Economic Research Forum (ERF)

Investing in climate action and the SDGs for a resilient future

The interlinked crises of climate change, lingering effects of Covid-19 and the ensuing food and energy crises need to be tackled together – and as this column explains, this is best done within the broader context of achieving the Sustainable Development Goals and in a framework of effective partnerships.

In a nutshell

State budgets play a central role in translating SDG commitments into implementable actions; both strands of climate and development finance should be communicated through national budgets to ensure they are aligned with recipient countries’ priorities.

Tackling developmental geographical gaps is only possible through the adoption of a spatial and territorial approach to development: thus, localisation acts as a touchstone for SDG accountability by ensuring ‘last-mile’ delivery.

The contribution of the business sector to sustainability is best analysed within the ESG framework; it is vital to have unified and transparent reporting criteria for ESG components to evaluate net-zero commitments made and to avoid ‘greenwashing’.

All eyes were on COP27 as governments, businesses and representatives of civil society from around the world converged in a last ditch to find a way forward on the critical mitigation and adaptation actions needed to avert a climate crisis.

The Sharm el-Sheikh Implementation plan emphasises a number of themes that should shape the global climate action. First, the headline decision showcases the serious financial and material costs associated with loss and damage in developing countries. At the same time, COP27 witnessed the historic success of reaching an agreement on the establishment of the Loss and Damage Fund to support developing countries in coping with the loss and damage consequences of climate change.

Second, the implementation plan illustrates the shortcomings of the global financial system and calls for the transformation of its architecture, structure and processes. Estimates by the UNFCC Standing Committee on Finance show that global climate finance flows in 2019-20 remain small compared with the overall needs of developing countries, only representing 31-32% of the annual investment needed to for the below 2°C or 1.5°C goals.

Third, the headline decision stresses the urgency of addressing the interlinked crises of climate change and biodiversity loss in a holistic and synergetic manner in the broader context of achieving the Sustainable Development Goals (SDGs).

Business, Government and the SDGs: The Role of Public-Private Engagement in Building a Sustainable Future, a book that was launched at COP27, demonstrates that climate action should be pursued in a comprehensive and integrated manner within the broader lens of sustainability, best captured by the SDGs.

The book acknowledges that in light of the complex and intertwined crises the world is currently facing – from pandemics to wars and increased costs of living – there have been major losses in the hard-earned gains in progress on the SDGs. Nevertheless, the commonality among these crises is that they have exposed the flaws and vulnerabilities of the current systems, which the SDGs aim to tackle.

As such, the SDGs themselves represent a roadmap for recovery and fostering resilience. The SDGs promote investments in physical and digital infrastructure, and in human capital accumulation. This comes with the emphasis that the world needs economic resilience with new fiscal and debt sustainability frameworks, social resilience with strong social protection schemes and well-prepared service delivery systems, and climate resilience by directing investment towards renewable energy and sustainable infrastructure.

At the first level of responsibility, the SDGs were formulated as the responsibilities that national governments should shoulder. The 2030 Agenda accentuates that each state is responsible for its social and economic development. Accordingly, the global goals act as guidance for governments in setting their own national targets.

The book launched at COP27 explains that the role of national governments in making progress on the SDGs and climate action can be analysed in three main aspects: policy frameworks and their effective implementation; dependable data; and adequate finance.

A key lesson from the predecessors of the SDGs, the Millennium Development Goals, is that sector-specific goals cannot be achieved except by adopting cross-sectoral objectives and implementation mechanisms that maximise the synergies and minimise the trade-offs among these goals.

Nevertheless, evidence shows that despite this emphasis on cross-sectoral horizontal integration, climate action is not yet integrated within the development pathways of most countries. What’s more, effective public institutions and good governance are critical to ensure the highest return and lowest efficiency losses in public infrastructure investments that are indispensable for the realisation of the SDGs.

Estimates indicate that poor infrastructure governance results in efficiency gaps of 15% in advanced economies and as high as 53% in low-income developing countries. Designing effective and integrated policies hinge on the availability of timely and disaggregated data that enhances delivery within a system of data governance that fosters trust in data transactions.

But there appears to be a persistent gap between the formal statements by governments on the importance of data and viewing data as fundamental in creating public value as well as channelling investments towards strengthening data systems. This feeds into the cross-cutting theme of adequate finance, with the book focusing on developing and emerging economies.

The book contrasts these countries’ investment needs, limited fiscal space and increased levels of sovereign debt. Additionally, the flaws of the global climate financial flows are evident in the arbitrariness of the yet-to-be fulfilled US$100 billion climate finance pledge and in the domination of debt as the main climate finance instrument. The latter tends to exaggerate the true value of climate financial flows, and it risks pushing the most vulnerable countries into ‘climate debt traps’, especially in light of estimates showing that in 2019-20, around 61% of climate finance was raised as debt.

The book also discusses the central role of the state budget in translating commitments on the SDGs to implementable actions as well as the necessity of having both strands of climate and development finance communicated through national budgets to ensure that they are aligned with the recipient countries’ priorities.

National governments are further tasked with creating enabling environments to ensure that all stakeholders can contribute to making progress on the SDGs and bold climate action. For example, it is essential to adopt a spatial and territorial lens to development to uncover persistent developmental geographical gaps. Local and regional governments represent the level of government closest to the people and act as a touchstone for SDG accountability by their role in ensuring ‘last-mile’ delivery.

In that sense, the book discusses the localisation approach to development as one that balances the benefits of centralisation through aligning national development strategies with the needs of local communities, and promotes accountability and transparency at the local level.

Moreover, local and regional governments have recently assumed leadership roles in areas that were traditionally regarded as the territory of national governments. These comprise issues such as climate action with the creation of the C40 cities and climate change network.

With business being a major generator of employment, economic growth, finance, innovation and technology, the book analyses how the sector can contribute to sustainability specifically within the environmental, social and governance (ESG) framework. New criteria and emerging regulations and mandatory reporting related to sustainability alter the environments in which businesses operate and how companies should earn their profits.

Moreover, ESG propositions act as a factor of non-price-related competition that enables companies to tap into new markets and expand in existing ones. Nevertheless, and in line with the report by the United Nations’ High-Level expert group on the net zero emissions commitments, there ought to be a consensus on a unified and transparent reporting criteria for the ESG components to evaluate all the net-zero commitments made by non-state actors and prevent ‘greenwashing’. The central message of the book is that progress on the SDGs and bold climate action are best seen within an integrated holistic approach that embeds climate plans within the country’s sustainable development path. This approach ought to be backed with effective partnerships among all actors, with the national governments assuming the first-line responsibility while creating an environment that capitalises on the capacities of local and regional governments and the business sector.

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