Part 2: Reflections on the Financing for Development Zero Draft: The Action Agenda
It is always good to take a little time before responding to such a large document as the one produced for Financing for Development so I decided to break my response into two. The first which you haven’t yet read was on the Addis Ababa Accord – which is the heads of State section of the output document. I am now going to make comments on the second part of the output document and that is the Addis Ababa Action Agenda.
Again I will not comment on the status of the commitments on the traditional Monterrey Consensus there are a large number of NGOs doing a very good job of that. I will focus my comments on the ‘sustainable development’ aspects of the Action Agenda. My reference point will be the text that I prepared for the UN DPI NGO Conference last year and which was adopted by that conference. I will rate the outcome 1 poor to 5 excellent.
UN DPI NGO Conference called for: By 2020 Governments to amend the Santiago Principles on Sovereign Wealth Funds to include sustainable development criteria.
Present zero draft text says: Nothing about the Santiago principles. It does (85)“acknowledge though UNCTAD’s principles on Responsible Sovereign Lending and Borrowing, and the effort of the Working Party on Export Credits and Credit Guarantees of the OECD to provide guidance to its members on responsible sovereign borrowing and on lending to sovereigns.”
Outcome: 2 – With the largest SWF being controlled by the co-chair of the negotiations Norway we would have expected a stronger push on SWFs.
UN DPI NGO Conference called for: By 2020 Governments to require that the Credit Rating Agencies should have sustainable development criteria built into their ratings.
By 2025 Governments to set up an International Credit Rating Agency (ICRA) under the World Bank as an alternative to private rating services and this should be built on sustainable development criteria that take consideration of future generation’s needs as well as present ones.
Present zero draft text says: (97) We acknowledge that we have not solved how to reduce financial regulatory reliance on credit rating agency assessments or promote alternatives to the “issuer-pays” model of credit ratings. We invite increased competition in the provision of credit ratings, including by establishment of public agencies, where appropriate. We will also continue to explore reform of compensation practices in our countries to incentivize greater long-term investment.
Outcome: 3 – this ‘invite’…the establishment of public agencies could help establish sustainable development criteria which might be a first stage to an ICR.
UN DPI NGO Conference called for: By 2020 Governments to set up Green Banks to enable national support for environmental investment on a large scale, especially capital intensive green infrastructure, like wind and solar energy.
Present zero draft text says: (63) We stress that development banks should fully utilize their balance sheets, consistent with maintaining their financial integrity, to help support the ambitions embodied in the SDGs. Development banks can play a particularly important role in alleviating constraints on financing infrastructure investment. In this regard, we welcome initiatives to expand the supply of such finance, including through the establishment of new MDBs such as the New Development Bank and the Asian Infrastructure Investment Bank. We also welcome efforts to establish new infrastructure investment platforms by established MDBs. We invite MDBs to strengthen these efforts, including through alleviating internal constraints. We encourage efforts by the MDBs to make the safeguards process more efficient and time-sensitive, to ensure that public investment is aligned with and contribute to the realization of sustainable development goals without being unduly burdensome. We encourage MDBs to further develop instruments to channel the resources of long-term investors towards sustainable development sectors, e.g. through long-term infrastructure and green bonds.
Outcome: 4 – There isn’t a commitment to new Green Banks but there is a commitment to utilize existing banks to do what is being suggested.
UN DPI NGO Conference called for: By 2020 Governments to establishment a new financial mechanism “Earth Bonds” under the World Bank to enable the investment community with tax deductions offer by governments on investments in the “Earth Bonds.” Capital realized through the sale of Earth Bonds would be used to finance sustainable development projects for which those in the least developed countries would have priority.
Present zero draft text says: (63) We encourage Multilateral Development Banks (MDBs) to further develop instruments to channel the resources of long-term investors towards sustainable development sectors, e.g. through long-term infrastructure and green bonds.
Outcome: 3 This doesn’t establish an Earth Bond as was envisioned but does suggest the use of green bonds by the MDB
UN DPI NGO Conference called for: By 2020 Governments to require Stock Exchanges to have as a requirement of listing that companies ‘Report or Explain’ on their sustainability. This would include sustainability reporting based on the Global Reporting Initiative and the development of a published sustainability strategy.
Present zero draft text says: (40) These initiatives should be complemented by appropriate national regulations, in line with national strategies. We agree to create strong regulatory frameworks on ESG practices, including mandatory integrated reporting for large companies to be adopted by 20xx. To better align business practices with sustainable development, we will adopt regulatory frameworks that foster a dynamic and well-functioning business sector, while protecting labour rights and environmental and health standards in accordance with internationally agreed norms, including the labour standards of the International Labour Organization and key Multilateral Environmental Agreements. We will adopt policies to internalize externalities, such as the “polluter pays principle”, through a combination of taxation, regulation and other measures, in line with national strategies.
Outcome: 5 – the text goes nearly all the way to what has been a major campaign by the NGOs and finance sector led by AVIVA , Stakeholder Forum and the Global Reporting Initiative since 2011.
