Harnessing Digitalization in Financing of the SDGs

Content Manager • 7 October 2019

      Ninety per cent of today’s available data has been produced in just the last two years. The ‘new oil’ of the global economy—more, cheaper and faster data— is driving a new generation of products and services, with dramatic changes in how they are created, delivered and consumed. Digitalization can contribute to sustainable development, but its net impact will depend on societal choices as to its application and governance. On the one hand, it can deliver new livelihood opportunities, provide better access to public services, lessen the carbon footprint, and enhance accountability and good governance. On the other hand, it can reinforce existing patterns of exclusion and discrimination, drive new forms of inequality and encourage unsustainable practices, including the environmental effects of digitalization.

    Digitalization can help channel citizens’ money to finance sustainable development. Financing needs to support the transition to an inclusive, environmentally sustainable pathway, represented by the Sustainable Development Goals (SDGs). Financial resources exist, in the form of savings and financial assets that belong to citizens around the world. The need is to channel these resources effectively through public and private means to finance the SDGs. Digitalization can help overcome key barriers to the alignment of financial flows with the SDGs, including a lack of awareness and capabilities, misaligned policies and broader incentives, and shortfalls in governance and accountability.

      Digitalization is already supporting the financing of the SDGs. The issuance of over half a trillion dollars of green and sustainable development bonds, made possible by the availability of cheap and credible data, attests to the use of the monies raised. Satellite imagery is increasing information flows to investors about climate risks and impacts, and it can identify emerging food security challenges. Governments are raising and saving money through digitalized tax collection and social welfare programmes. Millions of small businesses and citizens, including women and other historically disadvantaged groups, have better access to financial services through digital identification, big data and artificial intelligence. Solar energy units, financed through crowdsourcing and pay-as-you-go business models powered by mobile payment platforms, are now in the hands of millions of low-income households, improving household health, livelihood and educational opportunities.

      Going forward, digitalization offers significant opportunities for accelerating the  financing of the SDGs by supporting, for example, the following:

  • Increased mobilization of funds by improving how domestic savings are channelled into long-term investment; reducing poverty by increasing savings through the access and use of digital savings accounts; enhancing government revenue by making it harder to evade the payment of taxes; and increasing the mobilization of international finance at a lower cost through improved measurement and management of risks and impacts.
  • Enhanced use of funds by improving the performance of public financing through better impact targeting and tracking, as well as strengthened public accountability; augmenting the performance of impact-conscious investors by raising the quality and reducing the costs of tracking; achieving greater alignment of private financing with the SDGs through better and cheaper assessments of SDG-relevant financing risks and opportunities; and increasing overall alignment by strengthening data-supported policies, including fiscal incentives, regulations and standards.

      Digitalization could support three disruptive waves of change that could dramatically shift the centre of gravity of the financial system towards the citizen. Simply better, cheaper and more accessible information could support the first wave of opportunities to empower citizens in their  financing decisions, from their roles as savers and borrowers to consumers and pension policyholders. Disruptions caused by digitalization that disintermediate incumbent financial intermediaries, such as banks, could provide a second wave as new data-fuelled actors and fresh ways to customize and deliver finance. Finally, digitalization could offer citizens the means to act collectively, providing a potential third wave of opportunities for citizens to take more control over their financial lives.

     However, the potential sustainable development dividends from digital financing are not guaranteed by the technology or market innovation alone. Notably, the dividends are not available to those people without access to affordable digital infrastructure, those lacking the necessary digital capabilities or those deliberately excluded from access to digital opportunities. For those with access, digitalization can deliver bene ts but also bring uncertainties, risks and negative consequences. Unchecked, artificial intelligence could lead to exclusionary pro ling and more opportunities for the channelling of illicit financial flows. Ever faster, hyper-liquid financial markets could reduce financing for the SDGs by increasing the pro tability of short-term trading. Digital currencies could take away countries’ ability to manage their own monetary and economic affairs, just as easily as they could smoothen and cheapen payments. Today’s digital disruption of incumbent financial institutions does not alone prevent the emergence of new, digitally powered forms of market concentration.

      Robust governance innovations are needed to ensure that digitalization supports the alignment of nance and money with citizens’ interests and sustainable development. Shaping digital financing in the public interest is one of the governance challenges of this time. Approaches siloed by jurisdiction, governance domain and impact area are unlikely to be sufficient. There is a need for governance innovations that are underpinned by strengthened mandates, capabilities and instruments of central banks, financial regulators and standard-setters, as well as enhanced collaboration among all of those bodies and members of the broader policy community. Attention will need to be paid to how digitalization itself is expressed in new forms of governance, embedded in technical standards, protocols and algorithms, and deployed through new business models. It will be critical to ensure that there is an inclusive approach to the evolution of such new rules of the road, to maximize the potential bene ts of governance and associated market innovations while avoiding the possible negative effects of a new generation of exclusionary, institutional arrangements.


For more information, please see the full report attached below. 

The content was originally posted on https://digitalfinancingtaskforce.org

Photo Credit: UNDP


The views expressed in the blog and the report attached are the author's own and do not necessarily reflect those of the SDG Philanthropy Platform. The SDG Philanthropy Platform is a global initiative that connects philanthropy with knowledge and networks that can deepen collaboration, leverage resources and sustain impact, driving SDG delivery within national development planning. It is led by the United Nations Development Programme (UNDP) and Rockefeller Philanthropy Advisors (RPA), and supported by the Conrad N. Hilton Foundation, Ford Foundation, Oak Foundation, Brach Family Charitable Foundation, and many others.