This family in Tuvalu* is at the frontline of the effects of climate change. The water is only 10 metres from their house at high tide. Tuvalu rarely exceeds 3 metres above sea level, and at its widest point it spans about 200 meters. Tuvalu is extremely vulnerable to the adverse impacts of climate change. Rising sea levels combined with extreme weather events is contributing to the inundation of low-lying areas. Coastal erosion is also a major problem in Tuvalu, particularly on the western side of the islands. Credit: Mark Garten/UN Photo

By Liu Zhenmin
UNITED NATIONS, Apr 14 2021 (IPS)

Millions of lives lost. Trillions of dollars in economic damage. Over 120 million more people pushed into extreme poverty. The human and economic toll of the COVID-19 pandemic is almost unimaginable – a once-in-a-century catastrophe.

But in fact, the pandemic heralds a new normal – a world of systemic risks, where disasters and shocks do not remain local, but can have unpredictable and escalating global consequences. Humankind must come to terms with our fragility and heed the harsh lessons COVID-19 has taught us.

Our economies and societies are ever more interconnected. This is a source of prosperity and efficiency, but also makes us vulnerable to contagion and cascading crises. Global risks – pandemics, financial crises, climate change – increasingly undermine the progress we have made in the fight against poverty.

Unless we adjust, the Sustainable Development Goals will almost certainly be out of reach.

What are COVID-19’s lessons for us? What investments are needed to reduce systemic risks and better prepare for the next crisis? The United Nations’ 2021 Financing for Sustainable Development Report sets out recommendations for long-term investments in prevention and risk reduction. It also identifies measures to make development finance more resilient to shocks – and prevent disasters from derailing development progress.

Managing risks should be a routine aspect of all financial management. But COVID-19 has demonstrated that this is often not the case. The pandemic has exposed vulnerabilities in both public budgets and corporate balance sheets which have been growing over the last decade, leaving countries ill-prepared for the current crisis. More than half of the poorest countries are now either in or at risk of debt distress.

Countries will need a multi-instrument approach. For example, debt management needs to better account for growing risks.

UN Under Secretary-General for Economic & Social Affairs Liu Zhenmin. Credit: UNDESA/Predrag Vasić

Official lenders can help. Going forward, they should routinely include state-contingent clauses in their loans to vulnerable countries, to have automatic standstills in debt service in case of disasters and shocks.

Lenders can also support the poorest countries with risk-transfer and insurance mechanisms for low-frequency high impact events such as climate-related disasters, as well as budgetary instruments such as contingency funds for more frequent but less costly shocks.

Much of the corporate world was also caught flat-footed when COVID-19 hit, due to high leverage and just-in-time supply chains without built-in redundancies to accommodate shocks. Massive public support packages have prevented a systemic financial crisis and helped many companies weather the storm. But such support may be less forthcoming next time.

Private investors must take into account all material risks in their investment decisions – including longer-term social and environmental risks — just as they now increasingly account for climate risks. This will require, as a critical first step, mandatory disclosure of environmental, social and development impacts of corporate behaviour.

But it’s not enough just to manage material balance sheet risks more effectively. We have to break the cycle of spending large sums on post-disaster support while neglecting new risks we create along the way.

We must focus on investments in prevention, in risk reduction and in resilience. As these are a public good, the public sector must take the lead in ensuring they are provided and funded.

Policy makers must make sure that incentives to private investors are fully aligned with sustainable development. That can include measures such as adequate pricing of carbon emissions and other externalities, bans of single-use plastics, or requirements to conduct due diligence from suppliers on social risks.

Political cycles often make investments in prevention – with uncertain or long-term pay-offs – seem unattractive to governments. Yet public finance can be a powerful tool to reduce risks, through investments in climate mitigation, and in structural and societal resilience.

Structural resilience includes investments in resilient infrastructure or early warning systems; societal in strengthened social protection mechanisms that can deliver rapid and scaled up support in times of crisis.

Many developing countries will need additional financial and technical support. For example, aid programmes have so far not sufficiently prioritized health system strengthening, which is crucial to survive the next pandemic.

No country can do it alone. Systemic risks tend not to respect national borders. Both climate mitigation and the COVID-19 pandemic underline the need to work together. It is not only that developing countries with limited resources need international support to address the fallout from crises not of their making, but these crises cannot be solved without a global approach. Just as it is in everyone’s interest to have vaccinations for all; it’s equally true for carbon-neutral development pathways.

