8 April 2015: UN Member States and representatives of the business sector discussed financing for infrastructure, small and medium enterprises (SMEs), and ESG (environmental, social and governance) reporting, at an informal interactive hearing as part of the preparatory process for the third International Conference on Financing for Development (FfD 3).

Opening the session on 8 April 2015, in New York, US, Nicholas Emiliou, Acting UN General Assembly (UNGA) President, said mobilizing financing for critical infrastructure such as energy, transport, water and sanitation, as well as for SMEs, is “instrumental for structural transformation, economic growth, social inclusion and environmental sustainability.”

UN Secretary-General Ban Ki-moon expected 2015 to bring a universal meaningful climate change agreement for the first time in history, and encouraged participants to do their “historical responsibility,” urging that “your leadership, your engagement is very important.”

John Danilovich, Secretary-General, International Chamber of Commerce, noted that businesses have been “at the bedrock of societies” for centuries. He said the global business community is essential for addressing the infrastructure deficit.

Roberto Bissio, Executive Director, Instituto del Tercer Mundo, said FfD 3 should address the “unfair impact” of bilateral investment treaties that give big transnational corporations (TNCs) access to Investor-State Dispute Settlement Mechanisms, allowing them to sue governments at special arbitration panels, while SMEs only have access to national courts.

Moderator Veronica Zavala, Inter-American Development Bank (IDB), opened the panel on Infrastructure Financing, noting that the UN Conference on Trade and Development (UNCTAD) estimates that the Sustainable Development Goals (SDGs) will need investments of to US$5-7 trillion per year. She specified that infrastructure spending will have to rise to US$1.8-2.3 trillion per year, noting that “when speaking about trillions, official development assistance (ODA) and domestic resources mobilization are not enough.”

Tom Speechley, Abraaj Group, said private sector investments “can really make a difference” in middle income countries (MICs) and low income countries (LICs), where returns on investment are higher and losses lower than in developed markets. Michael J. Discenza, GeoGlobal Energy LLC (GGE), said “capital likes predictable, risk-adjusted returns.” He stressed the need to incentivize local pools of capital to be involved in the first stages of development of infrastructure projects, alongside international investors.

Orli Arav, Emerging Africa Infrastructure Fund, noted that “the key obstacle in Africa is the lack of people who are willing to take the early-stage development risks of the projects.” She suggested bringing more projects simultaneously to the market to reduce their costs, adding that portfolio investments would reduce risks for investors. Glen Ireland, InfraShare Partners, suggested using “hybrid” or “shared” infrastructure, which would utilize industrial infrastructure to provide public services, such as railways built for the mining sector that could also serve the agricultural sector (or other sectors). Fathallah Oualalou, Mayor of Rabat, Morocco, stressed the need for: decentralization and involving the local government in urban planning; addressing climate change, and providing tax incentives at the national and local levels to attract public-private partnerships (PPPs).

Moderator Matthew Gamser, CEO, G20 SME Finance Facility, opened the afternoon panel on SMEs and Finance, noting that “finance is the oil for the machine but it isn’t and can’t be the machine itself.” Access to finance remains one of the top constrains for SMEs, he said. Esteban Altschul, Accion International, highlighted that the smallest end of the SMEs spectrum – and the one that has the hardest time – is comprised of informal, rural and women-led businesses. He called for offering tax incentives for these businesses, such as formalized tax relief, and for capacity-building for regulators.

With a third of small businesses worldwide are owned by women, said Inez Murray, Global Banking Alliance for Women, they must have access to financial education, networks and business incubators. Murray recommended that banks used sex-disaggregated data when establishing the market size in developing countries and when making the business case for women, as women tend to save more money, are better payers of loans, and buy more products than men.

Kruskaia Sierra-Escalante, International Finance Corporation (IFC), stressed the need for: providing SMEs with access to finance in local currencies; flexibility in blending public and private funds; and establishing investment regimes more sensitive to SMEs. Nazeem Martin, Business Partners Ltd. South Africa, brought to the fore the need for mentorship and technical assistance for SMEs. He explained that one way of providing SMEs with the bulk of the finance they need is debt at very convenient interest rates, which would allow lenders to obtain revenue. He added that lending instruments for SMEs must be as simple as possible.

Georg Kell, Executive Director, UN Global Compact, opened the panel on Responsible Investment and ESG considerations throughout the investment chain, noting that much of the private sector is “still on the fence” about sustainability and non-financial issues such as ESG, “pretending that [they] don’t matter very much.” However, he said, the momentum is now behind the sustainability movement. He explained that foreign direct investment (FDI) is increasingly about building markets, with companies becoming long-term stakeholders, and that as a result, public and private investments increasingly overlap.

Renosi Mokate, South African Government Employees Pension Fund (GEPF), said ESG methods have gained significant momentum, and highlighted the importance of investments in renewable energy, economic and social infrastructure, and SMEs. Claudia Kruse, Dutch Pension Plan Investor, noted that the corporate social responsibility (CSR) part of the business is “where the sustainable development side steps in.” She identified lack of transparency as one of the greatest challenges when investing in developing markets, and expressed support for ESG integrated reporting.

Bola Adeeko, Nigeria Stock Exchange, said governance “remains the most immediate pain point that we would need to tackle,” adding that the Nigeria Stock Exchange has instituted strong corporate governance practices, and will launch its first CSR report in 2015. Filippo Bettini, Pirelli, welcomed ESG reporting and highlighted the role of sustainable practices in reducing business costs and generating revenue growth.

Taking the floor, Member States and representatives of the business sector raised issues related to: building incentive structures for the business sector; changing the perception of risk in developing markets, where risk-adjusted returns are “far better than people think”; aligning the languages of investment and public policy; and drafting the FfD 3 outcome in language that encourages the business sector to get involved.

Following the hearing with the business sector, an informal interactive hearing for civil society will convene on 9 April 2015. [Programme] [UN Press Release] [IISD RS Sources] [UNGA President Statement] [Business and Civil Society Involvement in FfD 3] [UNGA President’s Summary]