Why Efforts to Achieve the Sustainable Development Goals are Flagging: An Emerging Economy Perspective

All UN member states have committed to the 2030 Agenda for Sustainable Development and most have incorporated sustainable development in their national strategies or development programs – albeit to different degrees. They have in many cases also set up a unit or agency responsible for coordinating their commitment to the Sustainable Development Goals (SDGs) and monitoring national indicators to assess progress. Some countries have implemented structural reforms aimed at strengthening their capacity to reach the targets. The EU Green Deal, the proposed US Green New Deal, and other regional sustainability initiatives are intended to set the path for countries to realize the SDGs. 

The responsibility for achieving the UN Sustainable Development Goals (SDGs) has been laid primarily on national governments. States are considered to be in the best position to lead and coordinate the effort. Non-state actors – the business sector – motivated as they are by classic profit seeking, have little incentive and capacity to tackle the social and environmental problems that presumably have merely added to their costs. Nonetheless, today, the traditional reliance on states to lead the design and implementation of transformative sustainable-development policies looks questionable, if not unwise. 

Credit: UNDESA

The failing role of states

Major industrialized states have pursued little radical change or made the firm commitments necessary to transform themselves. The G20 countries, some of which are emerging economies, represent close to or more than 50 percent of the total performance gap for most of the SDGs. They generate 80 percent of global energy-related carbon dioxide emissions and have doled out more than US$3.3 trillion in subsidies for fossil fuels since they signed the Paris agreement in 2015. In the Sustainable Development Report 2020 published by Cambridge University Press, the authors including American economist Jeffrey Sachs of Columbia University highlighted the gap between political statements and the actual integration of the SDGs in strategic state policies, including national budgets. The writers identified the lack of political leadership to implement the 2030 Agenda as the most significant barrier for progress toward the SDGs in many countries. 

Implementing a new growth model guided by the SDGs is more challenging for emerging economies. The focus on domestic political and socio-economic priorities narrows the global outlook of most governments. Many of them perceive the SDGs through the prism of their – often immediate – interests, leading to deficient state policies. Such short-termism, once attributable to the corporate sector, erodes their capacity to apply the international sustainability principles set out by the 17 SDGs (see box).

The failure of national governments to reorient their development models to focus on sustainability suggests that the private sector needs to step up to play that catalytic, transformative role. In 2018, London-based Global Justice Now reported that 157 of the top 200 global economic entities were corporations that accrued more wealth than countries such as Russia, Belgium or Sweden. Many such companies exercise excessive political and economic influence. This influence has triggered close public scrutiny and imposed greater responsibility on big businesses to implement the sustainability agenda.

Various sustainability-themed indices embrace the need for deeper integration of sustainability and investments. The United Nations Conference on Trade and Development (UNCTAD) reckons that sustainability-dedicated investments are now in the range of US$1.2-1.3 trillion. The 2019 Global Financial Sustainability Report of the International Monetary Fund (IMF) cited estimates ranging between US$3 trillion (JP Morgan in 2019) to US$30.7 trillion (Global Sustainable Investment Alliance in 2018). According to the Climate Bonds Initiative, global green bond issuance, meanwhile, reached a record US$269.5 billion at the end of 2020, slightly up on the 2019 total, and could increase to US$400-450 billion this year.

The number of ESG investment funds in the European Union and the US, the two largest markets for sustainable investments, doubled from 2010 to 2019, when it reached 2,708 companies with US$813 billion assets under management. As of 2020, more than 3,000 institutional investors managing over US$103 trillion joined the UN Principles for Responsible Investment (PRI) network.

Climate change and the degradation of ecosystems affect business supply chains and production. New environmental conditions cause extreme weather events, putting many types of businesses at risk. As a result, more than 570 investors with over US$54 trillion in assets under management are signatories of Climate Action 100+, the global investor-led initiative that aims to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.

Constraints remain

The current global crisis sparked by the coronavirus pandemic has exposed the dysfunction of many governments in providing moral leadership on the SDGs. In turn, standards, practices, and policies adopted by non-state actors are setting the compass for sustainability rule-making and governance. These actors often possess the resources, information, and technologies required to solve global sustainability concerns. There are, however, constraints on their ability to drive the effort, especially in emerging markets.

First, although there has been a dramatic growth in the application of ESG standards, their quality and scope do not offer enough harmonization and accountability, giving rise to accusations of “greenwashing” – conveying misleading information about the environmental soundness of a company's products and practices. Only a small number of developed economies have implemented clear reporting and transparency requirements. In the absence of sufficient guidance from domestic regulators, private actors have to rely on self-regulation and seek credible metrics and tools outside their jurisdictions. Differing requirements and standards yield varied results that are difficult to compare or benchmark, diminishing their value and effectiveness in driving a competitive race to the top.

Second, despite the rising share of sustainability financing, more than 90 percent of funding remains within developed economies. The pandemic has deepened this unequal distribution. While cross-region foreign direct investment (FDI) flows have declined marginally, FDI to transition economies have shrunk by 30-45 percent over the period since the coronavirus outbreak.

Third, the preference of institutional investors for green initiatives and instruments is growing, increasing the demand for long-term sustainability projects. These investors, however, have limited presence in many emerging economies and therefore have minimal influence in these markets.

Fourth, public-sector enterprises typically have an outsized market share in developing economies. State companies often behave according to the domestic political agenda, which can be very narrow. The substantial presence of the government in the economy gives private actors much less room and opportunity to develop and pursue sustainability initiatives. Multinational companies, on the other hand, appear to be less instrumental in promoting the SDGs in emerging economies. Many of these companies continue to operate in polluting industries and contribute to existing environmental problems. This means that they have low social legitimacy and often possess little appreciation of their community and environmental responsibilities in host countries. Existing gaps and differences between their home regulation and that in a host market also create an additional constraint on the capacity of these companies for effective engagement on sustainability. They may even be viewed by sustainability activists as irresponsible or even dangerous.

Is there hope for emerging economies? 

Considering these constraints and trends, expect the corporate sector in emerging economies to continue taking advantage of legal loopholes or lax standards and regulation to gain short-term commercial advantages. Private actors should take the lead by disclosing climate, environmental and human-rights risks. This will motivate markets and investors to penalize polluting sectors and channel capital to green projects. They should push the state toward deeper structural reforms instead of lobbying against progressive measures or for the preservation of the status quo. 

Regretfully, business leaders still view the sustainability imperative only through the lens of their home market strategy and as separate from their core economic activities. They frequently prefer to overlook their catalytic power and influence, prefer to stay the course in a market subject to weak regulation and enforcement. They often fail to recognize the impact they could have on achieving the SDGs not just in a country in which they operate but in contributing to the global effort. This limited engagement means that the pressure on and incentives for governments to take meaningful action are also weak. 

In July, G20 energy and environment ministers of the G20 nations failed to agree on climate change commitments, with Russia, China and India blocking a final communiqué. While some leaders are claiming that major economies participating in the UN Climate Change Conference (COP26) in Glasgow that convenes on October 31 are planning on unveiling significantly enhanced commitments, expectations are that the summit will not produce a global deal that meets the aims set out in the Paris accord. If governments are unable to drive sufficient progress, it will be a failure too for the business sector which should do more to push the sustainability agenda forward.