The world needs new forms of international cooperation that amplify the voices of the most vulnerable countries in global decision-making processes. Only when their priorities are fully reflected, will the risks to their sustainable development be adequately addressed.

*Secretary-General António Guterres visited Tuvalu as part of a trip to the South Pacific to spotlight the issue of climate change ahead of the Climate Action Summit in September in New York. In addition to Tuvalu, the trip took him to New Zealand, Fiji and Vanuatu. In each country, the Secretary-General met with government leaders, civil society representatives and youth groups, to hear from those already impacted by climate change and who are also successfully engaging in meaningful climate action.

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Credit: Denis Onyodi - IFRC/DRK/Climate Centre

By Liu Zhenmin
UNITED NATIONS, May 2 2019 (IPS)

For most of the 7 billion people on the planet, global institutions are remote, far removed from their day to day existence. Yet, our global institutions matter.

They shape the global systems – such as international trade rules – that will enable the more than 3 billion poor people worldwide, who live on less than about 20 yuan a day, to rise out of poverty.

In 2015, the world’s leaders agreed on the transformative 2030 Agenda for Sustainable Development, which laid out a path to shared prosperity and sustainability. But implementing the 2030 Agenda requires a fundamental shift toward sustainability in our financial systems.

The global financial architecture must enable trade and capital to flow across borders in a way that is stable and sustainable. This would help fund necessary investments, including in resilient infrastructure, and help put countries on sound financial footing. The architecture should also protect against shocks, but allow rapid responses to shocks when they do occur.

There is some progress to report. A joint assessment of financing global sustainable development, just completed by the United Nations – in collaboration with other international institutions, including the International Monetary Fund, World Bank, and World Trade Organization – finds that private sector interest in sustainable finance is growing.

LIU Zhenmin

But these changes are not happening at nearly the required scale, nor with the necessary speed. For example, annual spending on education in the poorest countries alone would need to more than triple to achieve universal education aspired to under the 2030 Agenda.

The gap on infrastructure financing in developing countries remains on the order of hundreds of billions of dollars.

In today’s interconnected world, major challenges cannot be solved by countries acting alone. Rather than retreating from multilateralism, the international community must strengthen collective action.

International trade has made a significant contribution to economic growth and development. When we work together, we can achieve great things for the good of all people.

The Belt and Road Initiative is an example of how countries are working together to find new paths to prosperity. The resulting infrastructure will enhance connectivity between Asia and Europe, and expand connections with Africa and South America. It provides important opportunities for countries to deepen cooperation and deliver sustainable infrastructure.

Achieving sustainable development – particularly eradicating poverty, reducing inequality, and combatting climate change – requires a long-term perspective, with governments, the private sector, and civil society working together.

Yet most private capital markets are short-term oriented and put pressure on corporate executives to demonstrate profits on a quarterly basis. A more uncertain world begets even more short-term behaviour.

Private businesses hesitate to commit funds to long-term investment projects if economic prospects are unclear. During periods of financial insecurity, households often focus on their immediate needs.

If the Belt and Road Initiative could take a long-term perspective, it will help to build long-term, stable and sustainable financing into the multilateral system. It can be at the forefront of efforts to counter short-term behavior.

Aligning both private and public incentives with sustainable development, and better measuring the impacts of investments and policies on sustainability, will further our global efforts. Private financial markets in China, like those in many other middle-income countries, are growing in size and importance.

If markets are to become a tool that promotes sustainability, rather than short-term speculation, the policies need to be carefully designed. For example, governments can price externalities, such as the cost of environmental pollution, ensuring that the true costs of investments are recognized and considered.

Requiring more meaningful disclosure by corporations on social and environmental issues can help. According to a KPMG survey of about 5,000 companies from 49 countries conducted in 2017, 75 per cent now publish corporate responsibility reports and 60 per cent include some sustainability information in their financial filings.

Their efforts should be further encouraged so that some internationally recognized standards in sustainability reporting could be agreed in the future. Countries can also promote long-term investing by supporting efforts to build indices for stock markets that includes companies with sustainable business practices.

China also blazes the trail in green finance. The green credit guidelines, issued by the China Banking Regulatory Commission in 2012, is a pioneer example of standards that promote loans to more climate-friendly projects.

Moreover, China is a leader in green bond issuances. Lessons learned by China and others can be shared through international platforms, such as the United Nations, to find synergies and strengthen policy frameworks.

