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Failures of governance and global financial architecture in implementing the SDGs

By Vittoria Acampora

The principles of the SDGs have gained acceptance from governments worldwide, with almost all UN member states submitting the Voluntary National Reviews (VNRs) (just 5 countries didn’t submit them). However, only a few countries have invested significant effort in pursuing the SDGs, while others have not committed as much and therefore have not received financial support. In many cases, national SDG strategies do not align closely with core government policies and priorities.

While some G20 countries have demonstrated increased commitment to the SDGs, most of the low-income and lower-middle-income nations, face substantial challenges in implementing these goals, because of a lack of commitment and financial resources. The United States has shown little commitment to the SDGs so far, not even presenting a VNR, despite being the world’s largest economy in terms of GDP and the biggest oil and gas producer; Despite the announcement by the Biden administration regarding the intention to reduce carbon emissions significantly by 2030 through the 2022 Inflation Reduction Act, there are growing concerns about achieving these goals due to a lack of agreed-upon national financing strategies beyond tax credits.

The European Union, the world’s second-largest economy and the major lignite producer, has demonstrated a high level of commitment by many of its members. The European Green Deal (EGD) outlines various sustainability goals (like energy decarbonization, climate resilience, and sustainable agriculture). However, an improvement in aligning EU policies with the SDGs and clarifying how to achieve them is needed. The EU also emphasizes the role of the private sector in the SDGs achievement, requiring companies to publish sustainability reports. China, the world’s largest economy in purchasing power and the major coal producer, has integrated the SDGs into its national development strategies. Recently, it has shown its support for initiatives like greening the Belt and Road Initiative and launching the Global Development Initiative.

Achieving the SDGs will require a global strategy, and despite several mechanisms introduced with the Agenda 2030 to promote and oversee their implementation by nation-states, these latter have not generated the necessary efforts to attain global objectives. There are four notable failures:

  1. The primary responsibility for implementation remains at the national level, relying on voluntary participation without effective international enforcement mechanisms.

  2. Developed nations are not being held accountable, neither for the negative impacts they can have on other countries nor for ensuring sufficient financial support for sustainable development.

  3. The rules governing trade and international finance do not align with the SDGs: for instance, unifying international business ecosystems could enhance industrial supply chains, especially by harnessing artificial intelligence.

  4. National governments often lack coordination with subnational governments to implement the SDGs.

The implementation of the SDGs is related to the system of public and private financial mechanisms responsible for channelling savings into global investments, known as “global financial architecture” (GFA). This system includes multilateral institutions (e.g., the World Bank), and national and local budgets.

Despite the crucial role played by these institutions, the GFA has some deficits, such as a chronic under-investment in nearly all low-income countries (LICs), lower-middle-income countries (LMICs), and island developing states (SIDS), which don’t have the necessary credit rating to secure loans on acceptable terms. These countries are vulnerable to liquidity crises and balance of payments crises, hindering their ability to implement sustainable long-term investment strategies. On the other hand, high-income countries (HICs) can rapidly mobilize vast financial resources (as seen during the 2008 financial crisis or the pandemic), although they have not been equally committed to mobilizing these resources for global sustainable development. Furthermore, private capital markets continue to direct significant amounts of private savings into unsustainable technologies and practices, impeding progress in decarbonizing the global energy system and contributing to the deterioration of ecosystems.

In order to face these challenges, it is necessary for GFA to undertake reform in order to address the shortcomings and strive to accomplish several objectives. Increasing funding for national and subnational governments and private businesses in emerging economies is essential to support investments, as well as reviewing the credit rating and debt sustainability metrics to facilitate long-term sustainable development. In addition, it is necessary to restructure the liquidity systems for LICs, LMICs, and SIDS, in order to prevent self-fulfilling banking and balance-of-payments crises and establish internationally agreed-upon criteria for sustainable finance, mandating their adoption by all public financial institutions. Finally, regulating private business investment in the countries implementing the SDGs, by reforming existing institutional frameworks and developing innovative mechanisms, is crucial to improving the quality and speed of international cooperation deployment, while ensuring transparent progress monitoring.

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