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Why trillions more are needed to bridge the SDG financing gap

Huge efforts need to be made to close the SDG financing gap.

Huge efforts need to be made to close the SDG financing gap. Image: Getty Images/iStockphoto

James X. Zhan
Senior Director of Investment & Enterprise, UN Trade and Development
Bruno Casella
Senior Economist, UN Trade and Development
Reuben Wambui
Research Consultant, United Nations Conference on Trade and Development (UNCTAD)
Remi Vine
Research Consultant, United Nations Conference on Trade and Development (UNCTAD)
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Sustainable Finance and Investment

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  • In 2014, on the eve of the adoption of the SDGs, UNCTAD’s World Investment Report put the annual investment gap faced by developing countries to achieve the goals at $2.5 trillion.
  • A new midpoint review sets the bar much higher, at $4 - $4.3 trillion, according to the latest UNCTAD SDG Investment Trends Monitor.
  • Taking place ahead of COP28, the World Investment Forum 2023 offers a platform for policymakers at the highest levels to take decisive actions to accelerate SDG financing.

As we edge closer to the 2030 target for achieving the seventeen UN Sustainable Development Goals (SDGs), two very important questions emerge: How wide is the current SDG financing gap? And, how has it evolved since the adoption of the SDGs in 2015?

The investment gap midway through

In 2014, on the eve of the adoption of the SDGs, the United Nations Conference on Trade and Development (UNCTAD’s) World Investment Report put the annual investment gap faced by developing countries to achieve the goals at $2.5 trillion. A new midpoint review by UNCTAD sets the bar much higher, at $4 - $4.3 trillion.

The increase in the gap is the result of shortfalls in the years since 2015, combined with increased needs caused by multiple global challenges, including the COVID-19 pandemic and the triple food, fuel and finance crises.

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The anatomy of the gap

The new estimate is a bottom-up aggregation of updated financing needs published in the most recent studies by specialized agencies (Appendix 1 of the SDG Investment Trends Monitor). It includes primarily capital expenditure requirements across the key SDG sectors (Figure 1).

Figure 1: capital expenditure requirements across the key SDG sectors.
Figure 1: Capital expenditure requirements across the key SDG sectors. Image: UNCTAD

Energy

At $2.2 trillion annually, clean energy makes up more than half of the total investment gap. This includes investments in renewables, energy efficiency and all other transition-related technologies – covering not only SDG 7 (affordable and clean energy) but also SDG 13 (climate action).

Water and sanitation

With an estimated gap of $500 billion, this is the second most capital-intensive area. This includes water sources, sanitation facilities and waste-water management. Like energy investments, investments in water and sanitation are inextricably linked to climate action.

Infrastructure (excluding energy)

The bulk of the investment needed is in transportation and telecommunication. Combined, they show an investment gap of $400 billion annually to make progress on SDG 9, among others.

Food and agriculture

An additional $300 billion per year is needed to eliminate extreme poverty and hunger (SDGs 1 and 2). This mainly involves capital investment in agricultural and agri-food systems, food processing, agricultural research and rural food infrastructures.

Biodiversity

Also requiring $300 billion, biodiversity encompasses a wide range of investments, such as nature conservation, sustainable fishing, ocean pollution control and sustainable forestry. These are directly linked to SDG 14 (life below water) and SDG 15 (life on land), but also climate action.

Health and education

Combined, these social infrastructure sectors show a gap ranging between $100 and $600 billion. Most of the financing needs are operational expenditures, such as operating hospitals and schools, with the capital expenditure component expected to be less substantial relative to other sectors.

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Six gears to accelerate investment in SDG sectors

If the 2030 deadline is to be met, more than $30 trillion of additional investment must be found over the next eight years. Around half of the gap, or $2.2 trillion annually, is on energy transition alone, as reported in the UNCTAD World Investment Report 2023. This calls for a major acceleration of SDG investment growth.

While there is a range of policy ideas and options available to policymakers, which are regularly discussed in the relevant policy forums, a comprehensive set of priority policy packages can help shape the final push for SDG investment.

Such a comprehensive set of policy packages must include actions by investment policymakers at national (package 1) and international levels (package 2). This must be strengthened by focused partnerships for SDG investment (package 3); supported through regional and South-South cooperation (package 4). And, this in turn must be accompanied by innovative financing solutions and conducive financial markets (package 5); with enhanced resilience to face future crises and shocks (package 6) (Figure 2).

A global action compact for investing in sustainable development. SDG financing
Figure 2: A global action compact for investing in sustainable development. Image: UNCTAD

For each of the six packages, the latest UNCTAD SDG Investment Trends Monitor proposes a menu of priority actions. These actions draw on UNCTAD's long-standing research and policy analysis and technical assistance work at the forefront of investment in sustainable development e.g. the UNCTAD Investment Policy Framework for Sustainable Development.

There is a need to step up action

In conclusion, the challenges of financing SDGs present a stark dichotomy that cannot be overlooked. There is a major contrast between the growing gap in SDG investment in developing countries and the rapid growth of sustainable finance in global capital markets. Also, there are major disparities among developing countries and between sectors – with investment not going where it is needed most. The least developed countries are lagging furthest behind and investment in agrifoods systems for food security (a major issue in the current crisis) is actually lower today than in 2015.

If we still want to have a chance of making significant progress towards the 2030 goals, the second half must show better performance. Half-time is nearly over, investment policymakers must start stepping up to the plate. The Forum's ongoing Sustainable Development Impact Meetings (SDIM23), happening alongside the United Nations General Assembly, offers us a perfect opportunity to reflect on the progress of SDG financing ahead of COP28.

Similarly, UNCTAD's World Investment Forum, which takes place later this year in October in Abu Dhabi, will be an important opportunity in this respect. Taking place ahead of COP28, in the same location, the World Investment Forum will gather policymakers at the highest levels to take decisive actions to accelerate SDG financing.

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Institutional update

World Economic Forum

May 21, 2024

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