Sustainable Finance, SDGs, and the European Green Deal

On May 3rd, the SDSN’s Senior Working Group on the European Green Deal launched their 2nd Annual Report, “ Financing the Transformations for the Joint Implementation of Agenda 2030 for Sustainable Development and the European Green Deal ,” which provides an overview of the European Union’s policies established since 2020 in support of the implementation of the European Green Deal; explores the financial trends, tools, and implications related to the joint implementation of Agenda 2030 for Sustainable Development and the European Green Deal (EGD); and stresses the need for private financial flows to be directed toward sustainable projects and activities.

The event kicked off with high level remarks from keynote speakers including Prof. Yannis Ioannidis from the Athena Research Center and Prof. Christos Zerefos from the Academy of Athens. Alongside Prof. Phoebe Koundouri, lead author of the report, they announced the upcoming Global Climate Hub of Athens which will launch later this year. Stemming from Athens University, the Hub will bring together scholars and researchers from around the world to work collaboratively to address the most pressing challenges related to climate change and to identify sustainable pathways through the instruments of technology, finance, and policy.

The audience then heard from a series of high-level Greek national ministerial representatives including Christos Staikouras, Minister of Finance; Christos Dimas, Minister of Research and Innovation; and Christos Stylianidis, Minister for the Climate Crisis and Civil Protection. These high-level government leaders each gave a hopeful and optimistic message about the progress already achieved with the EGD and many of the various European policy strategies that have been developed, and are featured in Chapter 1 of the report. They also emphasized the need for more integration of sustainable development and the Sustainable Development Goals (SDGs) at the core of policy-making and national budgeting across Europe and the world.

Teresa Ribera, Spain's Deputy Prime Minister for the Ecological Transition, also spoke briefly at the event, emphasizing the importance of public administration in making the transformation viable, as its role in procurement, transparency, and budget organization are critical to raising private sector awareness. Ribera also suggested that special attention needs to be put on the social dimensions of the transformation and youth in these transitional times.

Prof. Phoebe Koundouri gave a summary of the report's main objectives, approaches, and findings for analyzing the impacts of the EGD policies on the SDGs. After providing an overview of the wide-ranging EU policies established in 2020-21 to support the implementation of the EGD, the report analyzes whether these policies facilitate SDG implementation. Machine learning and deep learning approaches are used to map EGD policies to the 17 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. Although there is high correlation between EGD policies and SDG 7, SDG 9, SDG 12, SDG 13, and SDG 17, there is low correlation between them and SDG 1, SDG 4, and SDG5, all of which are important for social cohesion. The report then examines critical financial implications of the sustainability transition by analyzing the effect of climate policy on financial performance, estimating the economic value of nature to allow the importance of natural capital to be integrated in investment and policy decisions, proposing an approach for creating corporate incentives proportional to the mitigation effect of new investments, and assessing SDG funding gaps. Furthermore, the report examines whether a selection of seven national Recovery and Resilience Plans (RRPs) facilitate SDG implementation and analyzes recovery spending and the employment effects of the green and digital transitions. Although most SDGs are covered in the RRPs analyzed, the focus of stimulus spending is not always one of the biggest sustainability challenges countries currently face. While advanced economies are nearing the levels needed to shift trajectories toward net zero, emerging and developing economies face narrowing fiscal options as the pandemic wears on.

The report was then presented by a few of the report’s authors, with each speaker highlighting the key messages stemming from their contribution to the report. A brief overview of their remarks is provided below.

Dr. Carlo Papa, Managing Director of the Enel Foundation, reflected on the status of the energy transition and the ongoing geopolitical challenges underway across Europe. Dr. Papa highlighted how climate stresses and climate change have brought us to a crossroad in the energy transition, one where we can either fall behind or move forward faster. To move forward, we must move beyond academic research and ingrain the values of the SDGs into the core of our economic system and invest in the transformation to advance with people at the forefront. This will also create additional economic and employment opportunities in relation to the global energy transition.

Prof. Marzio Galeotti, Director of Scientific Research of Fondazione Eni Enrico Mattei (FEEM), commented on the importance of climate policy in financing the transition and mentioned that this topic presents the next big challenge to pursuing green economic recovery, highlighting the significance of figuring out how to better integrate climate risk into financial investment risk on a systemic level. In the report, Professor Galeotti discusses how financial and environmental performance are associated with three major EU provisions: corporate financial reporting, disclosure, and the EU taxonomy. The report thus includes new evidence demonstrating how closely our climate and financial growth goals are linked, as well as the untapped opportunities for further integration.

Mr. Ketan Patel, CEO of Greater Pacific Capital and Chair of Force for Good, contributed a chapter to the report on sustainable finance and how financial flows in the EU are directed toward SDG and EGD goals. His group examined EU capital deployment in 2021 and found a tenfold increase in the capital committed to net zero, but pointed out that this is still far below what is required to finance the SDGs, which exemplifies the need for systemic transformative change in our capital investments. Moving forward, capital flows must fund opportunities and invest in an inclusive future in which all people in the global community can participate. This will require both innovation and regulatory progress from government and financial agencies. Mr. Patel went on to suggest that the EU has the opportunity to create “a new system of capitalism” that can generate large returns by investing in the EGD, which should be completely linked to the SDGs in order to truly unlock the value that the EU has now launched from the deal.

Theodoros Zachariadis, Professor at the Cyprus Institute and Manager of SDSN Europe, worked on Chapter 4 of the report, which focused on sustainable resiliency and recovery plans and green budgeting. Prof. Zachariadis articulated that the next necessary step is to expand “green budgeting” to “SDG budgeting” that is aligned with the capital ESG investment transition, and commented that this research is directly relevant to policymakers.

Prof. Stefan Brunnhuber, member of the Club of Rome, was asked to suggest how to address the financing gaps for implementing the SDGs. Prof. Brunnhuber opened by highlighting how the Club of Rome published the Limits to Growth 50 years ago in 1972. He then explained how a revolution in the monetary system and the relationship between finance and sustainability can change in order to address the financing gaps impeding the achievement of the SDGs. He concluded by emphasizing that new digital green money mechanisms can be used to realize additional liquidity to mobilize funds for sustainability faster. This work can be found in the report, specifically in ANNEX IV, “Financing the Anthropocene - The European Green Deal (EGD) and Future Shocks.”

These remarks are only a small sample of the content included in the report. For example, the report covers other topics, such as the valuation of biodiversity and ecosystems, including findings on the estimation of the economic value of nature and a demonstration of the positive correlation between marginal willingness to pay for ecosystem services and SDG performance. Prof. Koundouri highlighted that awareness and the monetization of the intrinsic value of ecosystems are crucial in order to prevent nature from being given a default value of zero.

A series of panel discussions then concluded the event. A high-level policy panel consisting of members from the European parliament, financial institutions, and UN institutions shared which factors they each thought were the most crucial to finance and achieve the transformation. Enhancing public awareness and participation, for example, was emphasized as a key driver. Investment in resources for systemic change and social inclusion, along with sustainability justice, was also highlighted. Furthermore, the panelists agreed that the development of innovative solutions to address both the SDGs and climate goals must be achieved through an integrated approach combining technology, policy, and financial instruments.

“Decarbonization, from the transformation of the energy system and land use, resilient societies, and justice, are three crucial dimensions that we must address now.” – Prof. Jeffrey Sachs

In order to learn more, read the report.