Speeches & Transcripts

Remarks by World Bank Group Senior Vice President Mahmoud Mohieldin at the Excelerate Conference

May 3, 2017

World Bank Group Senior Vice President Mahmoud Mohieldin Excelerate Conference 2017 Vancouver, Canada

As Prepared for Delivery

Building a sustainable economy is a critical concern not just for policy makers, but also for businesses, and for all citizens. And it is imperative if we are to protect the gains we’ve made in development during recent decades, while building hope for a better future.

For developing nations to achieve a sustainable economy, we need to improve public services, unleash private sector creativity and vitality, as well as create global public goods to make the world more secure and prosperous.

Many challenges today are global in nature. They do not respect borders, and they require international cooperation at many levels to address them.

This includes challenges like climate change, pandemics, or violence that spills across national boundaries.

Within countries, and between countries, the challenges also include the risks of inequality and polarization of our political and social institutions.

It includes the lightning-fast changes in technology which disrupt markets and beyond.

In the past we tried to address these challenges though the framework of the Millennium Development goals, but progress was mixed.

In 2015, the global community came together to frame the Sustainable Development Goals (or SDGs), which are comprehensive, and apply to all countries, not just developing nations.

The SDGs are interconnected and interdependent. The SDG acknowledge that we can’t look at poverty, health, and education as stand-alone achievements.

Now global partners will emphasize how stronger health systems, skills building, within a framework of strong institutions and good governance, can lead to better systems of consumption and production, and can help promote stability and peace, and end poverty.

Whether it is famine, climate change, conflict, pandemics, successfully addressing these global challenges requires working in partnership within and between countries, with international organizations, and with the private sector and civil society.

The World Bank Group is engaging with countries to protect the poor and vulnerable, and to ensure inclusive and accountable service delivery, with a stronger private sector that can create jobs and opportunities.

These efforts require financing, but it will not be business as usual. We need to use innovative means to reach the SDGs and make sure that no one is left behind.

Official Development Assistance (or ODA), which last year was $142 billion dollars, will never be enough to achieve the SDGs.

This is an increase of 8.9% compared to 2015 (correcting for inflation and exchange rate movements).

However, ODA to least-developed countries dropped by 3.9% in real terms in 2016, which is worrying.

One reason is that ODA spend on refugee related issues inside donor countries increased to $15 billion, a 27% increase over 2015. This accounts roughly for 25-30% of the increase in total ODA.  

To put this in context, ODA for 2015 is about as much as Chinese workers send annually to their families in remittances. It’s a third of what Germany spends every year on its health care.

In contrast, the UN’s trade arm, UNCTAD, says that the annual investment gap to reach the SDGs is $2.5 trillion.

In other words, $142 billion to achieve the SDGs in developing countries is not enough, and it never will be.

Going forward, the core focus will have to be on leveraging and mobilizing global funds -- especially from the private sector -- through innovative mechanisms to meet the extraordinary financing needs of the region

The World Bank Group has three priorities in our efforts to reach our twin goals of ending poverty and boosting shared prosperity, which are fully aligned with the Sustainable Development Goals. Each of these priorities require financing and private sector participation:

First, we need to accelerate inclusive and sustainable economic growth. This obviously requires adequate private sector finance, especially in infrastructure.  Second, we need to invest in human capital, which requires funding and private sector innovation and management to create efficiencies.

And third, we need to foster resilience to global shocks and threats, from pandemics to climate change.

Each of these will require adequate financial support, and robust participation from the private sector.  It will also require good data, and savvy delivery to implement these ambitious plans.

The World Bank Group is doing its part, through a variety of mechanisms, to leverage and mobilizing global funds – especially from the private sector -- through innovative mechanisms to meet the extraordinary financing needs for the SDGs.

The World Bank Group has provided concessional financing mechanisms to countries, but it is also using guarantees, and matching its investments with private sector capital and helping countries create an enabling environment to attract private investment.

