Whatever a society can do, it can also finance

Financing sustainable development

Since the Rio Summit of 1992 the imperative of sustainable development has become widespread. Twenty years later, significant progress has been made in only four of the 90 environmental goals, and progress in the most important goals agreed to at Rio, including on climate change, desertification and drought, is slow if not completely absent. We are facing an ongoing climate crisis and the non-attainability of the Millennium Development Goals. Despite having internationally agreed-to goals, the world is still on an unsustainable path. The main solution to this? Fully utilising the potentials of finance.

There is a big amount of private money waiting for sustainable investment – provided it is lucrative. This is currently the case for few sustainable investment opportunities. However, green investment could be made widely profitable and thus become attractive for private investors. One field-tested tool for this are feed-in tariffs: a legal obligation for energy suppliers to buy electricity produced from renewable resources at a fixed price. These guarantees ensure the support of all viable renewable energy technologies and investment security.

The International Monetary Fund (IMF) has a role to play here. It has the ability to create its own reserve currency – the so-called Special Drawing Rights (SDRs) – when its members tell it to do so. In April 2009 the G20 instructed the IMF to create new SDRs worth US $250 billion. The Stiglitz Report also claimed a greater role for SDRs in the international monetary system, with a regular and automatic issuance.

A global sustainable development fund financed by an innovative use of these SDRs could provide the money needed to implement feed-in-tariff legislation. Inflation would be avoided because SDRs are given against performance, namely the production of renewable energies. This can immediately introduce a huge supply of solar and wind energy in less developed countries. In this field alone a market for private investors worth several hundred billion a year could emerge.

Excerpt from the article by WFC Future Finance Policy Officer Suleika Reiners and Researcher Dr Matthias Kroll first published in World Commerce Review, June 2012.

Wednesday, August 8th, 2012