16.Achieving the SDGs will require immense financial investment from a variety of sources. Understandably, the UN has not been able to attach a specific cost to the SDGs but the World Bank report, ‘From Billions to Trillions’ estimates: “To meet the investment needs of the Sustainable Development Goals, the global community needs to move the discussion from ‘Billions’ in ODA to ‘Trillions’ in investments of all kinds”. With current Official Development Assistance (ODA) estimated at just under US$135 billion per year, the report emphasised the urgent need to leverage finance for the SDGs through “philanthropy, remittances, South-South flows and other official assistance, and foreign direct investment”.
17.The Secretary of State for International Development acknowledged the huge increase in funding required to deliver the SDGs, and the need for a ‘beyond aid’ approach, ahead of the Financing for Development Conference in Addis Ababa in July 2015:
“[…] we recognise lifting a billion people out of poverty will take far more than the global development budgets can ever provide. To deliver the Sustainable Development Goals, the UN says we are going to need to attract trillions of dollars a year in investment from governments and, crucially, from the private sector.
So that’s why we’re all talking about the beyond aid agenda: acknowledging that while aid is still necessary, it’s not sufficient either for the next development ‘leap’ in its scale or in its nature.”
18.The Financing for Development Conference aimed to address existing gaps in development finance ahead of the launch of the SDGs. The outcome document, the Addis Ababa Action Agenda (AAAA), was described to us by David Hallam (former UK Envoy on the Post-2015 Development Goals) as “integral to the delivery of this agenda”. The AAAA contained a large number of pledges in key areas such as tax, illicit flows, Foreign Direct Investment (FDI) and domestic capital markets. However, there were few concrete commitments and very little new money was pledged. As we heard from Jonathan Glennie at Save the Children:
“Unfortunately the Addis conference did not provide the goods. There were some steps forward […] There is a whole bunch of initiatives that are very welcome, but in terms of setting the scene for the world to be ready to pay for a set of goals that are vastly more expensive because they are way more ambitious than the MDGs, the world is miles away from that, in my view.”
19.Although ODA is just part of the solution to raising development finance for the SDGs, it still plays a vital role, particularly for the poorest countries. According to the OECD, “ODA remains the biggest financial flow in fragile states”. As Jamie Drummond of ONE told us:
“[…] within LDCs Least Developed Countries] within Africa […] the median per capita level of expenditure in those countries is $123—less than £100—per person per year. That is public expenditure covering everything—covering all the SDGs. We are talking about extremely poor people living in countries with no money. The allocation of British ODA to those countries over the long term is extremely important.”
20.Last year, the UK recognised the importance of its own commitment to international aid by passing the International Development (Official Development Assistance) Act 2015, which requires the Government to spend 0.7% of the UK’s GNI on ODA. Jonathan Glennie emphasised that this was an “immense and historic achievement for the country” and added, “The UK is respected for this aid commitment”. The commitment gives the UK legitimacy when encouraging other countries to give more. Talking to us about the Financing for Development Conference, the Secretary of State said that:
“The UK went with our 0.7% commitment. We got the EU to strengthen its commitment too, at the final meeting of Ministers in the run-up to that, so there were new money commitments that were made.”
21.Although ODA is at an all-time high, the final AAAA expresses concern “that many countries still fall short of their ODA commitments” and data from the OECD (see figure 1) shows that a number of OECD Development Assistance Committee (DAC) Members, including Germany and France, are falling far short of previous commitments to scale up their aid efforts to 0.7% of GNI. In the midst of the current refugee crisis, many donors are also redirecting significant amounts of the ODA to cover first year housing costs for refugees in their own countries, with even generous donors like Sweden reallocating their development cooperation budgets to deal with the crisis. There is a need for all donors to step up to the plate and fulfil their full ODA commitments, to ensure that they are living up to their commitment to support the achievement of the SDGs, particularly in the Least Developed Countries (LDCs) where levels of bilateral aid have fallen in recent years. In evidence to us, Oxfam argued: “As well as continuing to provide 0.7 of GNI as aid, the UK should continue to encourage other donors to give more in the context of falling aid levels from a number of countries”.
SDG target 17.2 states:
“Developed countries to implement fully their official development assistance commitments, including the commitment by many developed countries to achieve the target of 0.7 per cent of gross national income for official development assistance (ODA/GNI) to developing countries and 0.15 to 0.20 per cent of ODA/GNI to least developed countries; ODA providers are encouraged to consider setting a target to provide at least 0.20 per cent of ODA/GNI to least developed countries”.
