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Guest Article: Re-thinking and Revitalizing SDG Financing | SDG Knowledge Hub | IISD

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Guest Article: Re-thinking and Revitalizing SDG Financing | SDG Knowledge Hub | IISD

By Damien Barchiche, Ivonne Lobos, Niels Keijzer, George Marbuah, and Elise Dufief

The many tumultuous events that the world has faced since the adoption of the 2030 Agenda for Sustainable Development and the sheer challenge of the transformative changes it foresees underline that no country can finance the SDGs and other development agendas by freeing up more financial resources alone. Instead of such ‘business-as-usual’ efforts, systemic changes are needed in public and private finance towards achievement of the SDGs.

Delays in implementing the Paris Agreement on climate change and 2030 Agenda increasingly appear to come partly from unmet financing needs as well as the inability and unwillingness of the Group of 20 (G20) to move away from fossil fuel subsidies. The current state of play reflects the international financial architecture’s failure to channel resources to the world’s most vulnerable economies at the necessary scale and speed.

For the UN Secretary-General, this failure poses a growing and systemic threat to the multilateral system itself, as it leads to increased disparities, geo-economic fragmentation, and geopolitical divides across the globe. At the beginning of 2023, UNDP reports, 52 low- and middle-income countries (LMICs), representing more than 40% of the world’s poorest population, were either in debt distress or at high risk of debt distress, and 25 of these countries have external debt service repayments in excess of 20% of their total revenues.

To enable developing countries to deliver on the SDGs, the Secretary-General has called for an SDG Stimulus: an additional USD 500 billion per year to be delivered through a combination of concessional and non-concessional finance. The plan calls for the international community and multilateral development banks (MDBs) in particular to significantly scale up funding for global public goods, and for countries to align all forms of finance with the SDGs, including by utilizing Integrated National Financing Frameworks (INFFs).

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As part of an effort to elevate the debate on financing the SDGs in developing countries, IDOS, IDDRI, and SEI have joined forces to conduct a study that enables better analysis of concrete challenges to address SDG financing in developing economies. The study focuses on the global picture and analyzes the state of play, recent initiatives, and prospects for financing the SDGs in Ghana, Indonesia, Mexico, and Senegal. We seek to answer the following question: how and under what conditions can partner countries further align their development plans and policies with the 2030 Agenda and the SDGs to better finance their objectives? As the UN Secretary-General states, more money needs to be made available globally for vulnerable countries, which is one of the key challenges today. However, it is also important to support countries in their ability to express their needs for investments for sustainable development, so that the money flows and is attracted to the right investments. The study’s main conclusion is that this alignment and effective SDG financing are possible when four main conditions are met. 

Condition number one: Avoiding SDG-incompatible financeWhile SDG financing gaps need to be considered and addressed, it should not be forgotten that for many countries – notably Organisation for Economic Co-operation and Development (OECD) and BRICS (Brazil, the Russian Federation, India, China, and South Africa) states – realizing the 2030 Agenda is just as much about financing less as it is about financing more. Examples include less financing for approaches that compromise specific SDGs (e.g., fossil fuel subsidies) and making difficult policy decisions that require short-term costs to achieve long-term sustainability gains.

Condition number two: Long-term financing needs to be combined with long-term planning. Development financing strategies, operationalized through the INFFs or other frameworks, provide public and private investors with clarity and predictability. This allows key actors to better grasp the sequence of investments across relief, recovery, and long-term structural transformation. If conducted in an integrated manner, such financing strategies could allow for easier and more affordable access to financing by countries. Planning efforts should also seek to avoid lock-in situations and path dependencies where short-term recovery expenditure could hamper long-term goals of reducing inequalities or advancing environmental protection, and even increase vulnerabilities.

Condition number three: Governments, MDBs, the private sector, and other actors need a better understanding of the cost and benefits of SDG financing at country level. A clear understanding of allocation and spending on public services and public investments that contribute to the SDGs can provide information to identify the scale of funding shortfalls for the SDGs. When calculating costs, double-counting investment needs should be avoided while the identification of synergies between different types of investment should be prioritized. In view of the competing short-term claims on public budgets as witnessed in recent years, including COVID-19-related costs as well as public debt challenges, the benefits of SDG financing will also have to be concretized to justify and defend the long-term investments made. Ghana, Indonesia, Mexico, and Senegal all have a wealth of plans and strategies related to financing sustainable development. These should not be added to but rather finetuned and further operationalized where appropriate. Further progress can be made in connecting those plans to develop detailed and targeted financing plans to support their development objectives.

