Sustainable Development Goal (SDG) implementation pathways: where do financial institutions fit in?

Since its founding in 2015, the United Nations (UN) SDGs promised to be a comprehensive framework that is inclusive and one that addresses some of our biggest challenges, even going beyond 2030. The SDGs are a set of 17 goals that UN member states agreed to achieve by 2030, covering key global issues like climate action, poverty eradication, and reduced inequalities. Ambitious policies and initiatives set by governments, the UN, corporates and grassroots level organisations is proof that the adoption and consensus of the Goals is one of the most widely acknowledged set of development targets to date.

Ambition towards the SDGs can also be more visibly seen through the work of the financial sector, where products and services like green bonds, ESG and impact investing and carbon credits are becoming increasingly popular. This has helped to narrow the $2.5 trillion SDG financing gap, primarily in the fields of poverty eradication and CO2 emissions reductions. But how is this impact being tracked and how are private firms revising long-term policies to adjust to changing grassroots level needs?

In the context of international decision-making processes, while financial institutions (FIs) and other stakeholders may have a presence, communication between each group is not optimized and is often unidirectional. This breaks down the synergies in the work of each stakeholder and threatens to impede upon the monitoring and reporting arm for SDG contribution.

This graphic depicts the ways in which the SDGs reach the ground — from its adoption by the UN General Assembly to impacting youth, education institutions, the local community and other non-state actors (NSA’s). Non-governmental organisations (NGOs), government policy, and programs by UN Agencies have historically been primarily responsible for facilitating this impact.

However, corporates, FIs and other private sector actors have started to amplify their contribution to this impact through, for example, partnerships with UN agencies and establishing reporting standards like the UN-supported Principles for Responsible Investment (PRI) and the Global Compact (UNGC). While some FIs may be several steps removed from working with beneficiaries on the ground, other private firms like private foundations and social/environmental businesses have a direct local presence through the provision of private investments to individuals or MSME’s, or by initiating capacity building projects. Aside from NGOs, what is largely common for all these types of firms is that they are not integrated into the various decision-making processes of the UN. To understand the importance of this, we first need to consider how each stakeholder works towards the Goals.

Grassroots Level

The first SDG implementation pathway involves individuals and organisations that work on the ground with project beneficiaries. Central to this process is the UN Resident Coordinator (RC) who serves as the highest-ranking representative of the UN development system (UNDS) at the country level. They work with all levels of government, the UN, local NGOs, and the community to design, implement, and revise policies to advance the development agenda of the country. NGOs and NSAs exist at various partnership levels with the UN, with some groups having more access to conferences, forums, and meetings where they can voice their experience to member states. In this pathway, the most important feature is the feedback that NGOs get from their beneficiaries about the project, as this leads to revisions in the program, ensuring the participation of the community in the long run.

A salient example of the importance of this dual relationship exists in reforestation projects. In the rainforests of Western Borneo, Indonesia, an NGO has taken on the task of eradicating illegal logging. It conducted more than 400 hours of interviews with the community to develop a program that works for all. Not only were those dependent on illegal logging included, but other members of the community were mobilized and empowered to maintain and protect the forest and discourage former illegal loggers from resorting to old practices. What is central to this approach is the belief that people have the best solutions to their problems. A key avenue for FIs to contribute and support positive impact here is in financing similar long-term projects. However, searching for such projects to fund remains a challenge and a lack of communication between FIs and NGOs at decision-making forums hinders progress.

National Level

Contrary to this relationship, blanket government policies do not facilitate the exchanging of ideas between the community and the government body responsible as it may not adhere to specific local contexts. Without the long-term participation of the community, project outcomes could fall well below their intended targets, and this diminishes the ambition of future sustainability / social well-being targets. Changing the design of the program may take considerable time as well, especially in developing countries with weaker governance institutions. Despite this, the role of the state is important as it has the resources to scale up innovative, impactful ideas where most NGOs cannot.

UN Level

The third SDG implementation pathway this article considers is within the UN system itself. While it advises member states and RCs, other prominent processes include SDG stock taking platforms and ratcheting mechanisms built into many of its policies to increase the ambition of member states with regards to a certain issue. The upcoming UN Climate Change Conference, COP26, is an example of a stock taking session as progress towards climate action is determined, new policies are agreed upon, and a path forward is outlined. A ratcheting mechanism of the climate conference includes the mandatory submission of a new Nationally Determined Contribution (NDC) plan every 5 years outlining a country’s updated climate goals. Every year, countries also participate in the High Level Political Forum on Sustainable Development (HLPF) where national progress and future plans are shared with the hope of setting more ambitious targets year on year.

At the COP, while the private sector is represented, negotiations happen in isolation of FIs and other stakeholders. Best practices and innovative solutions are thus unable to be scaled up and ratcheting mechanisms may not account for difficulties experienced by stakeholders other than the state.

The Role of Financial Institutions

Having navigated this complex SDG web, the question that this article sought to answer remains: why is it consequential that FIs and other private firms are not an integral part of the SDG decision-making process?

1. Grassroots Level: Without direct lines of communication with project beneficiaries, FIs may not know if projects need to be redesigned or how to do so if the needs of the community changes. A lack of an open dialogue with the UN RC of that country may result in competing goals or the absence of synergistic programs. While some FIs do have local partners depending on the nature of the project, key decision makers still do not have this first hand experience.
2. UN Level: FIs have minimal involvement with the SDG stock taking process. They have limited representation in negotiations within the UN Framework Convention on Climate Change (UNFCCC) and the UN Convention on Biological Diversity (UNCBD), and limited access to the HLPF and other platforms. Hence, how can all stakeholders establish a common vision and outline the different, yet synergistic, responsibilities necessary to arrive there? To that extent, even NGOs are left out of negotiations, their participation in such forums consists of showcasing work and not pitching new development ideas to member states.

The private sector is critical to filling the SDG financing gap, and are expected to do so, but more collaboration within the UN framework is needed for funds to be directed towards addressing the needs of all parties. Firms like GreenArc Capital, who focus on increasing private capital flows towards closing the SDG financing gap, help financial institutions measure and track their impact towards the SDGs, however, with these institutions having greater input into the negotiating process, for example, the process of identifying and scaling businesses and context-specific interventions that engages the community in pursuit of the Goals can be maximised.

In charting a path forward, examining who has access to the spaces where conversations about the SDGs take place is the first step. Developing a mechanism where the right amount of input is received from certain stakeholders and disseminating outcomes of stock taking platforms to all is crucial. Not every NGO or FI can take part in COP26, for example, but everyone needs to have the same goal in mind with a clear plan of action to achieve it.

Author: Don Ferdinando — Impact & Outreach Intern

Originally published at https://www.linkedin.com.