Figure 1: Preliminary ODA flows from OECD DAC Members 2015
22.The Committee welcomes the International Development (Official Development Assistance) Act 2015 which requires the Government to spend 0.7% of UK GNI on ODA, and recognises that ODA remains an essential part of the financial commitment needed to achieve the SDGs, particularly for LDCs.
23.As a respected leader in the donor community, the UK Government should continue to use its influence to persuade other countries to fulfil—and where possible strengthen—their ODA commitments as outlined in the Addis Ababa Action Agenda and SDG target 17.2.
24.As emphasised in the AAAA domestic resource mobilisation—the ability for developing countries to raise revenue through taxation—will be vital for financing the SDGs. Referring to the Financing for Development Conference, the Secretary of State told us:
“What you saw was a recognition that development is so much more now than frankly aid money and ODA spending by countries like the UK. Although that is important, increasingly it is about the private sector and also about socalled domestic resource mobilisation. It is about countries themselves putting in place the tax systems, so that they get the benefits of growth financially.”
During the Addis Conference, the UK and other OECD nations launched the Addis Tax Initiative. Through the initiative, “donor countries commit to doubling their support for tax reform in the developing world by 2020” whilst developing countries “commit to step up their work on tax reform to improve the fairness, transparency, efficiency and effectiveness of their tax systems”. The UK’s commitment of funding for this work was reaffirmed in the UK Aid Strategy.
25.Such initiatives are welcome but should not preclude further work on improving international cooperation on tax, as unfair tax rules and tax evasion can profoundly undermine countries’ ability to raise revenue. As Penny Fowler of Oxfam told the Committee:
“There are also things that need to be done at the global level on that issue, as well, in terms of global tax reforms, pushing for country-by-country reporting, which is another transparency issue that will help to ensure that taxes are paid on value created, in the place where it is created.”
Despite the Secretary of State’s commitment to domestic resource mobilisation, at the Financing for Development Conference, OECD countries, including the UK, were criticised for opposing a proposal which would have changed the status of the UN Committee of Experts on International Cooperation in Tax Matters. Proponents of the proposed changes aimed to increase the role of the UN in international decision-making about tax cooperation instead of the OECD, whose membership includes only developed countries. Executive Director of Oxfam International, Winnie Byanyima, stated after the conference:
“There was a welcome focus on the need for developing countries to raise their own resources to tackle poverty, but not enough was done to re-balance global financing rules—particularly taxation rules—to help this happen.”
26.In evidence to us, the Secretary of State agreed that international tax rules needed to be addressed, “When they are unfair and companies are not paying their fair whack”. However, she said that the changes to the UN tax body seemed like a “mechanistic response to a problem that we recognise, but one that would not particularly make the difference”. She stated that what was needed was for “G7 countries to agree that this is an issue that needs to be faced and then commit to taking the sorts of steps that we are doing, on transparency and beneficial ownership, so that there is the right structure in place”. This is reflected in the UK Aid Strategy, which includes a commitment for the Government to “invest more in tackling tax evasion and avoidance, building on the initiatives led by the UK at the G8 Summit in 2013”. In evidence to us, ActionAid stated that the problems in the international tax system can be only be solved by: “moving away from harmful tax competition to tax cooperation”. It went on to say:
“[…] there is clearly a need for a more global approach to tax reform, which has the interests of developing countries at its heart. We would urge the UK Government to bear this urgent need in mind when considering how best to implement the SDG framework”.
27.Following the release of the Panama Papers in March 2016, which exposed widespread global tax avoidance facilitated by a Central American law firm, the UK Government launched a number of new initiatives to clamp down on the UK’s role in international tax evasion and financial secrecy. These include the creation of a cross-government taskforce on the ‘Panama Papers’ to investigate and pursue any wrongdoing and the introduction of a criminal offence for corporations who fail to stop their staff facilitating tax evasion. Ahead of the Prime Minister’s Anti-Corruption Summit in London on 12 May 2016, over 300 economists called on world leaders to take action on tax havens stating:
“[…] territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success.”
The Prime Minister stated in the House of Commons on 11 May 2016, in response to a question from Mike Kane MP:
“We have asked three things of the overseas territories and Crown dependencies: automatic exchange of tax information; a common reporting standard for multinational companies; and central beneficial ownership registries so that UK enforcement can know who really owns the companies that are based there. They have delivered on the first two, and they will be following and delivering on the third.”
