Journal № 1 (15) 2022
The Internet search engine gives the following definition of the term "sustainable financing": "Sustainable financing means investing and making decisions about money taking into account the interests of future generations, as well as taking into account the social consequences and environmental impact that investments can have throughout their life cycle." This definition is not perfect, but it is consistent with the Sustainable Development Goals (SDGs) for the period up to 2030, approved by the UN General Assembly in 2015 as a "plan to achieve a better and more sustainable future for all". Theoretically, sustainable financing is to solve this super-task, although in practice the situation is different.

Of the whole mass of articles on sustainable finance, courtesy of the same search engine, only a few connect it directly with the achievement of the 17 interrelated goals set by the UN and split into 169 specific tasks. In most publications, the requirements for sustainable financing are reduced to compliance with the principles of ESG (Environmental, Social and Corporate Governance), and even those are often considered only in the context of reducing the burden on the environment. At the same time, some authors tend to put an equal sign between ESG and SDG (Sustainable Development Goals).

What tasks has the UN identified as priorities? Goal No. 1 is "End poverty in all its forms everywhere". Goal No. 2 is "End hunger, achieve food security and improved nutrition, and promote sustainable agriculture". Goal No. 3 is "Ensure healthy lives and promote well-being for all at all ages". Goal No. 4 is "Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all". The ecological topic: "take urgent action to combat climate change and its impacts, conserve and sustainability use of the oceans, seas and marine resources for sustainable development, protect, restore and promote sustainable use of terrestrial ecosystems…” and promote their rational use (Goals No. 13, 14 and 15), despite its importance, appears near the end of the priority list. It significantly inferior in rank “to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all" (Goal No. 8).

The Millennium Development Goals (MDGs) were the forerunners to the SDGs. These were eight goals with 21 tasks in total, which the leaders of 193 UN member states and at least 23 international organizations proclaimed in the year 2000, following the adoption of the United Nations Millennium Declaration. They were meant to solve by 2015 largely the same urgent problems as those in the SDGs: eradicate extreme poverty and hunger, ensure full employment and decent work for all, achieve universal primary education, reduce child mortality, combat epidemic diseases and ease the debt burden for the countries of the "third world". Ecology was not forgotten, though the goal "to ensure environmental sustainability" was in the penultimate, seventh place. It would be unfair to say that nothing has been done, but in general, the implementation of this program can hardly be called a resounding success. The main achievements were in countries such as India and China; alas, there were no noticeable changes for the better in sub-Saharan Africa and other problem regions.

The SDG program is only halfway towards its deadline, but the possibility of solving the tasks set is already in doubt. According to World Bank experts, it takes some 2-3 trillion US dollars annually just to achieve Goal No. 1 – "End poverty in all its forms everywhere" – which they consider to be "pure fantasy". The tasks of zero hunger and no poverty, ensuring good health and well-being, inclusive quality education or providing clean water and sanitation (Goal No. 6) and ensuring access to affordable, reliable, sustainable and modern energy sources for all (Goal No. 7) are unlikely to be solved by 2030, which is clear to almost everyone. The Rockefeller Foundation claims that the key to achieving the SDGs is to mobilize for development most of the USD 200-plus trillion of annual private capital flows. The Fundation's sponsors concluded that even if there is a "moral imperative" to achieve the SDGs, failure is inevitable unless there are radical changes in the financing of large-scale shifts. This at least partially explains the attempts to switch the general attention from the SDGs to ESG.

It is not just about the costs or the logic of the SDGs. Pandemic makes the world different, changing priorities, although the old ones, including those lost during the reformatting of the MDGs into SDGs , have not lost relevance. For example, the final Goal No. 8 in the MDGs and Goal No. 17 in the SDGs are similar in meaning and sound ("To achieve the global partnership for development" in the first case and "Strengthen the means of implementation and revitalize the global partnership for sustainable development" in the second). However, the key target of the eighth MDG goal – “develop further an open, rule-based, predictable and non-discriminatory trading and financial system", disappeared in the process of "editing" and is no longer among the priorities. Meanwhile, a trade and financial system based on previously stated principles is more important today than ever.

