Sustainable development is the best investment [fr]
It is time to accelerate collective action if we want to achieve Agenda 2030. The latest IPCC special report on the impacts of a global warming of 1,5°C has made it clear. First, a rapid-scale transformation of our economies is absolutely essential if we want to avoid the direct consequences of climate change and engage into sustainable pathways. Second, it is still within our reach if we act now. Bali is where this conversation is taking place this week, as it is hosting the annual meetings of the World Bank and the International Monetary Fund, the regular venue on development financing. Ministry of Finance of Republic of Indonesia and PT SMI has shown Indonesia’s commitment with the successful launch of the “SDG Indonesia One” platform to accelerate the achievement of Sustainable Development Goals (SDGs) in the country.
- Mr. Rémy Rioux, CEO of Agence Française de Développement (AFD) and Chair of the International Development Finance Club (IDFC)
Today, development finance institutions (DFIs) and development banks are uniquely suited to meet the challenge. They play a major role to implement the groundbreaking decisions made three years ago. In 2015, all countries decided to set a new course to collective action in favor of sustainable development. In Addis Ababa with the Action Agenda on Financing for Development, in New York with the SDGs, and in Paris with the Climate change Agreement change, they agreed that eradicating poverty, ensuring an inclusive growth for all and fighting against climate change, are universal in scope and require a comprehensive framework of action.
But the scale of investments required to achieve these targets and the related economic, environmental and social transitions are in the range of trillions of dollars. A significant part of these needs may be covered by reorienting current investment towards more sustainability, while additional investment will be required to meet the SDGs, for example in infrastructure in low- and lower-middle income countries. However, in order to achieve all this, we need to rethink the traditional contributions brought by international aid, governments’ budgets, the private sector, NGO and philanthropists.
We, at PT Sarana Multi Infrastruktur and Agence Française de Développement (AFD), strongly believe that new cooperative approaches and new partnerships between governments, state-owned enterprises, municipalities, private sector and other stakeholders, are needed to finance and achieve sustainable development.
On the one hand, governments’ budgets, international grants and supports from CSOs and philanthropies are and will remain key to reach the SDGs in a number of situations, regions or sectors where economic returns are long and diffused or where urgent action is required. Building water and sanitation facilities in small towns, financing basic education and health facilities for all in poor regions will continue to require more local and international solidarity. But these resources are limited and cannot match the needs for urban public transportation, low carbon energy services, water and sanitation facilities, modern health centers, rural roads needed all over the world.
On the other hand, an increasing share of private investment already contributes to sustainable development, not only by supporting the economy and providing jobs, but also by offering new renewable energy facilities (solar, wind, hydropower plants, etc.), urban transportation systems or water and sanitation plants through public-private partnerships. However, private investment is often constrained by short-term horizons, risk aversion, and uncertain or disincentive legal frameworks.
Institutional decentralization is progressing around the world, including in Indonesia where municipalities are more and more responsible for local investment and accountable for their results. These municipalities need long term financial and technical support to define and supervise the implementation of long term investment projects. PT SMI has provided financing to municipalities across Indonesia, including hospital in Sulawesi, roads in Kalimantan and Papua, traditional market in Lombok. In addition to that, PT SMI also provide support in the form of technical assistance and capacity building to local government.
AFD has provided to many municipalities worldwide, such as Bogota, Dakar, Jodhpur or Pondicherry, both grants for project preparation and technical assistance for implementation as well as long term concessional loans, in order to develop public transportation systems. In Indonesia, AFD is working with the Ministry of Public Works and Housing and Bappenas to support the cities of Semarang, Yogyakarta, and Wonosobo regency in the preparation of sustainable and integrated urban development plans that will be later financed by public and private stakeholders.
Different initiatives from private foundations or global investment funds show an increasing interest for the financing of climate change and sustainable development goals. What can DFIs and development banks do to increase private investments for SDGs? First, they can directly provide funding to private actors to invest in sustainable development projects. This is for instance what PT SMI or PROPARCO, the AFD Group subsidiary dedicated to the private sector, do through long term debt or equity support in strategic sectors. Secondly, they can help building a pipeline of “bankable projects” by providing advisory services or de-risking mechanisms that will partially cover the risks that the private sector is not willing to take. Such facilitation mechanisms are for instance being implemented by PT SMI and AFD, in the renewable energy sector, in a joint partnership co-funded by the Department for International Development (DFID) of the UK.
Other instances for bringing investments to scale for sustainable development include the successful emissions of green bonds (PT SMI mobilized IDR 500 billion through its first green issuance in July 2018 and AFD mobilized EUR 750 million through a second green bond issuance in November 2017), and two-way policy dialogues included in development policy loan programs with the Government of Indonesia (e.g. the EUR 800 million Indonesia climate policy loan co-funded by AFD and JICA). We have a proven track-record of bridging the gap and redirecting financial flows towards more sustainable, climate-resilient development pathways.
DFIs and development banks are uniquely suited to channel, reorient and mobilize public and private resources to address the SDG financing gaps, facilitate their implementation at the domestic level and accelerate the involvement of the private sector. 23 leading national and regional development banks from all over the world, a majority active in emerging markets, have accordingly joined forces in the International Development Finance Club (IDFC). This network is the largest provider of public development finance globally, totaling US$ 4 trillion in assets, with commitments above US$ 850 billion per year, of which US$ 200 billion in climate finance. It seeks to contribute to, and help shape and implement the international development and green finance agendas. To do so, it, integrates local practitioners’ expertise. It shares best practices and experience on financial structuring. It mobilizes significant public and private resources both at the international and domestic level. IDFC incorporates a new, global perspective and substantial voice towards the international development agendas. We all are countries in transition, each beginning from a different starting point, but heading towards a common goal, the Agenda 2030. We all have something to learn from each other. We all can make progress together towards a more inclusive, more sustainable world. Towards a world in common.
|AFD and PT SMI are strong, longstanding partners in sustainable development, particularly in the area of renewable energy. Our operational and institutional cooperation will increase in the coming years in the framework of SDG Indonesia One, building even closer ties between Indonesia and France. Our ultimate goal is to catalyze action and accelerate achievements, including by mobilizing resources and the financial community at large, so that the trillions that are needed to transition towards sustainable development pathways start flowing in Indonesia and in the World. PT SMI has applied in July 2018 to become member of IDFC, chaired by AFD.|
This article is published on The Jakarta Post ed. Saturday, 20 October 2018