28.We welcome the Addis Tax Initiative and the Government’s strong commitment to supporting the development of effective tax systems in some of the world’s poorest countries. Prioritising assistance to developing countries, particularly Least Developed Countries, in implementing effective tax collection systems will be crucial in enabling countries to raise the revenue needed to implement the SDGs.
29.We recognise the impact of tax evasion on developing countries’ ability to raise revenues and welcome the Prime Minister’s decision to host the recent Anti-Corruption Summit in London, positioning the UK as a leader in this debate. Despite this, we remain concerned about successive governments’ approaches towards international tax cooperation and fairer tax rules. We believe that strong commitment to addressing these areas is essential. We welcome the progress made so far, as outlined by the Prime Minister. However, we urge the Government to ensure that the overseas territories and Crown dependencies introduce central beneficial ownership registries as soon as possible, in accordance with the Prime Minister’s statement. Discussions and decisions on international cooperation in tax matters need to be made within an inclusive body, such as the UN, rather than just the OECD, whose membership includes only developed countries. If there is a need for greater financial expertise, then it could work together with (for example) the IMF, whose membership also encompasses almost the entire globe. We are addressing this area in more detail in our ongoing inquiry into ‘Tackling Corruption Overseas’.
30.As outlined in the AAAA, private investment in developing countries will be essential to raise revenues for achieving the SDGs. Encouraging investment, particularly Foreign Direct Investment (FDI), is an ongoing challenge for developing countries and particularly difficult for fragile states. According to the OECD, only 6% of FDI to developing countries goes to fragile states, and most of that is concentrated in a handful of resource-rich states. In evidence to us, the Institute for Development Studies highlighted the need to incentivise private investment in “patient capital”, which “measures returns not on a quarterly or annual basis, but rather over decades and more”.
31.The Secretary of State told us that in order to encourage more private sector investment:
“You need to have the conditions for companies to be able to invest in the first place […] If the conditions are not right, you can have the best business case in the world, but you will not be able to go through and implement it.”
SABMiller (a multinational brewing and soft drinks company) told us that DFID can help create the right conditions—to enable greater private sector investment in fragile markets—by sharing risk:
“Through its ability to invest for the long-term beyond standard project lifecycles, DFID, directly and through CDC, can help share the up-front risks of investing in untried inclusive business models. This recognition is a critical step in bridging the current gap between the expectations placed on businesses and their capacity to sustainably invest in supply chains that are not fully commercialised and in frontier or fragile markets.”
32.DFID’s re-capitalisation of CDC in 2015 is one of the ways it is responding to this challenge of increasing investment capital and boosting economic growth in developing countries. However, in its evidence Christian Aid cautioned that, “While CDC has undertaken change in recent years to rebalance its investments (following significant criticism) the results of this work are unproven” and urges DFID to ensure CDC only invests in projects which support the achievement of the SDGs:
“DfID should require CDC to report on the impacts of its investments in helping to achieve relevant SDGs […] whether investments contribute towards achieving the SDGs should be a key criteria in CDC’s investment decision making.”
33.The Government is also attempting to create better investment conditions through the Prosperity Fund. The Fund falls under the responsibility of the National Security Council, is managed by the FCO and will be funded by £1.3bn of ODA over the next five years. The Fund gives priority to,
“improving the business climate, competitiveness and operation of markets, energy and financial sector reform, and increasing the ability of governments to tackle corruption. These reforms will contribute to a reduction in poverty in developing countries, and will also create opportunities for international business, including UK companies.”
The bidding rounds for the Fund so far have, however, focused on lower-middle income and middle-income countries, such as India, China and Brazil. To date, the Fund has only invited bids for a small number of developing countries (under the Southern Africa Prosperity Fund) and just four LDCs, despite the critical need for an increase in private investment in these countries to achieve the SDGs.
34.We welcome DFID’s commitment to encouraging private sector investment in developing and fragile states. We acknowledge that this will be essential for countries wishing to make progress towards the SDGs, contributing to the agenda by creating jobs, increasing incomes, providing services and increasing resilience. However, where private investment is encouraged by DFID or other arms of the UK Government in developing countries, we highlight the need for the UK Government to continue to champion sustainable and inclusive, pro-poor growth, as a way to combat extreme poverty and build more prosperous and equitable economies.
35.The Government must ensure that the work it carries out to encourage private sector investment, through CDC, the Prosperity Fund and other initiatives, is focused on developing and fragile states that need most support. When considering an investment, CDC must actively and explicitly consider whether it will have a positive impact on the achievement of the SDGs (and thus poverty reduction) in that country, and only take forward those investments that it believes will align with progress towards the Goals. They should then report back on the impact of its work on the SDGs in its annual report. The Prosperity Fund must require bids to outline the impact of the project on the achievement of the SDGs, and to report back on its contribution to progress within its project reports.