The role of the financial system and sustainable finance in particular in achieving the SDGs cannot be overestimated. First, we must assess the stability of the financial system itself at the global, regional and national levels, especially after massive budget injections within the framework of the COVID19 programs of the Group of Seven (G7) countries. General financial recovery, the "financial ecology" seems to be an indispensable condition for achieving the SDGs and promoting sustainable financing.

With the avalanche-like growth of budget deficits and public debt of the "Big Seven" countries, it is difficult to count on their allocating of adequate financial resources for the SDGs. But even without proper stimulation by high-income countries of the necessary investments with the help of target loans, subsidies, state guarantees and tax incentives, the mobilization of a significant part of private capital flows for development will remain an illusion. Public-private partnership (PPP) is of paramount importance for sustainable finance – the only real way to financial saturation of large-scale projects under SDG programs. Nevertheless, the hasty widespread implementation of the "ESG principles", which the Expert RA rating agency in its recent analytical review "The Future of Sustainable Financing in the Russian Federation: Banks Form the Market" called "principles of sustainable development", is likely to become counterproductive. A strict approach with reference to ESG to the selection of any projects and objects for loans and investment or the provision of economic assistance will certainly affect, for example, the pace of the least developed countries reaching a new level of development. And since the ESG criteria have not yet been fully developed and agreed at the global level, subjectivism in approaches and assessments will certainly manifest itself.

A simplified approach to sustainable financing, its identification with the socalled "green deals" and decarbonization of economies promises little good. Experts are already seeing the shift in focus from all 17 UN SDGs to climatocentric Goal No. 13 as one of the three main trends of sustainable financing, along with the formation of chains of interaction – bundles between market participants who impose "a la ESG" requirements on each other, as well as the transition from voluntary ESG initiatives formulated in a soft form to strict standards of market regulation.

The initiative to take into account environmental, social and managerial aspects in the process of investment analysis and credit decision-making belongs to the UN, where in 2005 a task force was created to develop a set of voluntary Principles for Responsible Investment (PRI). The United Nations Environmental Program (UNEP) funded this work, which could not but affect the emphasis in the final six principles and the key triad laid down there: "environmental, social aspects and management issues". Having borrowed this from the PRI, ESG adherents focus on ecology, whereas for most states, the social problems that have receded into the background are the most urgent. Moreover, to present the use of these three parameters designed for improving the daily activities of companies as a universal tool for managing sustainable development is at least wrongful.

Brian Moynihan, head of the Bank of America and the World Economic Forum’s International Business Council, in 2019 proposed the development of unified ESG standards. The idea was picked up by the "Big Four" firms providing accounting, auditing and consulting services – EY, Deloitte, PwC and KPMG. A White Paper on unified ESG metrics appeared in record time, and the WEF management offered its services for their promotion and implementation.

In addition to difficulties in achieving the SDGs and the desire to divert public attention from unsuccessful attempts to solve the most pressing development problems* , attempts to replace universally recognized priorities with a kind of surrogate for sustainable development can also be explained by a banal desire to earn more from those who influence the global agenda. A whole network of consulting services has already developed for those who voluntarily or forcibly use ESG in their daily activities. Both pay a lot of money to consultants and verifiers, for example, when issuing "green bonds". The clan of ESG experts as expected is headed by the same "Big Four". Unfortunately, there is also a desire to reinforce the technological superiority of the "golden billion" countries over the rest of the world through the ESG principles, a desire to use the environmental factor as a means of discrimination and an instrument of unfair competition.

The impact of ESG on achieving the SDGs is far from clear. The unified ESG standards proposed by Davos management together with the Big 4 will inevitably have a negative impact on the positions of the least developed countries and emerging markets, as well as SMEs involved in foreign trade, cross-border cooperation or capital markets activities. Due to the lack of forces and means for the urgent transformation of enterprises and entire industries on the ESG principles, in the near future many will face problems in the sale of their goods and services, which the developed countries may consider "not green enough". Penalty fees are being prepared for such deliveries. Financial difficulties await borrowers whose projects will not pass the test for compliance with the ESG principles, and for so-called "dirty" products, global financial centers may close altogether. Such a "sustainable finance" is being built for the near future!