UN DPI NGO Conference called for: By 2020 Governments to require Stock Exchanges to publish the amount of carbon that is register by listed companies and by 2025 to set CO2 reduction targets for Exchanges in line with UNFCCC requirements for countries.
Present zero draft text says: Nothing
Outcome – 0 There is nothing on this at present in the text.
UN DPI NGO Conference called for: By 2020 Governments to require any Foreign Direct Investment (FDI) to have a Sustainability Assessment Report produced.
Present zero draft text says: Nothing
Outcome – 0 – No proposal for this exists in the text
UN DPI NGO Conference called for: By 2020 Governments to pass legislation to help the establishment of financial services for the poor, including through microfinance institutions, cooperative banks, postal banks and savings banks.
Present zero draft text says: (43) We will encourage our commercial banking systems to serve all populations. We will support other institutions and channels that offer affordable financial services for all, including microfinance institutions, development banks, mobile network operators, payment platforms, agent networks, cooperatives, postal banks and savings banks. We encourage the use of innovative tools, including mobile banking and digitalized payments to promote inclusion, while ensuring consumer protection and promoting financial literacy.
Outcome: 5 – captures most of what we suggested
UN DPI NGO Conference called for By 2020 Governments to pass legislation to enable local and sub national governments to issue green bonds as a vehicle for supporting environmental investment on a large scale, especially capital intensive green infrastructure, like wind and solar energy.
Present zero draft text says: (36) We further acknowledge that in more and more countries, responsibilities for revenues, expenditures and investments in sustainable development are being devolved to the sub-national level and municipalities, which often lack adequate technical capacity, financing and support. We therefore commit to develop mechanisms to assist them, including to strengthen capacity, particularly in areas of infrastructure project development, local taxation, sectorial finance and debt issuance and management, including access to domestic bond markets. We will support our cities and local authorities in implementing resilient infrastructure and climate-friendly policies and investments. Reliable support for national and local capacity for prevention and mitigation of external shocks and risk management is needed. We must also ensure appropriate local community participation in decisions affecting their communities, based on country circumstances.
Outcome – 5 this talks to the call for sub national and local governments to use green bonds as a mechanism to fund sustainable development.
UN DPI NGO Conference called for By 2020 Governments to pass legislation to enable local and sub-national governments to add sustainability criteria to their procurement policies.
Present zero draft text says: (30) Our financing policies, both domestic and international, will be guided by the need to achieve sustainable development, as an integral part of our national sustainable development strategies. We will spend our resources efficiently and effectively, and ensure that our national policies are in line with good governance, accountability and gender-sensitive public financial management, and promote equity. We will increase transparency and participation in all aspects of the budgeting process, and encourage those who have not yet done so to join the Open Government Partnership. We further agree on the need for transparent public procurement that reinforces sustainable development.
Outcome – 4 The text doesn’t identify this as a local and national policy so could be amended to say at the end ‘at all levels of government’
UN DPI NGO Conference called for By 2020 International Financial Institutions (IFIs) should be required to produce an annual sustainability audit of the projects they are funding with the aim of ensuring none do any sustainability damage.
Present zero draft text says: Nothing
Outcome – 0 the text doesn’t address this issue
UN DPI NGO Conference called for By 2020 Governments should set up an International Financial Transaction Tax (FTT) whose funds would be used for domestic and international support for delivering the Sustainable Development Goals.
Present zero draft text says: We welcome the progress made since the adoption of the Monterrey Consensus to develop and mobilize support for innovative sources of additional official financing for development, in particular by the Leading Group on Innovative Financing for Development. We encourage additional countries to voluntarily join in implementing the agreed mechanisms and to help develop and implement additional innovative modalities, including a widening of countries participating in a financial transaction tax, carbon taxes or market-based instruments that price carbon, taxes on fuels used in international aviation and maritime activities, or additional tobacco taxes. These sources should be additional, and disbursed in a manner that respects the priorities of developing countries, and does not unduly burden them.
Outcome: 1 There is a weak ‘encourage’ the FTT this isn’t likely to ‘encourage’ others to join.
Out of a possible 55 the present draft scores 32 on the suggestions put forward by the UN DPI NGO Conference last September. It clearly has areas it is good at but the more ‘transformative’ the suggestion the weaker the text to support it. There are three where there is a zero score and no text appears that even can be amended to be stronger. These are areas which NGOs could lobby for their inclusion.
The text on the ESG for companies is very very good at this stage and if it can survive to Addis it will be a huge victory for those stakeholders who have put considerable working it over the last 4 years. Having companies report on their Environment, Social and Governance will over time change the way companies view these issues but as important how the market views these companies. Bloomberg is already rating companies on these issues and that will increasingly have an impact on their share price.
Finally there are other issues such as natural capital that were not dealt with in the DPI NGO Conference which do need extra work and of course a clear understanding that the climate funds are additional money needed – reflecting the polluter pays principle.