Funds for Sustainable Development
Countries around the world have shown their commitment to realize the Sustainable Development Goals (SDGs).
Their commitment will be followed up with integrated efforts to achieve the 2030 sustainable development targets. Indonesia will certainly not be left behind in its strong commitment to realizing the SDGs. This is seen in our increased effort to realize the SDG targets through the four platforms of central and regional governments, philanthropy and business, academics as well as the media.
Development funding
Understandably, the massive effort to implement the SDGs requires massive funding. Conventional funding is not enough to fulfill this need. New approaches to funding are highly necessary to effectively meet funding needs in achieving the SDG targets by 2030.
In 2014, the United Nations Conference on Trade and Development (UNCTAD) projected that the global funding needed to achieve the SDG target was US$3.8 trillion per year. However, the global funding that has been available for development thus far is US$1.4 trillion per year, leaving an annual funding shortfall of US$2.5 trillion. This shortfall should be filled by new and non-conventional funding sources that are managed in new ways.
Funding development should not fall entirely on the government’s shoulders. Economic theories state that development funding is the total investment value needed to drive economic development, sourced from domestic and foreign savings.
Global savings currently is at 25 percent of the global gross domestic product (World Bank, 2017). The combined savings of China, Japan, South Korea, Singapore and Taiwan account for 40 percent of the countries’ combined GDP. This shows that there remains a huge potential for global investment. What is critical is to formulate effective ways to mobilize such funds so they can be directed towards financing investments in sustainable development.
Among the obstacles to mobilizing investment in developed countries is the low return on investment (ROI), which makes investors reluctant to invest. For instance, the 10-year US treasury bonds only carries a 2.2 percent interest. In Germany and France, the interest rate is less than 1 percent.
Developing countries can generally provide higher ROI than developed countries, but investors often face other obstacles to investing in developing countries. These obstacles include problematic project transparency, high transaction and investment costs due to unclear procedures, high corruption risk and the lack of variety in funding models that can distribute investors in appropriate projects.
As the investment needs for sustainable development grow, non-government investors must be urged to invest more in those projects that can help accelerate efforts to achieve the SDG targets through new and more attractive financing schemes.
Financing innovations
Several international organizations have launched new and innovative financing models to support sustainable development. The Organization for Economic Cooperation and Development (OECD) has introduced a blended finance scheme, which offers innovative development financing opportunities to mobilize private financing by reducing the risks of non-viable projects to become economically viable projects.
In 2017, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) introduced the innovative financing for development concept, formulated as a form of financing that is different from standard financing practices and has a significant impact on social economy and the environment. For instance, Thailand has introduced an innovative financing model through the establishment of the National Task Force on Social Impact Investment, which has a membership that comprises representatives of the government, private entities and civil society organizations. The task force is responsible for expanding the government’s reach in involving the private sector and the public in its effort to achieve the SDGs, in particular Goal 9 (industry, innovation and infrastructure), Goal 8 (decent work and economic growth) and Goal 17 (partnership for the goals).
Among India’s efforts to raise funds for sustainable development is the issuance of a corporate social responsibility (CSR) law that focuses on achieving Goal 1 (no poverty), Goal 12 (responsible production and consumption) and Goal 16 (peace, justice and strong institutions). With the law, India has succeeded in raising US$100 million in CSR funds in 2015-2016. The law mandates companies to reserve 2 percent of net revenue for CSR programs that support Goals 1, 12 and 16.
Several international agreements have also underlined the important role of the private sector in implementing sustainable development. Prominent examples include the Busan Partnership for Effective Development (2011), the Addis Ababa Action Agenda (2015) and the 2020 Agenda for Sustainable Development, which was launched in September 2015. These global agreements emphasized the need for the greater participation of businesspeople in planning and implementing development policies, as well as the need for innovative financing schemes to mobilize private sector funding to implement the sustainable development agendas.
Good Indonesian innovations
Indonesia is not far behind in making innovative breakthroughs in funding schemes to support sustainable development. The National Alms Agency (Baznas) has published Fiqih Zakat untuk Tujuan Pembangunan Berkelanjutan (Islamic Law on Alms for Sustainable Development Goals). The book is a Muslim mass organization’s commitment and contribution to helping Muslims distribute zakat, or Islamic alms, in ways that support the SDGs and towards the targeted use of zakat for productive and beneficial activities for those in need. This is a cause for pride, as Indonesia is the first country in the world whose Muslim citizens have demonstrated a strong commitment to contributing significantly towards accelerated efforts in realizing the SDGs.
Baznas states that there are clear similarities between the SDGs and zakat, as the SDG values reflect the values of Islam that concern alms. The SDGs tackle issues such as poverty, hunger and social and interregional economic gaps – issues that the Islamic principle of zakat also tackles, in that alms are used to resolve the five basic objectives of Maqasid al Sharia: protecting faith, life, progeny, intellect and property.
An example of using zakat towards achieving the SDGs is in the establishment of the micro hydro power plant (PLTMH) in Jambi. The power plant is being built in collaboration with stakeholders using blended finance that involves the Energy and Mineral Resources Ministry, Baznas, the Jambi regional development bank and the United Nations Development Programme (UNDP). Another example is Bengkulu, which has declared itself as a “SDG city” that is committed to implementing
the 17 goals. The SDG city concept is developed in collaboration between the Kota Tanpa Kumuh (Kotaku) slum-free city initiative, the local government, Baznas, independent zakat agencies, Filantropi Indonesia, universities and civil society organizations.
The alms Baznas collects are distributed through these SDG cities towards waste management programs, developing small and medium enterprises (SME) and public awareness efforts for environmental sustainability. Successful collaboration schemes can inspire future projects to increase the roles of non-government actors in national initiatives for sustainable development.
The private sector is now beginning to show its goodwill and commitment to SDG funding through mainstreaming aspects of sustainable development in business. As of 2016, 49 publicly listed companies published sustainability reports; the following year, 71 companies published sustainability reports.
Other innovative financing sources include the non-state budget infrastructure funding (PINA), the stock market (e.g. the Kehati Index) and the green bond market, sustainable funding through financial institutions (banks, microfinance institutions/LKMs, venture capital and others), and public-private partnerships (PPP) that involve private entities in ensuring equitable development. Furthermore, the debt-for-SDGs swap mechanism, impact investing and blended finance (involving the government, the private sector and philanthropists) are forms of innovative financing that Indonesia has pioneered to push for the effective and efficient realization of the SDGs in Indonesia.
Funding innovations for sustainable development does not stop here. In the future, bigger and more wide-ranging innovations from various SDG platforms will be needed. Therefore, the government, academics, businesspeople, philanthropists, civil society organizations and the media must continue to introduce new innovations for raising that massive funding for the SDGs, through new, more efficient and effective mechanisms. (BAMBANG BRODJONEGORO, National Development Planning Minister/National Development Planning Agency Head)
