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:

  • The International Platform on Sustainable Finance offers a multilateral platform for dialogue between policymakers and regulators for the development of sustainable finance regulation. Membership comprises countries representing 55% of both gross domestic product and greenhouse gas emissions. 
  • The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) connects 102 central banks and regulators on matters of climate risk management. 
  • The TCFD, constituted by the G20’s Financial Stability Board, offers recommendations on climate-related disclosures. 

This paper is part of a series that supports the Stockholm+50: Unlocking a better future report.