Discussion on Questions related to the Third session of the Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF), 12 March 2014

This is not an official submission, but more of discussion paper based on the questions posed to stakeholders by the committee before its third sesssion and the multistakeholder dialogue.

1. Does the effectiveness and sustainability of a sustainable development financing strategy depend on systemic reforms of the international financial architecture? If so, which reforms are needed?

Sustainable development finance needs to address inequalities both between and inside countries. It must also secure global public goods, such as clean air and water, as well as climate change mitigation, adaption, and protecting biodiversity.

Currently, the financial sector's incentive structures favor short-termism, excessive and often societally harmful speculation, and a disregard for the long-term viability of the real economy and our natural surroundings. The underpricing of environmental assets, risks and externalities has enabled the GDP to grow, but it has also led to us as humanity using up the natural base of our wellbeing. The increasing financialisation of natural goods that has mobilised significant amounts of capital to commodities sectors has thus far only accelerated unsustainable practices.

Several things must change:

  • Negative externalities must be priced according to their real-life impacts and the most unsustainable practices must be outright banned. Positive externalities must be given more weight when valuing returns.
  • Incentive structures must consider the long-term impacts of investment decisions.
  • Rules must be changed so that alongside a narrow "fiduciary duty" towards shareholders, corporations' operations are assessed in light of their broader impacts.
  • Countries must be given the right to regulate capital flows when there is a clear social or environmental benefit to doing so, and to change unsustainable laws without fear of multi-billion dollar dispute settlements.
  • International financial institutions have in many places been the drivers of the present unsustainable financial practices and the ideology behind them: they must now be at the forefront of sustainable finance. The mandate of IFIs and national DFIs should be revised so as to put sustainability first - even if this means foregoing short-term financial returns.