Engaging the Private Sector & Financing Sustainable Development

Industry By Pierre Jacquet

Because the private sector is driven by profits, its involvement is often perceived as problematic. Building trust is a priority, and this must be founded on a better understanding of the role and responsibilities of private companies and, beyond this, of the notion of profitability itself.

The increasing scarcity of public budgets has naturally led to heightened expectations about private financing for the Sustainable Development Goals (SDGs). As such, this is quite a challenge - public and private objectives do not coincide naturally and private firms are not philanthropic, even though some individuals within them may be. Two dimensions are crucial to reconcile these differing objectives, beyond identifying unexploited synergies that can deliver the ‘low-hanging fruit’ - such as energy-saving initiatives.

Improving the Regulatory and Policy Environment

Negotiating and adopting a list of global goals in itself does not ensure the kind of stable and predictable regulatory policy environment needed to promote investment. The SDGs are desired results, but there is still a lot of debate and disagreement on how to commit and get there. Continuing scientific uncertainties, including in the area of climate change, are exploited by various interest groups fighting for their own parochial interests. As a result, sustainable development policies remain largely experimental, questionable and unstable. Clear, consistent and credible public commitments are needed. How can we expect the private sector, for example, to help fight climate change if governments cannot themselves put a credible price on carbon emissions?

Ensuring the Compatibility of Profits with Social Objectives

Because the private sector is driven by profits, its involvement is often perceived as problematic. Building trust is a priority, and this must be founded on a better understanding of the role and responsibilities of private companies and, beyond this, of the notion of profitability itself. Of course, profits can be excessive and their distribution unjust. Yet, profitability itself is not the culprit. Profits are crucial for increasing real incomes and ensuring the sustainability of efforts and investments, as well as of results over time. Recognising this, social business champions support activities that both achieve social objectives and are profitable enough to be self-sustainable. The question is how to make the pursuit of social objectives compatible with market-led profit requirements.

In my view, sound public development finance can play a role in resolving some of these issues. To mobilise investment and funding what private markets won’t finance, it can use innovative financial instruments such as subsidies, insurance and partial guarantees. Such an approach requires sound risk analysis to arrive at informed decisions about desirable risk allocation (notably between the public and private parties). It also calls for conviction concerning why, when and how to support private investments with public money in order to reach social and environmental objectives. And there is an additional difficulty: effective instruments to mobilise finance for a project or activity include insurance and guarantees, which imply a willingness to finance (should the covered risk materialise) rather than actual financing. In many cases, no money may need to be spent, which makes the corresponding public finance effort more difficult to measure and communicate, and the links with results or impact more blurred. Despite these difficulties, this is a very promising path, and one that may lead to a profound revolution in Public-Private Partnerships (PPPs) and in public finance in support of the SDGs.

Go to Content Page

Back to Top

Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

Search