The FINAL report of the Intergovernmental Committee of Experts on Sustainable Development Finance is out
I had been dreading this for the last few weeks particular
when a couple of members let me know what was and wasn’t in the report. So
today I got up went to my favourite local cafe order a couple of strong coffees
and read the report.
For those who do not read this blog often I would share with
you that I have had serious concerns about the way this committee’s work was
going from before the zero draft. I have blogged on it a number of times and
also put forward a set of 21 areas I would hope would be covered in the report.
A warning to young readers this blog contains an unhappy and disappointed Felix.
Unhappy because of what the report could have been and disappointed because it means the work still will have to be done for next year. The cupboard of ideas is bare...
Stakeholder
engagement
All of this could have been so different. Stakeholders were
excluded from the meetings unlike the SDG OWG or other Intergovernmental
Committees on different issues of sustainable development over the last 20
years. This is infact the ONLY body on sustainable development to exclude
stakeholders. The governments who decided that should be ashamed of themselves. They should also be ashamed of themselves
when they in para 21 have the audacity to say:
“Building of the moralities and spirit that led to the Rio
Declaration and the Monterrey Consensus, we consulted widely with a range of
stakeholders, including civil society, the business sector, and other major
groups. This outreach was integral to our work and included multi-stakeholder
consultations, regional meetings, and calls for constitutions on our web site.
We are all grateful for all the inputs we received.” (UN, 2014)
I cannot think of ANY stakeholder organization that has
anything but contempt for the way
this committee has operated in secret. How many examples do we need to give on
when over the last 20 years these kind of committees would be open to
stakeholders to participate in eg Ad Hoc Open-ended Intergovernmental Group of
Experts on Energy and Sustainable Development, The Intergovernmental Panel of
Forests to name two!
Content
I take a deep breath here and wonder what they have actually
been doing over the last few months. The report is as had been expected heavily
Monterrey focused. Let me be clear I have no problems with the report having the
Monterrey material in it because debt, aid, trade are critical to dealing
sustainable development and poverty eradication. But and this the big But the
report that was asked for is as they say in para 1:
“255. We agree to establish an intergovernmental process
under the auspices of the General Assembly, with technical support from the
United Nations system and in open and broad consultation with relevant
international and regional financial institutions and other relevant
stakeholders. The process will assess financing needs, consider the
effectiveness, consistency and synergies of existing instruments and
frameworks, and evaluate additional initiatives, with a view to preparing a
report proposing options on an effective sustainable development financing
strategy to facilitate the mobilization of resources and their effective use in
achieving sustainable development objectives.”
The report does NOT seem to remember two other paras in the
Future We Want:
“253. We call on all countries to prioritize sustainable
development in the allocation of resources in accordance with national
priorities and needs, and we recognize the crucial importance of enhancing
financial support from all sources for sustainable development for all
countries, in particular developing countries. We recognize the importance of
international, regional and national financial mechanisms, including those
accessible to subnational and local authorities, to the implementation of
sustainable development programmes, and call for their strengthening and
implementation. New partnerships and innovative sources of financing can play a
role in complementing sources of financing for sustainable development. We
encourage their further exploration and use, alongside the traditional means of
implementation.
254. We recognize the need for significant mobilization of
resources from a variety of sources and the effective use of financing, in
order to give strong support to developing countries in their efforts to
promote sustainable development, including through actions undertaken in
accordance with the outcome of the United Nations Conference on Sustainable
Development and for achieving sustainable development goals.”
Which paras you take as your starting point and which you
don’t do then lead to a report taking a particular direction.
Content against my 21
suggestions
My 21 issues from the report
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How does the report do
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What should it have said
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1.Differential approach to countries in
different levels of development and what financial packages might be most
useful for those countries (could be based on the UNDP Human Development
Index);
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Not done:
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This suggestion I have to admit does
have some problems associated with it as some of the levels of development
that are in the HDI do not have formal UN definitions. But I am sure this
could have been finessed. What this approach would have done is help focus
the financial considerations to the countries requirements e.g. an LLDC needs
different packages than an LDC or a medium developed country.