Condition number four: SDG financing instruments – and international support for these – need to be fully aligned with the country’s needs and priorities. The various tools developed for SDG budgeting, be it the development of INFFs or SDG bonds, can help improve access to and impact of funding and lead to better implementation to achieve the Goals, but only if developed in support of country-owned processes. In practice, they can be the cornerstone of strengthening financing for the SDGs in countries and establish more coherent links between the SDGs and development strategies, as well as their implementation. However, the case studies demonstrated, these tools only prove relevant if they do not add complexity to the administration but are well integrated into and supportive of existing national processes. To achieve this, they should also be sufficiently concretized and operational through dedicated targets and quantifiable indicators. One of the shared challenges across countries is to link these tools together according to local needs, to reinforce and consolidate national or local strategies for financing the SDGs. International partners should fully recognize, follow, and align to such national strategies in their dialogue with governments on international support to national SDG financing efforts.

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Way forward

To internationalize and guarantee these four conditions, it is critical that financing stakeholders and governments acknowledge the nature of the situation and the urgency to act. This requires that they acknowledge that the current international architecture is failing to fulfil its essential mission to support stable long-term financing for the SDGs. International actors should further support fundamental reforms and redesign of the international financing system, particularly by providing ways to secure long-term financing.

The 2023 Global Summit of Public Development Banks and the SDG Summit, both taking place in September, the IMF-World Bank annual meetings in October, as well as the 2024 G20 Summit in Brazil, are crucial platforms to discuss and further the design of key financial institutions in a manner that supports effective change at country level. We hope that leaders participating in these meetings will advance concrete and ambitious commitments and agreements in this regard.

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This article was written by:

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  • Damien Barchiche, Director, Sustainable Development Governance Programme, Institute for Sustainable Development and International Relations (IDDRI);
  • Ivonne Lobos, Senior Expert, Stockholm Environment Institute (SEI);
  • Niels Keijzer, Project Lead and Senior Researcher, German Institute of Development and Sustainability (IDOS);
  • George Marbuah, Research Fellow, SEI; and
  • Elise Dufief, Research Fellow

Finance

Russian court seizes assets worth €700mn from UniCredit, Deutsche Bank and Commerzbank

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Russian court seizes assets worth €700mn from UniCredit, Deutsche Bank and Commerzbank

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A St Petersburg court has seized over €700mn-worth of assets belonging to three western banks — UniCredit, Deutsche Bank and Commerzbank — according to court documents.

The seizure marks one of the biggest moves against western lenders since Moscow’s full-scale invasion of Ukraine prompted most international lenders to withdraw or wind down their businesses in Russia. It comes after the European Central Bank told Eurozone lenders with operations in the country to speed up their exit plans.

The moves follow a claim from Ruskhimalliance, a subsidiary of Gazprom, the Russian oil and gas giant that holds a monopoly on pipeline gas exports.

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The court seized €463mn-worth of assets belonging to Italy’s UniCredit, equivalent to about 4.5 per cent of its assets in the country, according to the latest financial statement from the bank’s main Russian subsidiary.

Frozen assets include shares in subsidiaries of UniCredit in Russia as well as stocks and funds it owned, according to the court decision that was dated May 16 and was published in the Russian registrar on Friday.

According to another decision on the same date, the court seized €238.6mn-worth of Deutsche Bank’s assets, including property and holdings in its accounts in Russia.

The court also ruled that the bank cannot sell its business in Russia; it would already require the approval of Vladimir Putin to do so. The court agreed with Rukhimallians that the measures were necessary because the bank was “taking measures aimed at alienating its property in Russia”.

On Friday, the court decided to seize Commerzbank assets, but the details of the decision have not yet been made public so the value of the seizure is not known. Ruskhimalliance asked the court to freeze up to €94.9mn-worth of the lender’s assets.

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The dispute with the western banks began in August 2023 when Ruskhimalliance went to an arbitration court in St Petersburg demanding they pay bank guarantees under a contract with the German engineering company Linde.

Ruskhimalliance is the operator of a gas processing plant and production facilities for liquefied natural gas in Ust-Luga near St Petersburg. In July 2021, it signed a contract with Linde for the design, supply of equipment and construction of the complex. A year later, Linde suspended work owing to EU sanctions.

Ruskhimalliance then turned to the guarantor banks, which refused to fulfil their obligations because “the payment to the Russian company could violate European sanctions”, the company said in the court filing.

The list of guarantors also includes Bayerische Landesbank and Landesbank Baden-Württemberg, against which Ruskhimalliance has also filed lawsuits in the St Petersburg court.

UniCredit said it had been made aware of the filing and “only assets commensurate with the case would be in scope of the interim measure”.

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Deutsche Bank said it was “fully protected by an indemnification from a client” and had taken a provision of about €260mn alongside a “corresponding reimbursement asset” in its accounts to cover the Russian lawsuit.

“We will need to see how this claim is implemented by the Russian courts and assess the immediate operational impact in Russia,” it added.

Bayerische Landesbank and Landesbank Baden-Württemberg both declined to comment. Commerzbank did not immediately respond to a request for comment.

Italy’s foreign minister has called a meeting on Monday to discuss the seizures affecting UniCredit, two people with knowledge of the plans told the Financial Times.

