05.05.2019
The estimates suggest the existence of the investment gap in financing the 17 SDGs and 169 targets at least USD 2.5 trillion until 2030 a year (OECD, 2018; UNCTAD, 2018). The scale, scope and the technological complexity of implementing the transformative 2030 Agenda far exceed the capacities of the public sector to deal with such a systemic and fundamental transformation alone. The Agenda 2030 calls for a change in approaching development processes as exclusive ‘government territory’ through regulation and taxation (Bruegel, 2018) and consider civil society and the private sector as the important development partners. The Addis Ababa Action Agenda promotes the use of innovative mechanisms and private sector partnerships to encourage greater international private financial participation in development, in support of 2030 Agenda. What are the practical opportunities and benefits of private sector engagement through the development cooperation?
The EU, largest development assistance provider and development donor in the world, has aligned its development agenda with 2030 Agenda and Addis Ababa Action Agenda, and recognized the enormous potential of the private sector to drive sustainable and inclusive economic growth, job creation and poverty reduction, placed PSE at the heart of its development agenda (EU, 2019) Scholars suggest that the corporate sector can contribute to long-term value creation, i.e. optimize its financial, social and environmental value in the long term(Schoenmaker, 2017)
Other development partners are also increasingly providing multi-level opportunities for private sector engagement (PSE) and support to (i) creating enabling conditions, (ii) addressing market failures and (iii) harnessing creative solutions. Such facilitation of PSE through development co-operation entails numerous legal, risk management, accountability and the impact assessment issues and concerns raised by partner country governments, the private sector, NGOs and some development partners.
For instance, in economic and potentially legal terms, development co-operation to the private sector is a subsidy and raises concerns about market distortions, competition conditions, compatibility with international investment and trade laws, principles and provisions. To ensure that scarce public resources are provided transparently and as effectively and efficiently as possible, principles and guidelines for effective PSE through development co-operation are needed.
At the country level, there is a need for clear policies and the approaches to PSE engagement through development cooperation, that need to be articulated in the dialogue with a wide range of the stakeholders and included in the national sustainable development strategies. At the country level, development partners do not appear to adequately harness these respective strengths of development co-operation. Going forward, development partners should seek to build trust and incentives for effective partnerships and to demonstrate the value of PSE through development co-operation. In January 2019 as part of the OECD Private Finance for Sustainable Development Week with a view to elaborating guidelines for effective PSE through development co-operation. See the outcomes and the developments in the topic on the official OECD webpage.
At the corporate responsibility outset, the compliance with ESG standards is a critical pre-requisite for effective PSE through development cooperation. According to the OECD’s approach to PSE, high ESG standards should be a part of how PSE through development co-operation is deployed. Private sector engagement through development cooperation offers multiple benefits and risks. The creation of specific standards relevant for PSE through development co-operation is led by the International Labour Organization, international financial institutions, the UN Global Compact and the Office of the High Commissioner for Human Rights at the United Nations.
Businesses that actively engage in the dialogue with the development community in respect to the future guidelines and principles of the PSE give the following recommendations on how to improve the cooperation with the private sector: (i) building trust, assessing and sharing risks, (ii) promoting inclusive dialogue to articulate national priorities, (iii) generating data and measuring results through a relevant methodology, and (iv) establishing realistic expectations for targeting populations underserved by markets.
