How the digital finance revolution can drive sustainable development
This week in Davos brings together leading thinkers on a range of topics of global significance, including two not often mentioned in the same breath: the Sustainable Development Goals (SDGs) and the digitalization of the world’s financial systems.
A new task force convened by United Nations Secretary-General António Guterres will consider how these two topics might best intersect: how the digital revolution in financing could be shaped not only to minimize potential harms, but in ways that could help advance the SDGs’ inspiring vision.
The digital revolution has transformed the world’s financial systems. This is true not only for the customer experience (how hundreds of millions of people now manage their financial lives), but for the system at every level: how financial institutions manage their operations, how investors analyze risk and make decisions, how capital markets move, and how policymakers approach their work. To be sure, digitalization has affected every area of life, not just financing. The rate of acceleration is staggering: to take just one oft-cited statistic, 90 percent of the data in existence today was created in the past two years.
But what might digitalization have to do with sustainable development? A pair of documents released three years ago suggests a possible connection by describing a different but equally dramatic revolution: the one in our approach to sustainable development. The 2030 Sustainable Development Agenda, with its 17 specific goals, provides a clear global roadmap for action. The international development community has always sought a healthy planet, free from poverty and inequality. Now with the SDGs, we have, for the first time, a concrete plan to turn that vision into reality. The Addis Ababa Action Agenda, meanwhile, recognizes that a global action plan for development requires a correspondingly global approach to financing. It sets forth a framework for governments to coordinate funding for energy, transport, water and sanitation, as well as to step up investments in agriculture and nutrition.
These historic agendas move the world far beyond business as usual, both in terms of what we’re doing and how we’re going to pay for it. But we need to go further still. The trillions of dollars required to achieve the Sustainable Development Goals cannot derive from the public sector alone, and this is where the new operational and financial models made possible by the digitalization of finance hold such promise. Mobile money alone contributes directly to 13 of the 17 SDGs by, for example, providing financial services to individuals and small businesses that would otherwise be financially excluded; enabling access to electricity, water and sanitation (e.g. via mobile pay-as-you-go solutions); by facilitating access to low-cost remittances; by providing means for parents to pay school fees; and by facilitating cash transfers during emergencies. The “green finance” movement, with its innovative use of digital-enabled technologies to structure investment and other financial instruments in exchange for the delivery of positive environmental impacts, offers other intriguing examples.
But most of the creative thinking remains to be done about how the upstream effects of the digital revolution, especially on capital markets, can advance the SDGs. Creative thinking is also currently lacking about those SDGs — for example, biodiversity and ocean health — that to-date remain untouched by the digital revolution in financing. And perhaps most importantly, creative thinking is still needed around the UN’s most important goal: to ensure no one is left behind.
The management expert Peter Drucker once distinguished between efficiency, or doing things right, and effectiveness, or doing the right things. If the digital revolution serves only to make financial systems more efficient, it runs the real risk of serving as a force multiplier for the status quo, where capital continues to flow to the people and projects it already reaches, but faster and in larger quantities, further entrenching the divide between the haves and the have-nots. The vision of the Secretary General’s new task force, on the other hand, is a digitalization that leads to more effective financing: where capital is directed towards sustainable development that includes everyone.
The direction that the digitalization of financing will ultimately take depends on who shapes it and for what purpose. Given the task force’s ambitious mandate, which seeks to bring a 360-degree perspective to this topic, our membership reflects diverse geographies and sectors. We are tech entrepreneurs and bankers, policy-makers and civil society leaders, industry standard-setters and capital markets leaders, from the global North and the global South. We are market leaders, market disruptors and rule-makers united behind a common project: ensuring that the digital revolution’s transformation of financing works for the benefit of the planet and all its people.
It is our honour to hold our first in-person meeting of the full task force in conjunction with the World Economic Forum in Davos, and we look forward to keeping interested stakeholders informed on our progress.
By Achim Steiner, Administrator, UNDP and Maria Ramos, CEO Absa Group Ltd
This blog was originally published by the World Economic Forum.