At this time when greater global cooperation is needed, the multilateral system is under stress because of a backlash against globalization in some parts of the world. Initiatives like Belt and Road can and should demonstrate the positive power of global cooperation.

It can help reshape both national and international financial systems in line with sustainable development. If we fail to do so, we will fail to deliver sustainable development for all. The very future of our planet is at stake.

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Children in Nobouday housing slum close to Old Dhaka. Dhaka, Bangladesh. Credit: UN Photo/Kibae Park

By Liu Zhenmin
UNITED NATIONS, Jan 28 2019 (IPS)

World leaders have committed to ending poverty everywhere for all people by 2030.

Achieving this aim means facing up to the need for dramatic declines in inequalities – in income, in opportunity, in exposure to risk, across gender, between countries and within countries – over the next decade.

Inequality is a well-recognized barrier to poverty eradication, as well as many other development challenges.

It features in multiple dimensions across the 2030 Agenda for Sustainable Development— the universally adopted plan to promote prosperity and social well-being while protecting the environment.

According to many metrics, income inequality among countries has declined somewhat in recent decades, driven primarily by strong growth in East Asian and South Asian economies.

But there are many countries—particularly in parts of Africa, Western Asia and Latin America and the Caribbean— where income levels have continued to fall further behind, exacerbating income inequalities between countries.

The latest United Nation’s analysis in the World Economic Situation and Prospects 2019 indicates that per capita income levels essentially stagnated or declined in a total of 47 developing and transition economies last year.

Most of these countries have been consistently falling behind for several decades. This poses an enormous challenge as countries strive to reduce poverty, develop essential infrastructure, create jobs and support economic diversification.

Most of the lagging countries are highly dependent on commodities, stressing the importance of both diversification and effective management of natural resource wealth to tap into their development potential.

Several countries have also suffered long-standing armed conflict or civil unrest and political instability. If this trend continues, eradicating poverty and creating decent jobs for all will become increasingly out of reach.

Weak economic performance is also linked to insufficient investment in quality education, health services, social protection, programs for marginalized groups and mitigation and adaptation to climate change.

Faster GDP growth alone will not necessarily lead to broad-based improvements in living standards. Deep inequalities also persist in the distribution of income within countries, acting as a major barrier to development progress.

High inequality within countries is associated with social exclusion and fragmentation; weaker institution-building and governance; and increased risk of violence and internal conflict.

Fundamental transformations are needed going forward, to narrow the income gaps between and within countries.

According to UN estimates, without significant changes in behaviour, more than 7 per cent of the global population may remain in poverty by the year 2030, including about 30 per cent of the populations in Africa and the least developed countries (LDCs).

In Africa, where the population is expanding at a rate of more than 2 per cent per year, reducing the level of extreme poverty to below 5 per cent by 2030 will require a combination of double digit GDP growth and dramatic declines in inequality.

This is well-outside the realms of historical precedence. Integrated and cross-cutting policy measures that both raise prospects for economic growth and reduce income inequalities are essential to shift the world towards a more sustainable and inclusive path.

This includes investing in education, health care, resilience to climate change, and financial and digital inclusion, to support economic growth and job creation in the short-term, while promoting sustainable development in the long term.

Macroeconomic stability and a strong development-oriented policy framework, including a well-functioning and robust financial system, are key elements for successfully tackling inequality.

Well-designed fiscal policies can help smooth the business cycle, provide public goods, correct market failures and directly influence the income distribution.

Broadening access to quality education is also crucial, coupled with employment policies, such as raising minimum wages and expanding social protection.

Prioritizing rural infrastructure development, through public investment in transport, agriculture and energy, can also support poverty alleviation and narrow inequalities within countries.

While there is no one-size-fits-all policy prescription that guarantees delivery of a more equal and prosperous society, one overarching message is clear: calls to eradicate poverty are meaningless without concerted and committed policy action to reduce inequality.

* Liu Zhenmin became Under-Secretary-General for Economic and Social Affairs in July 2017. Prior to his appointment, he was the Vice-Minister for Foreign Affairs of China since 2013. He brings to the position more than 30 years of experience in the diplomatic service, with a strong focus on the promotion of bilateral, regional and global issues. He was deeply involved for 10 years in climate change negotiations, including the conclusion of the Kyoto Protocol and the Paris Agreement.

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