July 19, 2024

Sustainable finance needs urgent boost to narrow the gaps for global goals as only developing Asia attracts above-average greenfield projects and international project finance in sectors linked to the Sustainable Development Goals (SDGs), according to the World Investment Report (WIR) 2024 released by the UN Trade and Development (UNCTAD).

The report said the downturn in project finance in 2023 affected sustainable development, with new funding for SDGs sectors dropping over 10 percent, particularly in agrifood and water.

It said the distribution of Goals investment across developing regions is unequal – with only developing Asia attracting above-average investment for the SDGs.

The share of the region in the global number of Goals projects was higher in 2023 than its share in all projects.

Other developing regions not only attract less investment overall, but even lower levels of SDGs investment.

WIR 2023 identified gaps of $500 billion in annual investment for WASH (water, sanitation and hygiene) and $300 billion for agrifood systems.

“The lack of foreign participation in WASH projects is a particular area of concern. It hampers progress towards Goal 6, which targets universal access to safe drinking water, sanitation and hygiene,” the report said.

The report said project finance and public-private partnerships are more important in WASH, but there were large declines in the value of WASH-related international project finance deals in 2023, including public-private partnerships, with only one deal among least developed countries.

On the other hand, the value of crossborder greenfield project announcements for Goals-relevant sectors grew by 14 percent in 2023.

The report said transport services accounted for about one half of the increase in project numbers and values. Renewable energy accounted for about one quarter.

Most goals-relevant investment is in infrastructure sectors, which were heavily exposed to the global decline in international project finance in 2023. This had a significant negative effect on total goals investment flows, it said.

While funds for SDG investment through sustainable finance products in global capital markets is still growing, the pace is slowing. Sustainable bonds showed marginal growth in 2023, while inflows in sustainable investment funds dropped by 60 percent.

“Greenwashing concerns related to misleading sustainability claims are increasingly affecting investor demand. Policy actions are urgently needed to mitigate the risk of widening backlash against sustainable investment strategies,” the report said.

It said policymakers should also consider the negative spillover effects of sustainability reporting standards on firms outside main markets.

“In particular, small and medium-sized enterprises in developing countries may struggle to meet increasing disclosure requirements, which could affect their market access and participation in global supply chains,” it added. 

The UN Trade and Development calls for systematic efforts to address greenwashing, including well-defined product standards, robust sustainability disclosures, external auditing and third-party ratings.

With the downturn in international project finance, it also urged governments to promote investment in projects related to sustainable development, including through outward investment promotion measures and through provisions in international agreements. – Press release