Environment and Development, UN Development Programme and Center for Global Development review the promises and pitfalls of the current development aid model.

Statements and commitments by financial institutions and philanthropies made during the Global Climate Action Summit aim to stimulate and build momentum around meeting the goals of the Paris Agreement on climate change and divesting from fossil fuels.

As those in the finance community have recognized, the world is now ten years on from the financial crisis that launched the global economy into a recession. This week’s brief continues to review the latest thought leadership on finance for sustainable development, broadening the scope from last week’s brief, which focused on the Asia-Pacific region and South-South Cooperation. This week we examine reports and blogs on official development assistance (ODA) and investments in climate action.

A paper by Kavaljit Singh, Madhyam, titled, ‘Scaling Up Finance for Sustainable Development,’ argues that the role of development banks must extend “beyond the traditional framework of correcting market failures.” Singh makes the case that they must address broader societal challenges such as climate change, food security, inequality and inclusive growth, and calls for more attention to be paid to the governance, transparency, performance and public accountability of state-owned financial institutions. The paper and others noted below were launched in advance of a High-level Meeting on Financing the 2030 Agenda, convened by the UN Secretary-General in New York on 24 September 2018.

Aid and Concessional Finance

A report by the Overseas Development Institute (ODI) titled, ‘Financing the End of Extreme Poverty’ finds an annual funding gap of US$125 billion for health, education and social protection among the world’s poorest countries. However, these services are crucial to lifting those left behind out of poverty. The authors recommend that donors focus aid on “countries that are least able to finance their own public spending to end extreme poverty” and to increase funding in these countries for core social sectors, among other suggestions. A more detailed write-up is available on the SDG Knowledge Hub.

The UN Development Programme’s (UNDP) Gail Hurley writes on Public Finance International that “outdated visions of aid as a charitable transfer from rich to poor countries are not fit for the 21st century.” She compares the theory of change behind development aid to that of the UK’s National Health Service (NHS), where it was thought that high up-front costs would decline as the backlog of needs was met. However, Hurley notes that new issues and needs continually emerge, both in the NHS scenario and in trends with development aid. She closes by calling for a new era of international cooperation, where reliable cross-border transfers address internationally agreed objectives such as those of the SDGs.

On aid in urban areas, a blog by David Satterthwaite, International Institute for Environment and Development (IIED), argues that the current aid model “is not working well” and calls for a transformation whereby local funds managed by grassroots organizations support community-driven development. He describes why the current international financial framework is flawed, noting that global urban agendas overlook the potential of local organizations and urban governments, lamenting that progress in some SDG areas, such as provision of water and sanitation services, is actually regressing.

On the contribution of development finance institutions to broader economic transformation, an ODI report reviews how public financial institutions can move labor and resources from low- to high-productivity sectors. Titled, ‘Measuring the Potential Contribution of Development Finance Institutions to Economic Transformation,’ the report proposes 13 indicators at national, sectoral and firm level that these institutions can use to assess the “transformative potential” of their investments, with the aim of providing feasible entry points for DFIs to measure their impacts.

The Center for Global Development (CGD) examines the multilateral concessional finance landscape in a commentary and mapping note. The blog and paper assess trends in multilateral development fundraising, the sources of funds and how the funds are spent. Example funds include the International Development Association (IDA), African Development Fund (AfDF), Asian Development Fund (AsDF), the Vaccine Alliance (Gavi) and the Green Climate Fund (GCF), all of which are “vying for resources” amid new rounds of fundraising and replenishment periods. The note highlights the changing composition of funding streams, where alternative sources are supplementing donor governments’ contributions to multilaterals, but that donors are playing an increasing role in thematic funds.

Connecting Public and Private Finance for Climate Action

During the Global Climate Action Summit (GCAS), held in San Francisco, California, US, from 12-14 September 2018, 42 public and private members of the Climate Action in Financial Institutions Initiative released a joint statement. The statement commits signatories to accelerate the mainstreaming of climate considerations within their strategies and activities and advance four priority areas: 1) vertical integration of countries’ Nationally Determined Contributions (NDCs) under the Paris Agreement on climate change; 2) facilitate municipal technical assistance and financings; 3) strengthen city and subnational capacity for resilience; and 4) offer subnational climate-focused financial instruments and products. Combined, the institutions have more than US$13 trillion in assets. A more detailed write-up on the SDG Knowledge Hub is forthcoming.

Linking global, local, public and private contributions, Justin Guay, ClimateWorks Foundation, emphasizes the importance of enhancing climate change funders’ capacity to mobilize communities and building local power, in an article by Catherine Cheney for Devex. The article, which reviews outcomes from the GCAS, highlights a joint commitment of more than US$4 billion announced by a coalition of 29 philanthropies to combat climate change over the next five years. Another Devex article outlines the Bill & Melinda Gates Foundation’s strategy for climate adaptation, building resilience and facilitating progress on the SDGs.

An article on the Stanford Social Innovation Review by staff from The Bridgespan Group highlights four ways in which “big bets can achieve big social change,” around developing and testing innovative solutions, implementing and scaling those that work, collaboration, and advocacy for policy change. It notes that philanthropy brings not only funds, but also “a willingness to support big thinking, innovation, risk-taking, and collaboration.” The authors outline Bridgespan’s work on tracking “SDG-aligned big bets” by traditional foundations, wealthy individuals and corporate foundations, showing the Goals to which spending most closely aligns and describing the actions funders can take to accelerate progress.

Investing in climate action, New York City Mayor Bill de Blasio announced that the city will aim to invest US$4 billion in climate solutions by 2021. The announcement builds on an initiative where the City will divest its five pension funds, which control a total of US$194 billion, from fossil fuel reserve owners by 2022. A case study released at the GCAS by ICLEI (Local Governments for Sustainability) USA and the New York City Mayor’s Office describes the principles behind and lessons from the City’s experience with fossil fuel divestment to date, with the aim of transferring knowledge to peer cities, both large and small. It outlines the history of the City’s recent sustainability actions and how it has been impacted by climate events such as Hurricane Sandy in 2012, and charts a path forward.

Additional issues of the SDG Knowledge Weekly can be found here.

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