Sustainable Development Goals Need and Financial Sector Imperatives

Abstract

Currently, the private investment is not enough to fill the US$ 2.5 trillion gap of SDGs, this will endanger the SDGs achievements in 2030. The financial sector needs to be aligned with the SDGs in order to fill the finance gap. The financial sector’s imperative includes standardizing SDG accounting and reporting to identify strengths and weaknesses, assess and quantify the risk and opportunities for the banking industry in addressing the SDGs; and developing innovative financial products that address the SDGs. Governments and financial regulators need to align financial regulation with the SDGs and offer financial mechanisms to mitigate financial risks in addressing the SDGs. The paper theoretically shows that the current portfolio allocation of institutional investors by taking account of SDG indicator based on various consulting companies’ measurements of SDGs will distort optimal portfolio allocation and not meet the SDGs by 2030. The desired portfolio allocation based on the paper model, can be achieved by taxing the negative externalities such as pollutions, wastes, and plastics, globally with the same tax rate. Finally, although adopting the international taxation system on GHG and plastic might be desirable, it might not be easy for developing countries. It is recommended to start adopting such a system in regions where economic cooperation and economic integration exist, such as in the Association of Southeast Asian Nations (ASEAN).