36.A ‘beyond aid’ approach to the SDGs demands new ways of looking at development finance, including using the capital markets to leverage the resources needed to implement them. Dr Steve Waygood from Aviva Investors told us that the markets have not yet received sufficient focus in these discussions: “[…] the focus has been on the roughly $150 billion of development aid, not the $300 trillion that exists in the global capital markets.” Aviva’s written evidence states that, “if this £300 trillion can be harnessed to support, rather than undermine, sustainable development it could have a transformative effect on the delivery of the Global Goals”.
37.Aviva’s evidence argues that, as a result of “global governments’ failure to ensure that environmental and social costs are reflected in companies’ profit and loss statements […] the capital markets do not routinely promote sustainable innovation or incorporate companies’ full social and environmental costs”. This means that unsustainable companies can promote themselves as more appealing investments than their more sustainable peers, as they “are able to finance their activities more cheaply”. Therefore, Aviva argues, companies undermining the SDGs are likely to be a more attractive prospect to investors than those who are making the effort to support them.
38.In order to create more sustainable capital markets (i.e. markets that are responsive to sustainable development) Aviva’s evidence highlights the need for:
39.Aviva points out that the Government is already taking action to harness the markets to support sustainable development, highlighting that, “HM Treasury has recently launched, in conjunction with the City of London, a Green Finance Initiative to advance proposals on how to increase and incentivise private sector finance in the green economy”. There is no reason why these efforts could not be expanded within the framework of the SDGs.
40.We recognise the potential—and need—to harness the trillions of dollars tied up in the capital markets to achieve the SDGs. London is the world’s leading financial centre, meaning that the UK Government is in a strong and unique position to look at how this could be done.
41.We recommend that DFID and other relevant government departments, such as the Treasury and Department for Business, Innovation and Skills, enter into discussions with the London Stock Exchange and the City of London to discuss how they might work together to create better incentives for sustainable development in the capital markets. We propose that the Government report back to us on their efforts in this regard in a year’s time.
18 World Bank Group, (April 2015)
19 OECD, (16 December 2014) para 7
20 World Bank Group, (April 2015) p. 1
21 , Speech given by Justine Greening at the Overseas Development Institute, 2 July 2015
22 UN, (July 2015)
25 OECD, (2013) p. 1
29 OECD, , accessed 26 May 2016
30 United Nations, (July 2015)
31 SIDA, , accessed 26 May 2016
32 OECD, , accessed 26 May 2016
33 Oxfam () p.2-3
34 UN, (September 2015) p.30
35 OECD, , accessed 26 May 2016, states that “DAC members generally accepted the 0.7% target for ODA, at least as a long-term objective, with some notable exceptions: Switzerland – not a member of the United Nations until 2002 – did not adopt the target, and the United States stated that it did not subscribe to specific targets or timetables, although it supported the more general aims of the Resolution.” For this reason, Switzerland and the US have been excluded from this graph.
36 UN, (July 2015) p. 11
39 , DFID News Story, 15 July 2015
40 HM Treasury, UK Aid: Tackling Global Challenges in the National Interest, , November 2015, p. 19
42 “, Devex.com, 23 July 2015; “, Guardian Global Development Professionals Network, 15 July 2015
43 , World Economic Forum blog, 17 August 2015
45 HM Treasury, UK Aid: Tackling Global Challenges in the National Interest, , November 2015, para 3.4
46 ActionAid () para 35
47 ActionAid () para 37
48 , HM Treasury News Story, 10 April 2016
49 , Prime Minister’s Office Press Release, 11 April 2016
50 , Oxfam Press Release, 9 May 2016
51 HC Deb, 11 May 2016, [Commons Chamber]
52 Further information can be found on the inquiry webpage:
53 UN, (July 2015)
54 OECD, (2015) p.23 and 56
55 IDS () para 2.4
57 SABMiller () para 6.1
58 , DFID Press Release, 16 July 2015
59 Christian Aid () para 3.6
60 HM Treasury, UK Aid: Tackling Global Challenges in the National Interest, , November 2015, para 3.15
61 FCO, , accessed 31 May 2016
63 Aviva () p. 1
64 Aviva () p. 1
65 Aviva (), p1-3
66 Aviva (), p. 3
2 June 2016