The Third International Conference on Financing for Development, to be held in Addis Ababa, Ethiopia, in July this year, will discuss how we finance the implementation of the Sustainable Development Goals. According to the UNEP Inquiry, the monies required annually until 2030 are around US$1 trillion of additional direct investment in infrastructure-related industries (e.g. energy, transport, buildings). In addition, there is a need to mobilize a further US$5 trillion a year for other underlying investment that does not even include the “softer” investments in health and education. It is clear that public financing can meet only a fraction of these needs and that governments will need to look to the private sector to bridge the funding gap.
Availability of financing for the SDGs is often framed as an “enabling condition”, and finance seen as an “instrument” or a “mechanism”. However, UNEP views finance as an organic system that also needs to change and become more sustainability focused. As we place our efforts on repurposing brown economies towards greener economies that are based on more sustainable production and consumption, the financial economy likewise requires a shift towards a “sustainable financial system”. A lot of work is needed to raise awareness, build capacity and promote early action among not only lenders, investors and insurers but also regulators. In short, efforts to green “real” economy sectors like energy, transport and agriculture need to be complemented by efforts to green the financial system.
It is these areas of financing for SDGs that the UNEP Finance Initiative (UNEP FI) is actively involved in, working to align the financial system with the low-carbon, climate-resilient and green economy. It takes a two-pronged approach.
First UNEP FI is working to “change finance”, aiming to integrate environmental and social risk and opportunities into the mainstream financial system. For example, it seeks the benefits of integrating climate and other environmental and social risk considerations within the financial stability risk landscape.
Secondly, UNEP FI works to “finance change”, which means to mobilize finance for a sustainable economy, including through work with other parts of the organization. For example, aggregating the efforts of banks around the world to develop and demonstrate living definitions of “positive banking”, or challenging the insurance industry as risk managers, risk carriers and investors to come up with new approaches to building resilience as an integral aspect of sustainable development.
Finally, UNEP FI works to facilitate dialogue between policymakers, financial institutions and financial regulators to ensure private finance mobilization policies and mechanisms are efficient and effective.
It is hoped that these complementary work streams will ultimately culminate in a sustainable financial system that is fit for financing a sustainable economy. The financial system cannot be incentivized to become sustainable without a strong drive towards a Green Economy.
On the other hand, the Green Economy is not achieved without a large-scale mobilization of private finance. Ultimately, however, what drives both the Green Economy and the sustainable financial economy is the political commitment and will of the international community to meet its SDGs. The ultimate success in mobilizing financing for SDGs rests in our will and trust towards them.
See more at: www.unepfi.org