13 April 2018: Overcoming the short-term outlook of many investors is a complex but urgent issue, according to the 2018 annual progress report on financing sustainable development titled, ‘Financing for Development: Progress and Prospects.’ The report, which was prepared by the UN’s Inter-agency Task Force on Financing for Development (IATF), explains that while the global economy is experiencing a moderate upturn and momentum around sustainable investing is growing, commitments by the international community to create sustainable economies are not being met. As a result, the report indicates that the prospects of around 800 million of the world’s poorest people remain dire.

The report was issued on 13 April 2018, under the auspices of the UN Department of Economic and Social Affairs (DESA), by mandate from the Addis Ababa Action Agenda on financing for development (AAAA). The publication sets the tone for the 2018 spring meetings of the World Bank Group and the International Monetary Fund (IMF), convening from 18-22 April in Washington DC, US, followed by the 2018 meeting of the UN Economic and Social Council’s (ECOSOC) Forum on Financing for Development follow-up (FfD Forum), held in New York, US, from 23-26 April.

IATF is comprised of almost 60 UN agencies and international organizations, including the World Bank Group, the IMF, the World Trade Organization (WTO), the UN Conference on Trade and Development (UNCTAD), the UN Development Programme (UNDP), the Organisation for Economic Co-operation and Development (OECD), and the Financial Stability Board.

Resources are not allocated where they are most needed, because the financial system rewards those who prioritize short-term profits.

The publication finds that per capita growth remains negative or insignificant in many countries where the poverty rate is already high, entrenching inequality. In the foreword to the report, UN Secretary-General Antonio Guterres observes that the world has the resources necessary to deliver, but they are not allocated where they are needed most. The IATF report explains that this is because the current financial system rewards investors, financiers and project managers that prioritize short-term profits. At the same time, the authors add, policy makers are excessively focused on short-term considerations.

The publication explains that this short-termism leads to, among other outcomes, infrastructure projects being shelved in favor of short-term priorities, and to the continued exclusion of small businesses and women from the financial system. The lack of long-term investment horizons also means, the report notes, that major risks, such as those from climate change, are not incorporated into decision-making. On the occasion of the report launch, Liu Zhenmin, Under-Secretary-General for DESA, pointed out that without investing in infrastructure projects like bridges, roads and sewage systems, and if the poorest and women are cut off from access to credit and other financial services, there is little chance of achieving the SDGs.

According to the publication, the solution lies in a multifaceted approach, which includes:

  • Changing payment practices, from current compensation practices for financial advisors and portfolio managers that link to short-term results;
  • Requiring all listed companies in a country to disclose the financial risks they face from climate change;
  • Helping countries set up insurance-like mechanisms, with the international community supporting those that cannot afford premiums; and
  • Automatically reducing repayments for loans during crises.

Noting that major funders have not taken up these steps so far, the IATF report underlines the need for leadership to overcome short-term political cycles and to devise and enforce rules that have widespread benefits but may face resistance by powerful groups, such as tax reforms and stopping illicit financial flows. [Publication: Financing for Development: Progress and Prospects 2018] [Press Release and Fact Sheet] [DESA News] [UN Press Release] [FFD Forum Website] [2018 Spring Meetings Website]