Conclusions extracted from the World Economic Forum in Davos, Switzerland, demonstrate that sustainable finance disproportionately supports high-income countries, increasing global inequality throughout the world.
This not only widens the financing gap for meeting the UN’s Sustainable Development Goals (SDGs); it adds to the current crisis of global inequality. In this vein, “sustainable finance” becomes non-ESG. Put another way, the irony is profound, lost or found.
The push for sustainability and sustainable finance inadvertently amplifies inequalities as 97% of new sustainable investment funds concentrate upon higher-income countries. Lower-income countries consequently obtain fewer resources to spend on their recoveries and development plans.
This is because policies avoiding non-sustainable sectors (and regions or countries) avoid low-income nations still heavily reliant upon activities that produce relatively more carbon dioxide. And these nations often use these carbon-intensive activities due to lack of alternatives, which require capital and some existing income if support is unavailable.
How More Action Can Help
A secondary cause is the lack of available data necessary to demonstrate compliance with sustainability standards. Otherwise viable investment opportunities remain hidden, exacerbating current biases in investment decision making, and continuing the mismatches between needs and offers with sustainable finance packages.
Third, there also remains a lack of a structure supporting low-income or developing countries. For example, the ESG and sustainable finance communities contend with “more than 200 sustainability initiatives or coalitions of actors.” Both low- and high-income countries must navigate through hordes of individual requirements and taxonomies, depending on which investors they intend to solicit.
By placing the sole emphasis upon rules without considering the natural limitations inherent to developing nations, global equality increased through a key global mechanism—sustainable finance—designed to combat it. An independent, competent third party must answer the call by transparently and objectively connecting deserving nations to sustainable investment funds.