Private sector investment in developing countries will be critical to achieving the UN’s sustainable development goals (SDG), which currently face an annual $2.5 trillion (£1.3 trillion) funding gap, according to a report from the UN Conference on Trade and Development (Unctad).
The World Investment Report 2014 argues that whilst public sector contributions will remain indispensable, they are likely to be insufficient to meet demands across all SDG related sectors. As a result private sector contributions, through both good governance in business practices and investments in sustainable development, are described as “critical”.
The UN is currently formulating the SDGs, which seek to balance economic development with social development and environmental protection. The organisation has previously stated that environmental degradation, climate change, poverty and social inclusion will be addressed in the targets.
Estimates for investment needs in developing countries alone range from $3.3 trillion (£1.9 trillion) to $4.5 trillion (£2.6 trillion) per year. This money is mainly needed for basic infrastructure, food security, climate change mitigation and adaption, health and education.
The report notes, “The participation of the private sector in SDG related sectors is relatively low. Only a fraction of the worldwide invested assets of banks, pension funds, insurers, foundations and endowments, as well as transnational corporations, is in SDG sectors. Their participation is even lower in developing countries, particularly the poorest ones.”
Whilst Unctad acknowledges that bridging the funding may seem like a “daunting task” it is achievable and the potential for increased private sector and investment contribution is “significant”, it says.
In order to close the funding gap the report argues that leadership at a global level is required. In addition, national policymakers should set investment targets and establish a global multi-stakeholder platform on investing in the SDGs.
It also adds, “Challenges to mobilising funds in financial markets must be overcome. Such challenges include market failures and a lack of transparency on environmental, social and governance performance, misaligned incentives for market participants, and start-up and scaling problems for innovative financing solutions.
“Policy responses that build a more SDG conducive financial system might include creating fertile soil for innovate SDG financing approaches, building or improving pricing mechanisms for externalities, promoting sustainable stock exchanges, and introducing financial market reforms in order to favour investment in SDGs.”
Photo: sanjitbakshi via Flickr
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