11. September 2023

Are the Sustainable Development Goals (SDGs) out of reach?

We say yes and explain why

Co-author: Xenia Martinez

It is half-time for the Sustainable Development Goals. It is already clear that it will not be possible to achieve the goals by 2030 – this is the disillusioning verdict of the “Global Sustainable Development Report 2023” published by the UN in June. Current efforts by states, the economy, financial market and society are far from sufficient. Overall, the degree of implementation to date is inadequate for half of the SDGs, stagnant to declining for a third and only ten percent of the sub-targets are on a positive target achievement path. According to the report, the development of the goals relating to food security, climate protection and biodiversity conservation is particularly worrying.

SDG 2: Hunger is on the rise

The development of SDG 2 (zero hunger) shows that the proportion of people who face hunger increased to 9.8 percent between 2019 and 2021. The war in Ukraine has reduced the global food supply, as Russia and Ukraine are among the world’s five largest exporters of grain. In addition, the consequences of climate change, such as droughts, have and will continue to diminish the food supply.

SDG13: It is getting warmer and warmer

In the area of climate protection, the status of SDG 13 (climate action) reveals major shortcomings: The global average temperature will be 1.5 degrees warmer in the early 2030s compared to pre-industrial times. An increase of two to three degrees is estimated by the end of the century. Nevertheless, the annual global public subsidies that damage the environment and climate amount to more than 680 billion USD.

SDG 14 and 15: Life on land and below water severely endangered

Recent developments in SDG 14 (life below water) and SDG 15 (life on land) highlight that current efforts to protect biodiversity are also clearly not sufficient. Biodiversity below water and on land is being damaged in many ways by human activities and is now highly endangered. For both SDGs, the deadline for achieving certain targets was 2020, but their implementation is extremely inadequate. This development is worrying because fisheries and forests, for example, are an important source of livelihood for many people.

Too little progress on a broad front – despite some small rays of hope

Furthermore, other SDGs indicate too little progress as well. The current progress of SDG 1 (no poverty) will result in around 575 million people living in extreme poverty by 2030, especially in parts of sub-Saharan Africa. Existing inequalities have been exacerbated by the COVID-19 pandemic, which in turn counteracts SDG 10 (reduced inequalities). No progress has been made in relation to SDG 12 (responsible consumption and production) either, as global overconsumption and the resulting amount of waste have continued to increase. However, small successes are also highlighted in the report: For example, in relation to SDG 7 (affordable and clean energy), investments in green energy exceeded those in fossil fuels for the first time in 2020. In the area of biodiversity, the “Kunming-Montreal Global Biodiversity Framework” gives cause for hope. It aims to protect more land and water areas to halt the increasing loss of biodiversity by 2030. However, these positive developments are nowhere near enough. According to estimates, an additional 1.4 to 2.5 trillion USD in capital would need to be invested annually to return to the target achievement path for the SDGs. Following COVID-19, the total investment required could thus have risen to 4.2 trillion USD, of which the largest share of 3.9 trillion USD in 2020 was identified as a financing gap in developing and emerging countries.

What is the way forward? Approaches with a view to a more sustainable financial market

All members of society are called upon to take stronger countermeasures through individual and collective action. In particular, the rich countries of the international community have a duty in this task, as do the economy, the financial market, science/technology development and society as a whole to develop more effective solutions that promote the achievement of the SDGs. The private capital market, too, is required to channel more investment into SDG-compliant economic activities. The reality is that considerable sums continue to be invested in unsustainable technologies and business models without any SDG focus from the outset. In prospect of achieving the SDGs, it is also crucial that, in addition to greater investments, SDG investments must primarily impact countries in the Global South and should not predominantly contribute to improving the situation in industrialised countries or companies based there. While this may sound obvious, it is nonetheless not sufficiently implemented in sustainable investments. The vast majority of sustainability funds available on the market focus on investments in companies in industrialised countries, with the result that sustainability financing does not usually have a direct impact in developing countries. In other words, the investee companies achieve too little impact in the countries that are particularly important from an SDG perspective.

The more targeted focus on the SDGs that is deemed necessary involves more complexity than is often suggested by sustainable financial products and required by the regulatory environment. To counter the risk of potentially misleading statements on SDG impacts by explicitly emphasising them, providers of sustainable financial products should therefore ensure the transparency of some important elements relating to the SDGs. For example,
SDG investments or funds should always avoid a negative impact of the investments by defining strict exclusion criteria. In addition, SDG fund products should provide evidence of the SDG contributions made by the products or services of investee companies. This is because the ESG performance achieved by companies, which initially only demonstrates the assumption of responsibility for the processes of service provision, does not count as an SDG contribution. It is also relevant that the products or services utilised by companies effectively contribute to the SDG sub-targets. For example, sustainable financial products, just like companies, should not simply allocate their contributions in the area of renewable energy to SDGs 7 and 13, but should make explicit and direct contributions to the sub-targets listed there. For instance, the sub-targets of SDG 13 do not focus on reducing greenhouse gases, but on implementing measures to adapt to climate change, in which renewable energy companies or manufacturers of renewable energy generation plants are generally not involved and therefore do not contribute to SDG 13.

To counter the lack of impact achievement in countries of the Global South addressed in the interim report, sustainable financial products should in future provide better evidence of whether, for example, an investee company actually makes such contributions with its SDG-positive performance in the relevant location. This is something that is not explicitly promoted by the Sustainable Finance Disclosure Regulation (SFDR), for example, as no specific requirements are placed on the location of the impact, i.e., the “where”, for impact-related Article 9 products, but only plausible evidence of the “what” and “how” must be provided. ESG rating agencies, too, are generally not (yet) able to provide corresponding data points at this level of detail, meaning that the “where” of the impact of an SDG-positive product cannot be easily mapped. The FairWorldFonds, however, proves that this is possible in principle: The investment guidelines explicitly stipulate the promotion of the SDGs through investments made by considering the commitment of the investee companies in emerging and developing countries for several positive criteria. For example, by the companies creating jobs there, promoting the rights of women or disadvantaged groups to a particular extent, carrying out a high proportion of their production in emerging and developing countries or taking specific environmental aspects into account accordingly.

We must work hard – because the clock is ticking

The deadline for achieving the SDGs is approaching and the shortcomings are obvious. Despite the enormous increase in funding for sustainable investments in recent years and the progress made in the sustainable finance market, there is still room for improvement in terms of the actual impact achieved. Additional efforts are therefore necessary, against which SDG investments will have to be measured in the future.

Markus Grünewald

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