Digitalization’s impact on financing for the SDGs is not a matter of technology adoption but of choice and agency.
The Task Force’s call to action is to harness digitalization to advance citizen-centric finance to accelerate financing for the SDGs. Implementing such a call to action is no small matter given the scale and dynamic complexity of today’s global finance. Governments, regulators, financial practitioners and experts are likely to argue that such a vision is impractical, that citizens are not capable of managing their own basic financial affairs, let alone the broader landscape of global finance. ‘Leave it to the professionals’ might be an expected, and well-intentioned response. But such responses miss the point. There is without doubt a need for deep expertise in effectively deploying the world’s financial resources. The shift needed is for such expertise to be in the service of citizens, the owners of the money being deployed.
Digitalization could enable evolution from financial inclusion to citizen-centric finance. Digitalization has already supported the first steps in enabling many individuals and small businesses to gain access to financial services. Citizen-centric finance, however, needs to empower people as buyers, savers, investors, borrowers and lenders, as well as tax-payers and the users of public services and infrastructure.
Systemic change can be triggered by advancing catalytic opportunities. The pursuit of ambitious opportunities is likely to catalyse the evolution of an SDG-aligned financing ecosystem. Systems are path dependent. Repeated consideration of the SDGs in financing decisions creates new norms of behaviour and drives the creation of new forms of enterprise and financial products which may be ultimately scaled through enabling rules. Kenya’s M-Pesa, for example, was launched into largely unprepared financial markets, governance arrangements and technological infrastructure. Its rapid success in itself catalysed the development of many new financial services and enabling rules and governance arrangements. Digital foundations, such as digital ID and even basic infrastructure, are not therefore always well developed in advance of such opportunities but are catalysed by their very presence. Developing countries, often unencumbered by legacy systems, can be agile at developing and encouraging innovation.
The Task Force makes three, interconnected sets of recommendations:
- Advance catalytic opportunities to deliver financing for specific sustainable development goals.
- Build foundations for sustainable digital financing ecosystems, including:
- infrastructure: accessible, affordable connectivity, digital ID and data markets.
- planning, institutions, and learning: developing national and in some cases regional ecosystems that steer the evolution of SDG-aligned digital financing.
- capabilities: building people’s capacity to benefit from online connectivity and digital finance, ensuring rights and protections.
- Strengthen inclusive international governance to develop policies, regulations, standards and corporate governance arrangements at the international level.
A series of pathfinder initiatives have been developed in association with the Task Force to exemplify how the recommendations might be implemented.
Robust, accessible, affordable and secure digital foundations are a prerequisite to citizen-centric, SDG-aligned finance. This includes the core digital connectivity and payments infrastructure, digital IDs, and data markets that enable financial innovation and low-cost service delivery.
Emerging digital financing ecosystems need steering to align with local, national and regional sustainable development priorities. Governments, market facilitators, established financial institutions and newcomers, and civil society groups have largely pursued digitalization of finance as a means modernize, boost efficiency, and expand the reach of financial services separately from sustainable development objectives. Digitalization’s potential is much greater. If steered appropriately, it can help integrate local, national and regional SDG priorities into the heart of private and public decision-making about financial flows.
Empowering citizens in financing decisions requires investment in individual and collective capabilities, rights and protection. Citizens need to have adequate options and be informed, able and willing to act on timely, relevant information, in choosing what to buy, and as borrowers, savers, investors, and tax-payers. Supporting informed choice is one of the greatest challenges in establishing citizen-centric finance. Achieving even basic financial literacy has proven a challenge in most countries. All the more so when citizens are faced with an information blizzard from the market as well as from opinion-setters about the causes and consequences of environmental and social challenges and solutions.
International financial governance needs to support citizen-centric finance. International standards and norms shape global finance, and so also the basis on which citizens act, as well as how the SDGs may be directly factored into financing and monetary decisions. Such standards and norms already seek to secure financial and monetary stability, market integrity, and consumer protection. Moreover, financial inclusion, preventing financial crime, taxing multinational businesses, and more recently green finance and climate change have become legitimate topics for international cooperation by central banks, governments and financial regulators. The Network of Central Banks and Supervisors for Greening the Financial System has encouraged its members to integrate sustainability factors into their portfolios, including their own funds, pension funds and reserves, without prejudice to their primary mandates. Under Argentina’s Presidency, the G20 for the first time considered the nexus of digital finance and sustainability.
Deeper advances are urgently needed for broader consideration of the SDGs in international financial rule-making. Digitalization offers powerful opportunities through increasing returns to scale. Emerging digital finance platforms achieve global reach and carry cross-border implications for citizen’s choices and countries’ development. A principles-based approach is needed to govern such platforms in ways that align with citizen’s needs and the SDGs.