Agenda 2030 for Sustainable Development, co-signed by 193 UN Member States in 2015, is a globally accepted pledge for poverty eradication and sustainable development achievement on a global scale by 2030, considering three pillars of sustainable development – economic, social, and environmental.
The European Leadership has decided to integrate the Agenda 2030 into the strategic guidelines on various policy areas and the European Semester, the central process for coordinating national economic and employment policies in the EU, putting 'people and the planet at the center of EU policy.
The European Green Deal, introduced in December 2019 by the European Commission, serves as Europe’s growth plan aiming to make it a climate-neutral, resource-efficient, innovative, and socially inclusive continent. It includes several goals spanning many different policy areas, such as Clean Energy, Sustainable industry, Buildings and Renovation, Sustainable Agriculture Farm to Fork, Eliminating Pollution, Sustainable mobility, Biodiversity and Sustainable Finance. Moreover, as a response to the health, environmental, and economic consequences of the COVID-19 pandemic, the European Commission introduced 2021, the “Next Generation EU”, a generous package of funds to mobilize policies supporting economic recovery while pursuing Europe’s green and digital transition.
In 2021, SDSN Europe established a Senior Working Group (SWG), consisting of top-level academics and stakeholders, to successfully mobilize expertise to implement the aforementioned challenging context successfully. Its first report, entitled “Transformations for the Joint Implementation of Agenda 2030 for Sustainable Development and the European Green Deal: A Green and Digital, Job-Based and Inclusive Recovery from COVID-19 Pandemic”, was published in February 2021 to support policymakers with actionable strategies that can guide EU-wide and national economic recovery in line with Europe’s overarching sustainability agenda.
This second SWG Report focuses on how to finance the joint implementation of Agenda 2030 and the European Green Deal.
Strategic and competitive position of the EU
The key findings and recommendations are as follows:
Maintain leadership in Climate Change. The EU is and should continue to lead the world in mandating and regulating change.
Leverage the EGD fully to maximize the impact on the SDGs. The European Green Deal policies are related to the SDGs, including Goals 16 and 17 and therefore offer the opportunity to more formally enhance the EU’s contribution to the SDGs. Separately, given the EGD, the EU should consider the additional actions required to leverage the EGD to lead the world in the implementation of the SDGs.
Reform the legal systems to require non-financial reporting on externalities. Companies that are responsible actors are more profitable in the medium to longer term than those that are not and so the EU can lead in managing a more holistic approach to reporting profit and losses encompassing ecological transition and the value of three main types of Ecosystems: Terrestrial, Marine, and Freshwater.
Create competitive advantage for the EU through multi-stakeholder innovative solutions. The EU should lead the world in the innovation of solutions to meet the SDG shortfall, estimated at c.US$100 trillion, through collaborations between governments and NGOs with knowledge of the issues, private corporations with solutions, financial institution with capital and by empowering individuals with the information to make conscious buying choices.
Develop resilience plans for EU member states and EU wide measure. Measures are required to address demographic risks, social protection, economic strength, policy capacity, and global coordination for a range of potential future crises based on significant gaps in resilience and preparedness highlighted during the pandemic, but given the war in Ukraine, a broader scope is required.
Maximize the value of stimulus to climate and SDG impact requirements and metrics. The EU has the opportunity in future to align stimulus and its impact goals given the finding that of the USD 2.3 trillion directed toward investments that could have been climate-friendly, total government spending earmarked for clean energy and sustainable recovery measures is only around 3%.
Taken together, these measures have the potential to position the EU economically, socially, geopolitically as a leader in sustainability and more importantly have the potential to re-orient the system of capitalism toward a more responsible form better suited to manage the transition of the world out of an industrial era and towards a more sustainable and inclusive one. Leading the world in this endeavor has significant benefits for the competitiveness of the EU relative to other world powers and for its member states, companies and individuals as well setting an example for the world at large.
Outline of contents
The report provides a detailed perspective on the requirements for implementing the EU’s Green Deal. It starts in Section 1 by providing an overview of the wide-ranging EU policies published in 2020-21 in support of the implementation of the European Green Deal. Many initiatives have been launched in Europe during the last two years, including sectoral and cross-cutting strategies. In climate policy alone, and in response to the latest findings of the Intergovernmental Panel on Climate Change that climate change mitigation and adaptation policies need to be implemented at unprecedented scale and speed, the EU has initiated an unparalleled process of introducing more than a dozen of legislative proposals in all climate-related topics.