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2.The mechanisms to help countries move
from one level of development to another as funding portfolios change;
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Not done:
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What is needed is a clear set of
guidance for how countries stabilize their new status as they move from one
level to the other. though there is some recognition of the continued role
that 0DA play to LDCs
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3.What regulations need to be put into
place to ensure the FDI does not impact negatively on sustainable development;
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(125) FDI remains the most stable and
long-term source of private foreign investment to developing countries, and
has a critical role to play in financing sustainable development. However, policymakers need to monitor the quality of
FDI to maximize its impact on sustainable development. Governments should, as
appropriate, adopt policies that encourage linkages between
multinational enterprises (MNEs) and
local production activities, support technology transfer, provide local workers with opportunities for further
education, and strengthen the capacity of local industry to effectively
absorb and apply new technology. Corporations that embrace human rights
principles, labour, environment and anti-corruption values, as in the Global
Compact or other international social and environmental standards, may serve
as a model for other enterprises. At the same time, host governments should
require all companies, including foreign investors, to meet the core labor
standards of the International Labor Organization, and encourage EESG
reporting, making sustainable development an essential element in company
strategies.
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It should have a suggestion of
regulation to address this.
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4.A recognition that FDI only helps
some middle income countries;
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The report does expose that perhaps I
was wrong to be so stark - there has been growth in FDI outside middle income
countries Africa saw a 6.8% rise in FDI and “FDI flows to developing
economies reached a new high of US$759 billion, accounting for 52% of global
FDI inflows in 2013.
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5.A section on what local and regional
governments might be able to achieve and what financial portfolio might be
available to them;
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No section on this only gets a cursory
mention of the role that subnational can play:
(75) At the same time, 13 countries
have initiated some form of national or sub-national carbon taxes.
Some mention of local level financing
(98) Local bond markets can thus play
an important role in financing long Term sustainable development and The
effective cooperation for sustainable development, including its financing
aspects, requires a global partnership with the meaningful involvement and
active participation of developing and developed countries, multilateral and
bilateral development and financial institutions, parliaments, local
authorities, private sector entities, philanthropic foundations, civil
society organizations and other stakeholders
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Huge missed opportunity to identify the
role that local and sub-national governments could play
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6.A deep dive into what role Capital
Markets could do to help sustainable development;
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Not a very deep dive but a start:
(85) Governments can use National
Development Banks to strengthen capital markets and leverage investments in
sustainable development. For example, some NDBs finance (part of) their
activities through the issuance of bonds that allocate funds raised to a
particular use, such as green infrastructure with the proceeds allocated to
specific classes of investment (e.g. green bonds).
(89) An enabling environment is
essential for reducing risks and encouraging private investment. In addition,
governments can work to develop local capital markets and financial systems
for long-term investment, within a sound regulatory framework. (98) To
successfully develop local capital markets, policymakers need to build
institutions and infrastructure, including supervision, clearing and
settlement systems, effective credit bureaus, measures to safeguard
consumers, and other appropriate regulation
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It lacks depth in what needs to be done
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7.Action on Sovereign Wealth Funds was
originally suggested in the UN Sustainable Development Panel Report – to
advance this we should have text suggested on how to amend the Santiago
Principles (Generally Accepted Principles and Practices (GAPP));
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Sovereign wealth funds handle public
money, but are managed like private investors. The report does not explain
what can be done to address SWFs.
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Santiago Principles - Generally Accepted Principles and Practices
(GAPP)
a.Amend GAPP 14. Principle Dealing with
third parties for the purpose of the SWF's operational management should be
based on economic and financial and sustainable development grounds, and
follow clear rules and procedures.
b.GAPP 18. Principle The SWF's
investment policy should be clear and consistent with its defined objectives,
risk tolerance, and investment strategy, as set by the owner or the governing
body(ies), and be based on sound portfolio management principles.
i.GAPP 18.1 Subprinciple The investment
policy should guide the SWF's financial and sustainable development risk
exposures and the possible use of leverage.
c.GAPP 19. Principle The SWF's
investment decisions should aim to maximize risk-adjusted financial returns
in a manner consistent with its investment and sustainable development
policy, and based on economic and financial grounds.
d.GAPP 19.1 Subprinciple If investment
decisions are subject to other than
sustainable development, economic and financial considerations, these
should be clearly set out in the investment policy and be publicly disclosed.
e.And add a new sub principle GAPP 22.3
Subprinciple: Independent opinions for the SWF commissioned from rating
agencies on the credit risk of debtors (private or public) shall be based on
financial and non-financial criteria including sustainable development.
Credit rating agencies shall be required to demonstrate to the SWF their
competency to undertake such ratings (evaluation framework, qualified
analysts). Monaghan (2012) Rating Sovereign Raters: Credit Rating Agencies –
Political Scapegoats or Misguided Messengers? (Manchester: Infrangilis).
