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The present structure and orientation of global and national financial systems is a critical barrier to securing a transition to sustainability. The volume of gross liquid assets in the world is around USD 400 trillion of which 64% is owned by individuals. The bulk of the assets are owned, directly or indirectly, by rich individuals in upper-income and middle-income countries. Within each country the flow of finance is also shaped by the pattern of income and wealth inequality.
One measure of the deficiency of the present financial system is the large shortfall in the finances required for meeting the 2030 Sustainable Development Goals (SDGs).
The gap in funding required to reach the targeted SDGs by 2030 has recently been estimated as USD 8.4–10.1 trillion in developing countries. It is estimated that about a quarter of this is met by private financial flows, mainly for sustainable energy. The SDG-positive flows are driven partly by the potential returns and partly by a growing trend in financial institutions to follow environmental, social and governance (ESG) or net zero or similar standards. Despite this, the dominant factor shaping the direction of global and national financial flows is the perceived profitability of the transaction.
The liquid assets in the hands of governments can be used to counteract market pressures. However, the demands for the normal functions of security and administration limit the potential for governments to influence the dynamics of private financial flows. But there are some public asset-holding entities like sovereign wealth funds that have the potential to act to promote sustainable development. One must also note that governments showed huge fiscal potential when they addressed the challenge posed by the Covid-19 pandemic.
Recommendations to harmonize international financial regulation:
This paper is part of a series that supports the Stockholm+50: Unlocking a better future report.
Project / The independent report for the Stockholm+50 meeting proposes policy actions to overcome the barriers that stand in the way of sustainable, equitable development
Other publication / Technology transfers, as well as financing, are needed for low- and middle-income countries to have an equitable and just transition.
Other publication / Viewing landscapes as having multiple uses for both humans and nature can lead to better goals and adaptation for nature-based solutions among other issues.
Other publication / As the energy transition goes forward, it is our responsibility to make sure it is done in a just and equitable way.
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