Then, in Section 2, we map these Policies to the 17 Sustainable Development Goals (SDGs) and the 6 Transformations of Agenda 2030 to help decision-makers understand how the different policies affect the transformations that countries need to undertake to achieve sustainability. This is done by building on the text-mining methodology developed in the first SWG report of 2021 and validating the mapping results through a method to automatically classify EU policy documents under the SDGs with Machine Learning techniques. Among many interesting findings, our analysis highlights the connection of European Green Deal policies not only to the expected thematic SDGs but also to Goals 16 and 17, indicating that progress towards sustainability passes through “Peace, Justice and Strong Institutions” (SDG 16) and international “Partnerships for the Goals” (SDG 17).
Section 3 sheds light on some critical financial implications of the Sustainability Transition. Through a combination of case studies and best practices, we identify in Sections 3.1 and 3.3. a gradually changing paradigm towards greening the financial system. Unlike in the past, it turns out that sustainable companies are rewarded in financial markets; different kinds of public and private green bonds are introduced; central banks play a crucial role in this transition, and fiscal measures like the removal of environmentally harmful subsidies are gaining traction in real-world policymaking. However, a fundamental common characteristic of best practices is that they combine the common goal of profit creation with those of social and environmental impact. Therefore, it is essential to reform our legal systems to accommodate the move toward multidimensionality of organizational and corporate goals and to broaden too narrow boundaries that limit corporate action to the interest of shareholders. For this purpose, the development of non-financial reporting can be a solid stimulus for communication and dissemination of best practices to help organizations and companies monitor their progress in ecological transition, which is nowadays a fundamental part of their competitiveness.
Section 3.2 focuses on the importance of Natural Capital for the transition to sustainability. Although numerous studies have demonstrated the emergency of biodiversity loss, less evidence has been provided on the changes we need at a political, financial and economic level to slow down and reverse this path. Therefore, to help stakeholders anticipate the value of Nature and its contribution to society, we perform an analysis to economically evaluate the services provided by three main types of Ecosystems: Terrestrial, Marine, and Freshwater. Integrating this ecosystem valuation into the SDG framework, it is possible to translate the SDG implementation to monetary values. Our results indicate that the Willingness to Pay (WTP) of citizens varies by Ecosystem Service and by Bio-Geographical Region for all ecosystems (Terrestrial and Marine & Fresh water), and call for structural changes to tackle biodiversity loss.
However, SDGs are still significantly underfunded by governments and private investors; the actual SDG funding gap is estimated at around 10% of today’s global GDP. The overall volume of financing is insufficient, but its allocation is imperfect, too. Most of the current spending appears to be allocated to advanced economies and focuses on climate and environment-oriented Goals, whereas there is a massive shortfall in funding for human, economic, and social SDGs. The world needs the coordination of governments, individuals, and private corporations beyond traditional financial services companies to remedy this. Efficient collaboration between the UN, national governments and the private sector will require a shared blueprint of goals, deliverables, roles, and actions. Section 3.4 provides an outline of such an approach.
Section 4 lays out a framework for the post-pandemic world: mainstreaming funds to allow an SDG-based economic recovery and learning lessons from differences in pandemic resilience of world regions. This includes assessing the aforementioned “Next Generation EU” funding package against SDGs in Section 4.1. More specifically, we look in detail at the National Recovery and Resilience Plans of seven South European Member States and identify similar patterns across countries in supporting the green energy transition while underfunding other systemic sustainability challenges. Section 4.2 looks at the resilience of eight major countries across five resilience factors related to demographic risks, social protection, economic strength, policy capacity, and global coordination. The analysis finds significant gaps in resilience and preparedness of different countries, which can only be addressed by working together across boundaries and effectively within countries.
Finally, Section 4.3 includes the latest findings of the International Energy Agency’s Sustainable Recovery Tracker. Of the USD 2.3 trillion directed toward investments that could have been climate-friendly, total government spending earmarked for clean energy and sustainable recovery measures is only around 3% of the full fiscal support unleashed in response to Covid-19 worldwide. Moreover, spending in emerging and developing economies remains only one-tenth of the level seen in advanced economies. Beyond this geographic misalignment, only a balanced, multi-sectoral portfolio of recovery measures would deliver the emissions reductions consistent with what is needed to stabilize the global climate and reach net-zero greenhouse gas emissions by 2050.
In summary, the very wide-ranging policy initiatives of 2020-2021 are tangible examples of the willingness of EU leaders to adopt SDGs as Europe’s economic development framework. The substantial alignment of the European Green Deal with SDGs is a clear finding of our report’s analysis. However, even this ambitious framework may fall short of the necessary action to tackle major sustainability challenges, as indicated by independent assessments outlined in Section 5. Moreover, since the financing needs are huge, sustainable finance aspects will be the main topic of further work of this Senior Working Group in the coming years.