This year’s progress report on how to finance the Sustainable Development Goals - Financing for Development: Progress and Prospects 2018 - was published by the United Nations Inter-Agency Task Force on Financing for Development in April 2018. The report states that overcoming the short-term outlook of many investors is a complex but urgent issue.
The prospects of around 800 million of the world’s poorest people remain dire. The global economy is experiencing a moderate upturn, and momentum around sustainable investing is growing, according to the report.
There is an increasing interest in socially responsible investing, but that is no substitute for a broader transformation in the financial system.
The report states that the current system rewards investors, financiers and project managers that prioritize short-term profits. Similarly, policy makers are excessively focused on short-term considerations. Thus, infrastructure projects are shelved in favour of short term priorities. Small businesses and women remain excluded from the financial system.
Per capita growth remains negative or insignificant in many countries where the poverty rate is already high, entrenching inequality. The lack of long-term investment horizons also means that major risks, such as those from climate change, are not incorporated into decision-making.
According to the report, the solution lies in a multifaceted approach. It includes changing payment practices: the compensation of financial advisors and portfolio managers is too often linked to short term results. More transparency also helps: some countries now require all listed companies to disclose financial risks they face from climate change.
Short-sighted policies also result in a lack of access to finance for countries in urgent need. Support for countries affected by disasters is often too little, too late. Innovative financial instruments exist that provide quicker access to funding.
Countries can set up insurance-like mechanisms, and the international community can support those that can’t afford premiums. Loans can be set up to reduce repayments automatically during crises. But so far, major funders have not taken up these promising tools, the authors say.
Beyond financing, the report highlights several cross-cutting areas that impact sustainable financing and require policy makers’ attention, like new technologies and gender inequalities