Global Outlook on Financing for Sustainable Development 2023
No Sustainability Without Equity
Successive crises including COVID-19, Russia’s war of aggression against Ukraine and
the climate emergency are exacerbating inequalities between and within countries and
stifling progress to achieve the Sustainable Development Goals (SDGs) and the Paris
Agreement. While developed countries deployed historic stimulus packages to build
back better, developing countries lacked fiscal and monetary buffers to respond. Countries
with the fewest resources face challenging trade-offs between short-term rescue and
long-term financing for a sustainable recovery. The SDG financing gap in developing
countries grew due to a drop in available resources called upon in the Addis Ababa
Action Agenda coupled with rising financing needs. Official Development Assistance
(ODA), or aid, played an important role to help narrow the gap, but could not do so
on its own. Global crises open a window of opportunity for SDG alignment of broader
resources to narrow the gap. Growing trillions in developed countries aim to reduce
risks, including environmental, social, and governance (ESG) criteria. However, resources
are not reaching the countries most in need. Urgent action is needed to remove bottlenecks
for a more equitable and needs-based allocation of sustainable finance.
The gap to reach the Sustainable Development Goals (SDGs) in developing countries increased by 56% after the outbreak of COVID-19, totalling USD 3.9 trillion in 2020. However, it would take less than 1% of global finance to fill this gap.
Volumes of sustainable finance, or resources seeking to mitigate environmental, social and governance risks, are growing even faster than total financial assets. However, the drive for sustainable finance is bypassing those who need it the most. 80% of global finance is held in high-income countries and less than 3% of sustainable investments are carried out in lower-income countries.
To fix the system, high-income countries need to (1) help break down the barriers that block access to financing in developing countries and (2) align financing at home to improve needs-based allocation and tackle “SDG washing.” High-income countries should advocate for 1% of global financing to go towards investments that achieve highest returns for the SDGs, namely in developing countries.