The International Development Association (IDA), the World Bank Group fund devoted to the poorest countries, which just completed its 18th replenishment this past December, has mobilized a record $75 billion commitment from donors, with a focus on fragility and climate.

In addition, for the first time in its 56-year history, IDA will leverage its equity by blending donor contributions with internal resources and funds raised through debt markets.

To better sequence our interventions, we’ve developed a “cascade approach” to investment decision-making to encourage private sector participation, while leveraging and preserving scarce public dollars for critical public investments.

If commercial financing is available, that is the preferred course. If it is absent, we try to address market failures. If those efforts are unsuccessful, we use utilize risk instruments and our own matching capital to try to encourage private investment. Finally, if absolutely necessary, then public and concessional financing will be used.

It is important to note that countries’ own domestic resources are the largest source of funds available for countries to finance their development.

The OECD’s annual Revenue Statistics report found that the tax-to-GDP ratio in Canada increased by 0.7 percentage points, from 31.2% in 2014 to 31.9% in 2015.

While many OECD countries have tax-to-GDP ratios of 40-60 percent there are many developing countries with tax-to-GDP ratios of less than 15 percent.

Angola is 12.5%, Nicaragua is 15.7%, Thailand is 16.5% according to WBG figures

The World Bank Group supports improved domestic resource mobilization, including technical assistance and policy advice, such as a new joint tax initiative with the IMF.

Countries would do well to assist sub-national units of government to build their capacity as well, since governments which are closest to their people are the most responsive to their needs.

In addition, the World Bank Group is working with partners to stem the flow of billions of dollars in illicit funds which are depriving countries of the revenue they need to grow and develop.

These new approaches to finance are absolutely necessary if we are to raise sufficient resources to achieve the ambitious SDGs.

As I mentioned a moment ago, there is a tremendous opportunity for businesses to do good and to do well at the same time.

The Business and Sustainable Development Commission found that the returns are enormous for investments that support the Sustainable Development Goals. The commission said that these investments open up new opportunities and big efficiency gains; drive innovation; and enhance reputations.

The Commission says that "achieving the Global Goals creates at least US$12 trillion in opportunities for businesses, noting that “To capture these opportunities in full, businesses need to pursue social and environmental sustainability as avidly as they pursue market share and shareholder value.”

The Commission noted that “achieving the single goal of gender equality could contribute up to US$28 trillion to global GDP by 2025.

The Commission identified several actions business leaders can take to capture their share of these economic gains, including incorporating the goals into your company strategy, rebuilding the social contract, and working with peers in your sector to drive the transformation into these new markets such as food and agriculture, which needs to feed a growing world population.

Other suggestions include working with policy-makers to accurately price natural and human resources to even out these costs among all businesses, so that the costs, for example, of maintaining clean water and preventing pollution are shared.

Finally, they suggested business activism in supporting longer-term sustainable investments, particularly in infrastructure, rather than seeking short-term gains.

They posit that the funds are available to invest, they are just sitting on the sidelines now, and earning poor returns. “Financial assets currently exceed US$290 trillion and are growing at five percent a year. Nearly US$100 trillion is invested in pension funds, insurance companies and investment funds, including sovereign wealth funds. As of November 2016, over US$11 trillion was invested in negative yielding sovereign bonds – capital that could be invested more productively elsewhere.”

The Commission’s report said that “the total estimated infrastructure investment needs across the global economy amount to US$90 trillion over the next 15 years, or approximately US$6 trillion per year. Over 70 percent of the projected investment will be needed in emerging and developing economies. Such large infrastructure investment could have the additional benefit of reigniting global growth. However, based on current levels of investment from public and private sources, the next 15 years will see a US$2-3 trillion annual shortfall in infrastructure investment.

Individual businesses can respond to these development challenges while sustaining their workers and their profits, and helping the communities where you work and live.

The business case for sustainable development is based on the understanding that business and social values are strongly linked and that business efforts to improve lives and strengthen local communities can also have long-term benefits to bottom-line profits. 

