SDG Knowledge Weekly: Coherence and Effectiveness in Financing Sustainable Development
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Two complementary GIZ-supported studies examine ways to move towards ‘Towards a More Coherent, Integrated View of Financing Sustainable Development’.

Development Initiatives published a paper on how official development assistance can create an enabling environment to support private investment.

The Investment Integration Project released a report on measuring effectiveness of investments towards SDG achievement.

Much attention was paid this past week to the EU, the future of its budget, the implications for development cooperation and its relation to the 2030 Agenda. This brief focuses on what is needed for a coherent approach to guiding public finance and fostering private investment for SDG implementation.

The co-directors of the Future UN Development System Project, Stephen Browne and Thomas G. Weiss, authored an article asserting that the agenda put forth by the “first UN” (Member States) now needs to be implemented by the “second UN,” which consists of professionals from across the system. Titled, ‘Delivering the SDGs,’ the article highlights five areas for which the UN development system is responsible, and where reforms are currently underway. Two of these are effective monitoring systems, as touched upon in last week’s SDG Knowledge Weekly brief, and marshaling resources, largely financial ones.

Two complementary studies supported by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH present data-driven analyses to move ‘Towards a More Coherent, Integrated View of Financing Sustainable Development.’ The first study, by Barry Herman, acknowledges a “rather bleak outlook” for coherent international development cooperation on sustainable development. However, it notes opportunities in monitoring and assisting through three classes of readily available analytical tools: 1) Development Finance Assessments (DFAs) promoted by the UN Development Programme (UNDP); 2) Systemic Country Diagnostics adopted by the World Bank; and 3) further development of national planning models.

On finance, the most useful frame of reference when thinking of reforms should be the national level, Griffiths concludes.

The second study, by Jesse Griffiths, focuses on financial flows, systemic issues and interlinkages. Griffiths concludes that “the most useful frame of reference when thinking of reforms should be the national level.” On public finance, Griffiths notes the continued need to increase predictability of funding, with opportunities on domestic resource mobilization (DRM) and tax cooperation, pointing to a need for OECD countries to stem tax avoidance through increased transparency and anti-money laundering initiatives. On private finance, the paper recommends steps to reduce vulnerability through support for capital controls in developing countries. On systemic issues, the paper notes that global economic governance structures are not well equipped to deliver the SDGs, in part due to imbalances in decision-making. For example, developing countries are currently encouraged to join the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), but doing so entails a financial contribution, and commitment to a standard that was negotiated without full participation by developing countries. To address this, Griffiths calls for the establishment of an intergovernmental tax body and reforms to voting at international financial institutions.

Among the recent changes announced in China will be the addition of its own international development cooperation agency. According to State Councillor Wang Yong, as reported by Reuters, the agency will “better coordinate foreign aid and promote [China’s] ‘Belt and Road’ initiative.” Given South-South cooperation’s growing role in international development finance, China’s new agency may serve to formalize or increase transparency of financial flows. However, Devex reports that not everyone expects increased transparency from the agency’s creation. Five experts from the Overseas Development Institute (ODI) offer their thoughts on the announcement and its implications in this commentary.

Also at the national level, development practitioner Jo Spratt writes on DevPolicy’s blog that New Zealand’s aid practices can be reformed to better support countries in meeting the SDGs. Spratt offers recommendations in areas of trade, foreign direct investment (FDI), and capacity building in the Pacific region.

At the global level, the First G20 Meeting of Finance Ministers and Central Bank Governors was held from 19-20 March 2018, in Buenos Aires, Argentina. The meeting’s Communiqué reviews growth trends, infrastructure, how technologies such as digitalization can reshape the global economy, tax transparency, and concerns such as rising debt levels in low income countries (LICs). Additional G20 press releases and news on the meeting are also available. During the meeting, UNDP Administrator Achim Steiner called for increased alignment between international financial policies and the 2030 Agenda for Sustainable Development. Such alignment could stimulate increased collaboration on intersecting areas of the 2030 Agenda. For example, linking SDGs 5 and 17 (gender equality and partnership), the International Monetary Fund (IMF) recently released the results of a gender-disaggregated financial access survey. The survey shows increasing availability of historical data, which enables time-series analyses and cross-country comparisons, which can focus attention on policies that close the gender gap in financial access.

Development Initiatives published a discussion paper analyzing how official development assistance (ODA) supports private investment. The paper titled, ‘The Enabling Environment for Private Sector Development: Donor spending and links to other catalytic uses of aid,’ advises that, in the face of pressures to directly catalyze private finance, donors should still seek to allocate resources to fostering the enabling environment requisite to successful investments. Development Initiatives defines such an environment as “the conditions necessary for domestic business and entrepreneurs to operate and the conditions that facilitate international trade and private investment into a country.” The paper finds that although “enabling environment ODA” reaches the least developed countries (LDCs) more than blended finance, most of it goes to middle income countries (MICs). Further, of the US$9.9 billion in enabling environment ODA delivered in 2015, the majority went to countries that already score highly on the Global Competitiveness Index. This finding suggests a need to improve targeting such that aid goes to countries that need it most.

On the estimated gap in investment needed to meet the SDGs (US$2.5 trillion), Boston Consulting Group Principal Julia Fetherston writes an open letter to development finance institutions (DFIs), posted on the Centre for Public Impact’s website. Fetherston calls for a mechanism that links private finance to large-scale projects that contribute to the SDGs. She highlights that very few projects have been pitched to “large investors” and thus, innovation is not taking place within capital markets. The letter offers six actions that DFIs can take to accelerate investments in SDG-related projects.

Also on SDG investing, ImpactAlpha CEO David Bank summarizes recent shifts in “European supertankers of finance” investment practices. As Bank notes, the 4th Impact Summit Europe was held in The Hague, Netherlands this past week.

The Investment Integration Project (TIIP) released a report titled, ‘Measuring Effectiveness: Roadmap to Assessing System-level and SDG Investing.’ The study, supported by the Investor Responsibility Research Center Institute (IRRCi), helps long-term institutional investors (such those responsible for pension plans, sovereign wealth funds, endowments and foundations) answer the question, “How can I measure whether I have contributed to promoting the long-term wealth-creating potential of the environment, society, or the financial system?” The roadmap identifies adaptability, clarity, connectivity and directionality as characteristics that can help investors maximize impact and contribute to systemic change. It compares portfolio-level investing to system-level investing, which links more closely with frameworks such as the SDGs, offering an example application of the roadmap to Goal 13 (climate action).

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

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