Developing countries and emerging economies face huge financing gaps when it comes to meeting the Sustainable Development Goals (SDGs) and the targets of the Paris Agreement and the Convention on Biological Diversity. Recent estimates suggest it would take $3.9 trillion a year to achieve the SDGs alone. To meet the global climate goals, financing for adaptation and mitigation would need to be multiplied many times. The targets of the Global Biodiversity Framework require an additional $598 billion to $824 billion a year.
Public funds alone cannot meet these financing needs. In 2022, official development assistance (ODA) accounted for just $204 billion of the financing needed. Clearly, additional private capital is needed. The financial sector has the power to leverage international pension funds and insurance companies, which together managed more than $100 trillion at the end of 2019. Aligning private financial flows with sustainable development, climate, and biodiversity goals requires clear signals to the financial sector from governments and the international community.
Sustainable finance can transform financial systems by systematically integrating environmental, social, and governance (ESG) considerations into financial decision-making. This is especially important in developing countries and emerging economies, where people not only face immense sustainability costs, but are also disproportionately affected by the physical and transition risks from climate change, biodiversity loss, and social risks. Creating conducive enabling conditions and building capacities for sustainable finance in developing and emerging economies is essential. Ultimately, the goal of sustainable finance is to channel large capital flows into socially or ecologically sustainable activities and projects that help to achieve the SDGs and align with the objectives of the Paris Agreement and the Convention on Biological Diversity.