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8.The UN Sustainable Development Panel Report
and the High Level Panel Report on Post 2015 Development Agenda to introduce
in Stock Exchanges the requirement for all companies to report or explain on
their Sustainable Development Report. We should see text and a date for this
to happen – 2020?
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Recognizes (48) (105) that corporate
reporting is important.
(125) Corporations that embrace human
rights principles, labour, environment and anti-corruption values, as in the
Global Compact or other international social and environmental standards, may
serve as a model for other enterprises. At the same time, host governments
should require all companies, including foreign investors, to meet the core
labor standards of the International Labor Organization, and encourage EESG
reporting, making sustainable development an essential element in company
strategies.
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Should set 2020 for compulsory reporting
of all companies listed on any stock exchange
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9.How to expand the role of
micro-finance, micro-credit and micro-insurance to support the base of the
pyramid;
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(91) Many governments have thus
provided and/or welcomed providers of financial services for the poor,
including through microfinance institutions, cooperative banks, postal banks
and savings banks, as well as commercial banks. (94) s. With the growth of
microfinance institutions, both managers and regulators should be concerned
about the need to balance expanding access to financial services with
managing risks, including social risks of household indebtedness.
(95) Frequently, SMEs’ financial needs are
too large for the traditional moneylenders and microcredit agencies, while
large banks tend to bypass this market, due to administrative intensity, the
lack of information and the uncertainty of credit risk. By providing credit
information, credit registries/bureaus, and collateral, and insolvency
regimes could help extend SME access to credit.
(102) A robust regulatory framework
should consider all areas of financial intermediation, including shadow
banking ranging from microfinance to complex derivative instruments.
Enhancing stability and reducing risks while promoting access to credit
presents a complex challenge for policymakers, since there can be trade-offs
between the two. Policymakers should design the regulatory and policy
framework to strike a balance between these goals. For example, the European
Union included special provisions (e.g. Capital Requirement Directive IV) in
its implementation of Basel III to reduce the capital cost of lending to
SMEs. There are also calls for financial sector regulatory systems to be
widened from focusing on financial stability to include sustainability
criteria.
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Good language on this.
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10.How cooperatives or mutual funds can
be utilized for sustainable development;
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Very little attempts to engage this
community (91) Many governments have thus provided and/or welcomed providers
of financial services for the poor, including through microfinance
institutions, cooperative banks, postal banks and savings banks, as well as
commercial banks. (96) Cooperative banks, post banks and savings banks are
also well suited to offer financial services to SMEs, including developing
and offering more diversified loan products
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Could have suggested regulatory changes
to open these funds more.
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11.What role the IFIs should play in
implementing sustainable development;
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(116) International Monetary Fund
(IMF), the World Bank and the other international and regional financial
institutions (IFIs), are key sources of medium and long-term finance for the
countries that draw upon them. Important financing modalities include public
loans to governments, equity and debt finance for the private sector and a
range of blended financing instruments, including risk-mitigating. (119) the Committee recommends that the level of
concessionality of international public finance should take into account both
countries’ level of development (including their level of income,
institutional capacity, and vulnerability) and the type of investment. Concessionality
should be highest for basic social needs, including grant financing
appropriate for least developed countries. Concessional financing is also
critical for financing many global public goods for sustainable development.
For some investments in national development, loan financing instruments
might be more appropriate, particularly when the investment can potentially
generate an economic return. instruments such as credit and political risk
guarantees, currency swaps and arrangements combining public and capital market
funds (e.g. on traditional infrastructure projects). When employed according
to country and sector needs, and building on their specific advantages, they
can help mitigate risk and mobilize more upfront financing than would be
available from budget resources alone, as discussed in Section VI.E on
blended finance. It is also important to ensure that LDCs are not refrained
from accessing, solely on the basis of their income, less concessional funds
from IFIs and DFIs. Financially viable projects should instead be considered
on a case-by-case basis,
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Could have provided guidance on how to
do this
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12.IFIs should be audited against the
SDGs to ensure their actions do not go against what will be agreed in 2015 –
a do no damage clause;
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Nothing on this
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IFIs set up an annual audit of their
projects and ensure they are doing at least no harm
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13.What reform of trade rules might
help deliver the SDGs and to ensure that trade supports sustainable resource
use and not the opposite;
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(72) Similarly, countries should
correct and prevent trade restrictions and distortions in world agricultural
markets, including by the parallel elimination of all forms of agricultural
export subsidies and all export measures with equivalent effect, in
accordance with the mandate of the Doha Development Round. (75) deals with ‘cape
and trade’
(153) In addition, the increased
prevalence of global value chains has tightened the link between trade and
foreign direct investment. To achieve
a better balance between investor rights and the sovereign capacity for
recipient states to regulate within areas of public interest, the
international community could consider, as appropriate, a further elaboration
of standards for investment in areas that directly impact domestic
sustainable development outcomes, and ensure that investments do not
undermine international human rights standards. (154) In general, the
proliferation of bilateral investment treaties and other trade agreements
covering investment issues renders the mainstreaming of a sustainable development
perspective in investment regimes more difficult.
