Global goals are in the red: is sustainable finance up to the challenge?

The urgency around the climate crisis and other global challenges has led to a growing focus in recent years on restructuring finance to support the shift to sustainable economies and societies. This has fueled explosive growth in the demand for and supply of products such as green bonds and sustainability-themed equity funds. What’s more, investments that don’t directly target sustainability are increasingly adopting sustainability criteria.

The rise of sustainable finance is a clear signal that environmental and social considerations matter to investors. They understand that this approach not only benefits people and the planet, it can also future-proof assets and improve financial performance. Still, the scale of sustainable finance – currently a sliver of global financial assets – remains insufficient to achieve the Sustainable Development Goals (SDGs) by 2030.

This was the case even before the outbreak of Covid-19. The pandemic has dramatically rolled back progress on several fronts, and the ripple effects continue to weigh on economic prospects, while the repercussions of the Ukraine-Russia conflict have dealt another significant blow to the wellbeing of tens of millions of people. At the same time, the climate crisis is intensifying, with change happening faster than scientists predicted. Now more than ever, it’s time to turbocharge financing and investment on behalf of the SDGs and the Paris climate agreement.

For years the United Nations has sounded the alarm about the shortfall in financing for the SDGs. Today the annual funding gap, estimated at $4.3 trillion, is bigger than ever, up from $2.5 trillion when the SDGs were adopted in 2015. To be sure, some problems have gotten tougher and costlier to fix. But financing the goals has never been just about volume. With the 2030 deadline looming, it’s time to recognise that impact matters too. Along with more sustainable finance, we need better sustainable finance.

Sustainable investing presents unprecedented opportunities to help tackle humanity’s most intractable problems. Sadly, these instruments often lack this level of ambition. Many only seek to uncover risks that threaten returns. Their purpose is limited to identifying businesses that produce goods and services responsibly. Such aspirations pale in comparison with our formidable to-do list for people and planet, which includes combatting climate change, ending poverty and hunger, promoting responsible consumption and production, and ensuring universal access to quality education, decent work and clean water, among others. At a time when bold action and measures are of utmost importance, sustainable finance is not living up to its potential.

The world needs more investments that bring about positive change. This means truly understanding the root causes of challenges and how they are interconnected – as the Covid-19 pandemic and the war in Ukraine tragically illustrates. It means mainstreaming the SDGs in policies and investment strategies so as to prioritise companies and projects that contribute explicitly and directly to the goals. And it means more finance for sustainable development in the places that need it the most. Sustainable finance remains largely confined to developed markets. This is not only holding back progress on the SDGs, it is also compounding the challenge by widening the gap between the global north and south.

The past year has seen a wave of regulatory initiatives to establish standards for what counts as sustainable. Such efforts promise to bring more accountability and transparency to the market. But designing investments that make a real difference is not a job for regulators alone. It requires vast expertise from many domains and all levels of society. No one industry can provide this expertise, no matter how well-informed its analysts may be. Understanding the kinds of investments needed for impact requires a shared vision that can only come from a collage of perspectives.

The SDGs represent that vision and are a collective responsibility; the 17 goals were adopted by all 193 UN member states. To achieve them and to put the world on a more sustainable and equitable path as quickly as possible, we need cooperation on an unprecedented scale. All nations and every part of society can and must contribute to solutions. The problems are simply too big and the planet too intertwined for any one actor to go at it alone, be it the financial industry or markets or governments or indeed the UN.

Geneva is uniquely positioned to advance this collaboration. The birthplace of multilateral diplomacy, it encompasses a diverse and dynamic network of global governance stakeholders and a powerful financial hub. In my office at UN Geneva, for example, the SDG Lab is working with actors in finance, government and international development to build concrete partnerships for the 2030 Agenda. The same spirit is behind Building Bridges, a joint initiative by Switzerland, its financial community, the UN and other international partners to accelerate the transition to an economy that protects the planet and promotes prosperity and wellbeing for everyone.

Financing the SDGs is not just about mobilising more money – it is more systemic and much deeper than closing any financial gap. Ultimately, all financial transactions and investments, public and private, need to be aligned with the SDGs. And while it is too soon to say whether the rapid rise of sustainable investing is a watershed moment in finance, one thing is sure: the stakes are higher than ever. If we fail to work together to deliver on the promise of the SDGs, we may not get another chance.