UniCredit is one of the largest European lenders in Russia, employing more than 3,000 people through its subsidiary there. This month the Italian bank reported that its Russian business had made a net profit of €213mn in the first quarter, up from €99mn a year earlier.

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It has set aside more than €800mn in provisions and has significantly cut back its loan portfolio. Chief executive Andrea Orcel said this month that while the lender was “continuing to de-risk” its Russian operation, a full exit from the country would be complicated.

The FT reported on Friday that the European Central Bank had asked Eurozone lenders with operations in the country for detailed plans on their exit strategies as tensions between Moscow and the west grow.

Legal challenges over assets held by western banks have complicated their efforts to extricate themselves. Last month, a Russian court ordered the seizure of more than $400mn of funds from JPMorgan Chase following a legal challenge by Kremlin-run lender VTB. A court subsequently cancelled part of the planned seizure, Reuters reported.

Additional reporting by Martin Arnold in Frankfurt

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Treasury details response to illicit finance threats of money laundering, terrorism

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Treasury details response to illicit finance threats of money laundering, terrorism
  • US Treasury releases report on illicit finance.
  • Prosecution of Binance held up as example of success.
  • Investment needed to train enforcement professionals.

The US Department of the Treasury this week released its 2024 report on illicit finance, examining threats of money laundering and terrorist financing and its strategies to combat them.

The Treasury cited professional money launderers, financial fraudsters, cybercriminals and those seeking to finance terrorism as ongoing threats to the US financial system.

The 44-page report said anti-money laundering/countering the financing of terrorism (AML/CFT) efforts must continue to adapt in order to be effective.

Among the vulnerabilities cited were obfuscation tools and methods such as mixers and anonymity-enhancing coins, AML/CFT compliance deficiencies at banks and complicit professionals who help facilitate illicit financial activity.

The Treasury cited the prosecution of Binance as an example of its success in supervising virtual asset activities.

Binance failed to prevent criminals, sanctioned entities, and other bad actors from laundering billions of dollars in dirty money, according to court papers. The company pleaded guilty and agreed to pay $4.3 billion in fines and restitution, DL News reported.

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Additionally, Binance co-founder Changpeng Zhao was sentenced to four months in federal prison for violating US banking laws and fined $50 million.

The US must continue “to invest in technology and training for analysts, investigators, and regulators to develop further expertise related to new technologies, including analysis of public blockchain data,” the report said.

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Such expertise is crucial to the government’s ability to develop responses to new ways in which criminals misuse “virtual assets and other new technologies to profit from their illicit activity,” it said.

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San Bernardino finance director claims she was fired after raising concerns about costly project

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San Bernardino finance director claims she was fired after raising concerns about costly project

SAN BERNARDINO, Calif. (KABC) — The former finance director of the city of San Bernardino is alleging she was threatened and fired by the current city manager, after raising concerns about the potential cost of a project to renovate the old city hall building.

Barbara Whitehorn made the allegations during the public comment portion of the city council meeting on May 15.

“I came back from vacation today, and I was fired today,” said Whitehorn, at times tearing up while making her statement. “I am no longer in the employ of the city of San Bernardino after being threatened today (by the city manager) of having information damaging to my career released into the public domain.

“Then after saying, ‘Please do so, Mr. city manager, because you’ll have to fire me before doing that, he said, ‘Oh, then I’ll just fire you without cause.’”

Whitehorn alleges that the costs to retrofit the old city hall building are spiraling out of control. The building has sat empty since late 2016 after being vacated over concerns that it could collapse during a big earthquake.

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“It’s a project that has expanded from $80 million to about $120 million and that number is nowhere to be seen on this (public) agenda. This city does not have that money,” she said.

A presentation was made to the city council in January 2024 outlining the process by which city hall would be retrofitted. City manager Charles Montoya said the city is currently incurring increasing costs for leasing space in separate buildings to maintain city services.

“If we don’t do this now, sooner or later that building is just going to become a gigantic door stop,” said Montoya during the meeting.

He acknowledged when asked by city council members that there is no projected final cost for the project yet.

“The reason we’re doing it this way is speed, to get this thing done. Our lease in the city building is up in two years; we don’t want to sign another lease where we’re just throwing money out the window.”

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Two days after her appearance before the council, the city released a statement in response to Whitehorn’s remarks.

The statement claimed Whitehorn was fired for reasons unrelated to the city hall project and disputed some of her other claims.

“However, contrary to Whitehorn’s claims, the renovation project has yet to be designed, and construction costs have yet to be determined,” read the statement, attributed to Public Information Officer Jeff Kraus. “Construction cost estimates and project financing options will be presented to the Council during future meetings.”

“The City of San Bernardino has confirmed that Whitehorn was an at-will employee and was terminated for cause involving financial issues that were unrelated to the City Hall project.”

The statement also said discussion of the city hall project was postponed from that night’s council agenda because there was not enough time to consider the matter and hear from the public.

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