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Some attempt to link trade and human
rights but little to layout a framework that would be robust to supporting sustainable
development.
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14.I expect to see some thoughts on the
role that local, national and international green bonds and the role they
might play;
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Only one mention of Green Bonds:
(85) Governments can use NDBs to
strengthen capital markets and leverage investments in sustainable development.
For example, some NDBs finance (part of) their activities through the
issuance of bonds that allocate funds raised to a particular use, such as
green infrastructure with the proceeds allocated to specific classes of
investment (e.g. green bonds).
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Should have identified what a role
Green Bonds could play could have utilized the work on Climate Bonds to
develop this. Or the work that Maurice Strong did for Rio+20 on Earth Bonds.
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15.What can green banks do to promote
sustainable development we now have examples in places like the UK and
Australia;
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No mention of the role these might play
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A set of recommendations based on the
experience of Australia and the UK
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16.The report needs to address
intergenerational equity – environmental resources and ecosystems must be
carefully managed to ensure the value of assets are there for future
generations;
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(68) Governments can also design
policies to ensure that a share of resource earnings are saved and invested
for the benefit of future generations, as in sovereign wealth funds (SWFs).
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This should have been a core element of
the whole report and integrated through all the recommendations
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17.There should be suggestions on
international liability to actions taken within national boundaries that have
environmental impacts beyond national jurisdictions;
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Nothing on this
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Could have suggested the setting up of
a Court of Arbitration and Conciliation to deal with this.
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18.Reform of credit rating agencies
requiring them to build in sustainability criteria;
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Nothing on this
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Reform of the rules for Credit Rating
Agencies to include sustainability criteria OR create under the World Bank an
International Credit Rating Agency and take it out of private hands.
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19.Taking away subsidies from fossil
fuels and agriculture;
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Some suggestions here
(41) In all subsidy decisions,
however, any adverse impacts on the poor and the environment need to be
addressed, either through appropriate compensating policies or through better
targeting.
(71)
Countries should review the efficacy of all subsidies as a matter of sound
fiscal management. Countries should consider rationalizing inefficient fossil
fuel subsidies that encourage wasteful consumption by removing market
distortions, in accordance with national circumstances, including by
restructuring taxation and phasing out those harmful subsidies, where they
exist, to reflect their environmental impacts. Such actions should fully take
into account the specific needs and conditions of developing countries and
minimize possible adverse impacts on their development in a manner that
protects the poor and affected communities
(72) Similarly, countries should
correct and prevent trade restrictions and distortions in world agricultural
markets, including by the parallel elimination of all forms of agricultural
export subsidies and all export measures with equivalent effect, in
accordance with the mandate of the Doha Development Round.
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Could have included clear recommendations
on how --- these are general statements
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20.Addressing the issue of resilience
funding for disaster relief preparation;
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Good recommendation here
(80) There is also an urgent need for
governments to invest adequately in disaster risk mitigation and in systems
that build resilience against shocks, as well as in environmental
preservation, especially in areas where local populations depend on natural
resources.
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21.A plan for introducing the Tobin
Tax.
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No recommendation
(51) The Leading Group on Innovative
Financing for Development has pioneered on a voluntary basis a number of
fund-raising mechanisms to raise additional resources, including the
international solidarity levy on air tickets,37 the funds from which are
contributed to UNITAID to help purchase drugs for developing countries.
Eleven countries using the euro currency are currently envisioning a
financial transaction tax from 2016, albeit without earmarking funds for
development or financing of global public goods as of yet. Some countries
(e.g. France) have, at the national level, put in place a financial
transaction tax, with part of the proceeds used to finance ODA programmes.
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Should have recommended the
introduction of a Financial transaction tax by 2020.
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