OECD Development Co-operation Report 2016
The face of development has changed, with diverse stakeholders involved – and implicated – in what are more and more seen as global and interlinked concerns. At the same time, there is an urgent need to mobilise unprecedented resources to achieve the ambitious Sustainable Development Goals (SDGs). The private sector can be a powerful promotor of sustainable development. Companies provide jobs, infrastructure, innovation and social services, among others. Increasingly, investments in developing countries – even in the least developed countries – are seen as business opportunities, despite the risks involved. The public sector can leverage the private sector contribution, helping to manage risk and providing insights into effective policy and practice. Yet in order to set the right incentives, a better understanding is needed of the enabling factors, as well as the constraints, for businesses and investors interested in addressing sustainable development challenges.
The Development Co-operation Report 2016 explores the potential and challenges of investing in developing countries, in particular through social impact investment, blended finance and foreign direct investment. The report provides guidance on responsible business conduct and outlines the challenges in mobilising and measuring private finance to achieve the SDGs. Throughout the report, practical examples illustrate how business is already promoting sustainable development and inclusive growth in developing countries. Part II of the report showcases the profiles and performance of development co-operation providers, and presents DAC statistics on official and private resource flows.
With the adoption of the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), the world now has the most ambitious, diverse and universal development roadmap in history. To meet the challenges they represent, the global community needs to move well beyond the approximately USD 135 billion provided annually as official development assistance (ODA). Investment needs for the SDGs in developing countries are estimated to be in the order of USD 3.3 to 4.5 trillion per year. Taking action to limit the global temperature increase to 1.5°C above pre‑industrial levels will require some USD 100 billion every year until 2020 from developed countries alone. At the same time, the new goals make it clear that the challenges of sustainable development are no longer merely a question of what is happening in poor countries – they are challenges for us all. To tackle these global and interlinked concerns, a diverse array of stakeholders will need to join forces – with the private sector taking a pivotal position.
Investment in sustainable development is smart investment
The business case for the SDGs is strong. This Development Co‑operation Report 2016 makes it clear that investing in sustainable development is smart investment. Companies that introduce sustainability into their business models are profitable and successful, with positive returns on capital in terms of reduced risk, diversification of markets and portfolios, increased revenue, reduced costs and improved value of products. Increasingly, investments in developing countries – and even in the least developed countries – are seen as business opportunities, despite the risks involved. On the other hand, companies provide jobs, infrastructure, innovation and social services, among others. This report explores five pathways for realising the enormous potential of the private sector as a partner for delivering on the SDGs, providing the quantity and quality of investment needed to support sustainable development.
Five pathways to the Sustainable Development Goals
1. Foreign direct investment is by far the greatest source of international capital flows to developing countries and is considered one of the most development‑friendly sources of private investment. It can create jobs, boost productive capacity, enable local firms to access new international markets and bring with it transfers of technology that can have positive long‑term effects. Many are expecting these flows to play a major role in filling the SDG financing gap. According to the United Nations Conference on Trade and Development (UNCTAD), a concerted effort by the international community could help to quadruple foreign direct investment by 2030, especially in structurally weak countries. There is, however, some cause for concern: global capital flows have started to decelerate, while economic vulnerabilities are growing. Chapter 2 warns that a slowdown, or even reversal, in foreign direct investment could have serious negative ramifications for both developing and international investment markets. Framing development strategies around the complementary and mutually reinforcing qualities of private investment and development co‑operation can help to offset the cyclic, changing nature of foreign direct investment trends.
2. Blended finance – using public funds strategically to provide, for instance, de‑risking instruments for private investors – can dramatically improve the scale of investment in development. Blended finance offers huge, largely untapped potential for public, philanthropic and private actors to work together to dramatically improve the scale of investment in developing countries. Its potential lies in its ability to remove bottlenecks that prevent private investors from targeting sectors and countries that urgently need additional investment. To accelerate social and economic progress towards the Sustainable Development Goals, blended finance needs to be scaled up, but in a systematic way that avoids certain risks. Chapter 3 takes a close look at the use of development and philanthropic finance to unlock resources through blending mechanisms that have the potential to transform economies, societies and lives. It notes that while the concept of blending public and private finance in the context of development co‑operation is nothing new, it has played a marginal role so far.
3. Chapter 4 of this report describes work underway to monitor and measure the mobilisation effect of public sector interventions on private investment. This is expected to be an important element of the new “total official support for sustainable development” (TOSSD) framework, which will provide important information about financing strategies and best practices, helping to attract development finance to support the SDGs. A recent OECD survey has confirmed the feasibility of collecting and measuring data on the direct mobilisation effect of guarantees, syndicated loans and shares in collective investment vehicles; work is underway to develop similar methodologies for other financial instruments. Much work still remains to be done, however, in particular to find ways of measuring the indirect – or “catalytic” – effect of public interventions on the achievement of the global goals and in tackling climate change. The OECD is co‑ordinating its efforts with work underway in other fora to ensure coherence.
4. If development is to be truly sustainable and inclusive it must benefit all citizens – in particular the poorest, most marginalised and vulnerable. Social impact investment has evolved over the past decade as an innovative approach to increasing the benefits of business for the world’s poorest and most marginalised populations. Enterprises that generate measurable social as well as financial returns can bring effectiveness, innovation, accountability and scale to development efforts. Public funds can be used to strengthen and promote this type of investment by sharing risks, and also by supporting a sound business environment, particularly in the least developed countries and in countries emerging from conflict. These new business models can complement existing ones, especially in areas not traditionally popular with business – but essential to the poor – such as education, health and social services.
5. For business to do good while doing no harm, the private sector must be held to the same international transparency and accountability standards as all other actors. Chapter 6 looks at the principles and standards of responsible business conduct and how following them can give responsible businesses an advantage that benefits their bottom lines, while at the same time producing positive results for people and the planet. Business and government have complementary roles to play in implementing, promoting and enabling responsible business conduct. The OECD Guidelines for Multinational Enterprises help to optimise their contributions, supporting the development of responsible and accountable business practice to ensure that investment quantity is matched by business quality to produce social, economic and environmental benefits.
This report provides examples of how the OECD is stimulating dialogue and creating opportunities for co‑operation among the many stakeholders involved in sustainable development. It also presents practical cases that illustrate how businesses are already working to promote sustainable development and inclusive growth in developing countries. In this era hallmarked by globalisation, rapid technological advancement and competition for precious resources, it is important to remember that business thrives when the world thrives.
Read the full book on: 10.1787/dcr-2016-en