International estimates by the United Nations put the bill to finance our collective future in a sustainable way by 2030 somewhere between 5 and 7 trillion US dollars annually. Colossal as this financial challenge may seem, it can be met effectively if, and when, the right ingredients come together.
Past experience--mostly rooted in a time--and cost-intensive trial and error approach--and forward-looking, innovative thinking teach us that at least three indispensable ingredients must be skillfully mixed together for a successful recipe:
- First, a strong political will to face the otherwise inevitable degradation of our natural environment and our standards of living worldwide;
- Second, the acknowledgement that only a smart combination of public funding and private financing will do the trick;
- Third, a multi-stakeholder coalition and pluri-disciplinary expertise to muster the necessary know-how to solve the complex puzzle of insecurity, poverty and climate change.
To take up that challenge is not only our joint moral obligation towards future generations; it is also an unexpected opportunity to make the world a safer, cleaner and more prosperous place.
Political will
In 2015, the international community was able to set an unprecedented scene for future sustainable development by aligning three global gatherings, during which political leaders not only recognised the need for urgent action, but also committed to act accordingly. In Addis Ababa, in August 2015, they identified the sources to be drawn from in order to cover the needs of financing for development.
In New York, in September of the same year, heads of state and governments adopted Agenda 2030 and the 17 Sustainable Development Goals, building on and fine-tuning their work on the Millennium Development Goals. Finally, at the COP21 in Paris, in December, they negotiated the most comprehensive agreement on the international fight against climate change. Rarely ever before had the determination to act collectively, at a global level, been stated in clearer terms. In order to keep up the momentum and the political will, UN Secretary General Antonio Guterres announced in recent days that a follow-up summit to the Paris Agreement will be held next September in New York.
Public funding and private financing
The Addis Ababa Action Agenda, the Agenda 2030 and the Paris Agreement remind us in unison of the financial needs to implement the political ambitions that they are proclaiming. Nobody can reasonably expect national public budgets to bear this overwhelming burden alone. Fortunately, there are signs that the private sector side is increasingly coming on board of this global struggle and, through innovative investment, is helping to provide the indispensable sustainable financing for sustainable development. Responsible investment--meaning investing with reasonable financial return and positive impact on the social and/or on the environmental front--has become the fast growing segment in the global investment universe.
Today, blended finance allows the smart use of public funds in a way to leverage private sector investments by mitigating their financial risk, for example by providing a first-loss guarantee. The Luxembourg-EIB Climate Finance Platform is a groundbreaking illustration of this concept. In fact, the public funding provided by the government of Luxembourg triggers additional investment by the EIB, as well as by other institutional and private sector investors who feel reassured by the joint seed funding of a AAA international financial center and the EIB as the world’s leading climate finance provider. The collected capital is invested in Luxembourg-registered investment funds to finance climate-related activities in Europe and beyond.
Multi-stakeholder and pluri-disciplinary
In devising the Luxembourg Climate Finance Strategy, as well as the ensuing Luxembourg Sustainable Finance Roadmap, the government and the private financial sector have been working side-by-side and hand-in-hand. While the strategy is pursuing the double objective of making a meaningful contribution to the international fight against climate change and establishing Luxembourg as an international center for climate finance, the roadmap aims at fostering the sustainable character of the Luxembourg financial center itself.
Such a public private partnership approach works when stakeholders from the most diverse backgrounds and expertise work to achieve the same strategic goal. Non-governmental organisations are mission driven, corporations and financial institutions follow business plans, and governments are keen to implement public policies. All of them stay on board climate finance and sustainable finance if, and when, each one is convinced that their individual or institutional motivation is served and respected.
Substantial additional efforts need to be made to meet the 5 to 7 trillion dollar goal. However, hope is allowed. Already today, the Luxembourg-EIB Climate Finance Platform enables for example the Green for Growth Fund to finance renewable energy projects in the Middle East and in Northern Africa. Not later than in September 2016, the Luxembourg Green Exchange was launched and has, since then, more than doubled the number (200+) and volume (100 billion+) of bonds listed that are certified 100% green.
The International Climate Finance Accelerator Luxembourg is fuelling the green investment strands by shortening the time to market of innovative climate investment funds, and the LuxFLAG climate finance labels for bonds and funds aim to keep the industry honest.
The establishment of a Luxembourg Sustainable Development Finance Platform will soon allow the matching of promoters of sustainable projects with likeminded donors and investors and expand the benefits of the Climate Finance Strategy to the environmental and social sectors. Luxembourg’s government and private financial sector have led the way by launching successful cutting-edge initiatives in the wake of the Paris Climate Agreement. Lessons learned and further innovation will help Luxembourg to do its part in filling the gap to finance the Sustainable Development Goals.
Every year since 2015, the European Investment Bank Institute and the Faculty of Humanities and Social Sciences of the University of Luxembourg have organised the October Days for Sustainable Development to contribute to the global debate on the SDGs by enhancing dialogue among stakeholders.
This year's event takes lace from 11-12 October when panellists from the public and private sectors, consultancies, academic and scientific community, impact investors, international organisations, the EIB, NGOs and other experts and key actors will discuss the need for revamping the financial system to embrace the sustainability principles of Agenda 2030. The debate will focus on:
(i) how to leverage public and private financing resources to reduce the funding gap related to the sustainable goals and revitalise the global partnership for sustainable development;
(ii) how to mobilise significant financial resources to implement large-scale sustainable investments at a global level, and specifically in poorer regions, with particular attention to the financing of three specific SDGs: Water (#6), Health (#3) and Gender (#5).