A recent global report by Deloitte showed that when companies are able to articulate a clear purpose that can be linked to the global Sustainable Development Goals (or SDGs), the entire organizational culture and delivery model is improved, providing a compass for the way business is being conducted.

Let me give you a couple of examples.

GSMA is an association which represents the interests of nearly 800 mobile operators worldwide. Its members have committed to support the SDGs, and have developed indicators to assess their progress. They’ve implemented over 100 initiatives through its GSMA Mobile for Development program. One of these is the Humanitarian Connectivity Charter which supports Mobile Network Operators in improving preparedness and resilience among mobile networks in the face of natural and man-made disasters.

Another example is the company called “TRINE”, which is a crowd-investing model for financing solar energy solutions. TRINE provides electricity to communities that cannot bear the upfront costs themselves, while delivering a financial return for investors.

There have been multiple studies on why companies invest in sustainable development, and why they don’t. One frequently cited motivation was the need to adhere to industry norms of transparency, traceability, or environmental responsibility. The more readily measurable and the more immediate the issue, the more highly motivating it is.

Encouraging the private sector to invest in the SDGs has not been easy. For instance, uncertain performance expectations and evolving disclosure regimes hamper small- and medium-sized enterprises from impact investment efforts.

There is a clear need for a robust, transparent reporting framework that allows companies to report on financial and non-financial performance. That framework must also support the private sector and investors in their effort to combine profit maximization with the pursuit of long-term economic, social, and environmental objectives.

Despite these challenges, more and more companies are teasing out the incentives for greater investment in the SDGs. Financial and asset-management institutions are seeking to provide positive incentives to companies that incorporate sustainability, long-term thinking, and environmental, social, and governance (or ESG) performance criteria in core business models – by allocating assets accordingly. Such a move would go a long way toward promoting long-term progress on the SDGs. Institutional investors with long histories of ESG investments, such as the California Public Employees’ Retirement System (CalPERS), are being joined by a growing number of their peers. Some are even opting to divest from any company with exposure to industries or business practices that present sustainability challenges.

The international development community can also support these efforts, including by sharing quality data, and convening businesses to share best practices. More fundamental to the World Bank Group’s work, we are helping to create and maintain a stable and fertile regulatory business environment which can help businesses get started, grow, create jobs, and contribute to their national and global development goals. And of course, we are de-risking and co-financing projects with the private sector to encourage growth and create jobs.

To better sequence our interventions, we’ve developed a “cascade approach” to investment decision-making to encourage private sector participation, while leveraging and preserving scarce public dollars for critical public investments.

If commercial financing is available, that is the preferred course. If it is absent, we try to address market failures. If those efforts are unsuccessful, we use utilize risk instruments and our own matching capital to try to encourage private investment. Finally, if absolutely necessary, then public and concessional financing will be used.

One example of private sector investment in the SDGs occurred this past week. The World Bank issued bonds that for the first time directly link returns to the performance of companies advancing global development priorities set out in the Sustainable Development Goals, including gender equality, health, and sustainable infrastructure.

The equity-index linked bonds raised a total of 163 million Euros from institutional investors in France and Italy. The return on investment in the bonds is directly linked to the stock performance of companies included in the Solactive Sustainable Development Goals World Index. 

The private sector has the opportunity to become a financier, shifting trillions of dollars of its capital toward helping achieve the SDGs. Financial and asset-management institutions can provide positive incentives to such companies through the use of environmental, social, and governance (ESG) performance criteria in core business models.

Many companies are already working in the sustainable business area. A 2016 CEO study conducted by the United Nations Global Compact and Accenture showed that many business leaders already see solving “societal challenges as a core element in the search for competitive advantage.”

And almost half of all CEOs surveyed believe that “business will be the single most important actor in delivering the SDGs.”

According to a recent report published by Moody’s, interest in investments relating to climate change and sustainable development by institutional investors has grown rapidly in recent years. This trend toward sustainable investment will undoubtedly accelerate.