10 January 2022

Financing the 2030 Agenda: An SDG alignment framework for Public Development Banks

Etude ETTG

During the first ‘Finance in Common Summit’, in November 2020, public development banks (PDBs) from around the world committed to align their activities with the 2030 Agenda and Sustainable Development Goals (SDGs). While there is increasing interest in mainstreaming the SDGs, we still lack an open and deeper discussion of what that means. As a consequence, there is as yet no broad-based ambitious operational approach. The present study is the product of a European Think Tanks Group (ETTG) collaboration aiming both to propose a definition of SDG alignment and to provide concrete principles to further operationalise and promote such alignment in practice.

To align with the multidimensional scope of the 2030 Agenda and SDGs, PDBs must incorporate the imperative of the transition to low-carbon, climate-resilient and equitable socio-economic models in all their financing decisions and project cycles. Up to now, many SDG alignment discussions have been limited to mapping exercises. Some actors perceive “SDG investments” as equivalent to infrastructure investments, without questioning whether infrastructures are designed sustainably. The present study applies a much deeper comprehension of the 2030 Agenda, arguing that alignment with the Paris Agreement and SDGs must go hand in hand.

Implementing the 2030 Agenda requires PDBs to ensure coherence and spur a profound change on the scale of the entire PDB organisation and across its full range of operations. As such, SDG alignment demands high-level commitment, together with deep governance and, probably, business model restructuring. However, moving from a clear understanding of the 2030 Agenda to a truly operational approach is no easy task. Hence, this study develops four operationalisation principles, along with practical steps to implement them. Together, these provide a guiding checklist for PDBs’ efforts to align their activities with the 2030 Agenda and SDGs.

  • Operational principle 1: Lead internally and foster a sustainable development culture. PDBs need to facilitate and enable a sustainable development culture throughout their respective organisations. To this end, banks could, for instance, start to require qualifications in strategic sustainable development areas when hiring new financial experts and ensure regular monitoring and development of these skills in performance appraisals. As a result, awareness and buy-in of
    the overarching principles of the 2030 Agenda could be both deepened and accelerated among all employees, leading to more systemic, coherent and integrated decisions.
  • Operational principle 2: Develop a holistic strategy and long-term vision. PDBs need to develop a holistic strategy and long-term vision for their contribution to global sustainable development. By adopting a robust strategy, or aligning an existing strategy or policy framework to the ambition of the 2030 Agenda, PDBs can become a driving force for the SDGs. As PDBs have differing mandates and geographical scopes, they should promote open exchanges with one another to maximise their collective contribution in this regard. This study presents practical tools to guide such a strategy-building process. These can provide a basis for discussion between stakeholders and help ensure that new or aligned strategy reflects a balanced approach, particularly across the social and environmental dimensions of the SDGs. The presented tools can also help PDBs analyse interactions between different bank priorities within a specific context.
  • Operational principle 3: Mainstream SDG priorities within internal operations. Ambitious SDG alignment means moving beyond the strategy level to mainstream SDG priorities within internal operations. This entails building a systematic and coherent internal process for analysing finance with SDG considerations embedded in both the ex ante and ex post phases of investment. Such an approach to management will ensure that alignment becomes part and parcel of the whole investment cycle. Pioneering PDBs have developed promising tools to support such a process. Examples are portfolio alignment applying categorisation and differentiation according to context and adopting a value chain approach to finance sustainable transformation. As this paper will show, merely approving disparate SDG-aligned projects is no guarantee for an aligned and coherent portfolio.
  • Operational principle 4: Mobilise and catalyse truly transformative investments. The core of SDG alignment for PDBs lies in the mobilisation and provision of truly transformational investment supporting sustainable development trajectories. This is where PDBs can be game changers. If PDBs want to play the role of catalyst of sustainability transformations, they have to step out of their comfort zone. Doing so requires fostering proactive external engagement within their ecosystem of partners, capitalising on both their financial and non-financial services. PDBs
    thus need to move beyond projects that respond to opportunistic, standalone opportunities, and broaden their investment philosophy and approach to a more active stance that is both strategic and collaborative. They should also be ready to engage in policy dialogue at the country level to affect transformational change. This requires developing new competencies and incentive structures within their organisations.