It is difficult to say how the energy needs of underdeveloped countries will be met, where over a billion people do not know any source of energy other than open fire. Moreover, due to what one can expect significant improvement of living conditions in the poorest countries and the acceleration of their social and economic development declared by global leaders?

Last year's large-scale new issue of the Special Drawing Rights (SDR), but distributed according to the old scheme, is indicative of the situation with the SDGs financing. This issue by the International Monetary Fund (IMF) equal to USD 650 billion significantly exceeded the total SDRs emission over the past decades. Of this amount, distributed among the IMF members according to their quotas, developing countries and emerging markets received USD 274 billion, while the lion’s share has gone to the G7 countries that are not feeling a special need for money. This is something to consider in terms of sustainable financing and using the opportunities of the international financial system to achieve the SDGs.

Sustainable financing, lending or investments consist of several "building blocks", including objects and sources of financing, forms, cost, terms and other conditions for the provision of funds, borrowers, as well as final beneficiaries and final socio-economic effect of financial injections. Sustainable finance involves a combination of loans, investment, subsidies and guarantees, private and public money in different combinations. For both investors and recipients of money, the currency component of financing is also important – the wrong choice of which can undermine the stability of not only the entire structure of financing, but also its participants.

Recently, in the context of sustainable finance, there is often talk about the need for a strict taxonomy in the field of ESG and the inadmissibility of its fragmentation. At the same time, equalization in this area, attempts to treat in the same way countries with high, medium and low incomes, small enterprises and multinational corporations may cause a rejection of the reasonable desire for carbon neutrality. So, it is worth looking for compromise solutions that take into account different circumstances and opportunities of certain financial market participants.

A curious experience of taxonomy – the classification and systematization of complex, hierarchically correlated entities – can be gleaned from the American healthcare system. At the height of the pandemic in New York, a special scoring program was tested to determine the rights of different categories of patients to a bed. All other things being equal, the benefits of hospitalization were given to citizens with dark skin color, on the grounds that they simply did not have the same opportunity to take care of their health in a timely manner as white Americans. Why not then determine the scale and timing of the "greening" of national economies and, accordingly, the application of ESG criteria in the process of sustainable financing, depending on the "contribution" of each country to the common “piggy bank” of climate and environmental problems, on the real possibilities of allocating the necessary resources to reach zero ecological footprint and the overall task of leveling the socio-economic development of countries and regions? This logically implies a special approach to middle- and low-income countries and diversification without fragmentation can be the result.

Sustainable financing implies a constant search for a balance between the interests of social well-being, universal economic development and environmental security, taking into account the objective possibilities of the environment itself. Sustainable finance should also be based on these “whales”.

Taking into account the reality, the SDGs require a deep rethinking and adjustment ahead of the UN deadlines. The role of sustainable financing (investment and lending) also requires more reflection and comprehensive analysis on the part of business and government to achieve the updated Millennium Goals. Favorable conditions are created by the fact that India and Brazil will successively follow Indonesia in the G20 and B20 presidency , and then, most likely, it will be the turn of South Africa– the only member country of the G20 that has not yet chaired it. And these are not only the countries classified by the Indonesian B20 team as the middle-income group requiring a special approach, but also our BRICS partners. The development in BRICS, as well as in the SCO and the EAEU of a unified approach to solving problems on the agenda will contribute not only to the successful promotion of the collective position at any forums, but also to the practical implementation of agreed proposals for the benefit of the global world community.

* According to the UN World Food Program, there is enough food produced in the world to feed all the people living on our planet. But at the same time, more than 5 million children die every year from hunger-related diseases. In 2019, 690 million people suffered from hunger – 10 million more than in 2018 and almost 60 million more than five years ago. Moreover, in 2020, as stated by UN Secretary-General Antonio Guterres, 811 million people have faced hunger.