Exclusive | Interview with UNDP's Marcos Neto: SDGs is a business opportunity

Marcos Athias Neto is the Director of the Finance Sector Hub at UNDP. Having joined UNDP in 2013, he has since led UNDP’s global work on private sector development and foundations, first at UNDP’s headquarters in New York and then, from 2014, as head of the Istanbul International Center for Private Sector in Development (IICPSD). Since April 2019, Marcos has led the establishment and management of UNDP’s new Finance Sector Hub, and the development of UNDP’s new private sector strategy and its offers on SDG Finance. Over the past 25 years, Marcos has led programmes in sustainable development, poverty eradication and multi-stakeholder partnership building.   

Last December, CASVI sat down with Marcos Neto, Director of the Finance Sector Hub at UNDP, for a brief discussion on the Finance Sector Hub that he is heading. As we enter the #DecadeofAction, what would it take to engage the businesses and private sector to unlock the USD 12 billion potential in the Sustainable Development Goals? With CASVI launching the first sustainable development-themed ETF in China, what would it bring to the scene of SDG finance? And more importantly, how can China contribute?

The following is the transcript of the interview.

Q: Can you introduce the Finance Sector Hub that you’re heading to our Chinese readers?

Marcos: Thank you. Great to talk to all of you. This UNDP SDG Finance Sector Hub is quite new. It’s been about 9 months. It’s been established as a result of Mr Achim Steiner, UNDP’s Administrator’s attempt to bring together all of UNDP’s work on the Sustainable Development Goals Finance (SDG Finance), both public and private finance. The idea is to create a coherent approach for SDG Finance then mapping out work in that area, including all of the UNDP work in the areas of public finance, private finance for the SDGs, and then to bring it together.

We aim to scale up the efforts. Now the reason why it is important for UNDP now is because it’s becoming clear that financing the Sustainable Developing Goals is not happening at the pace that needs to happen for the delivery of the Goals. And this is not due to lack of money in the world. As a matter of fact, the world has never had so much money. There are people who are paying banks to hold their deposits with negative interests’ rates around the world.

So if the reason that there is a gap isn’t because of a lack of money, why isn’t financing flowing to the SDGs? And that is a systemic misalignment of both public and private finance, not just private finance. The financial system has not been created to expect economic, social and environmental return at the same time. It’s been created to maximize profit at all costs. And we still have a culture of short-term nature or short-termism in the financial sector. So all of that creates a misalignment and what UNDP is trying to do by creating a coherent approach, is to support our clients which are the governments like the Chinese Government, the Malawi Government, the Thai Government, or the Brazilian Government. As a matter of fact, we have presence in 170 countries around the world to work with the private sector in ways that shifts the alignment of capital towards the SDGs. So that’s what we are trying to do with the SDG Financial Sector Hub.

Q: UNDP works in a decentralized way, so how does the Finance Sector Hub coordinate works across the country offices?

Marcos: UNDP has country offices covering 170 countries and territories. So my team works with all the countries’ offices, provides them the support, technical assistance, and tools and products. The country offices are in a very good position to understand what the challenges of the governments are, to listen to the governments and in terms of what they see as the opportunities and challenges they need to address, and then we support the country offices in delivering in the context because each context is different. It’s very different to work in China compared to working in Fiji, to working in South Africa. Context is everything. And nobody knows the context better than colleagues working at UNDP’s local offices.

What we do at the central level in New York is to provide a series of tools and products that can be adapted to each context. And then we provide technical support to our offices so that they can provide an upstream policy advice or downstream project, whatever the government needs in terms of aligning, mobilizing, enhancing the financing capacity for the SDGs. We’ve been working, for example, on the areas of aligning government’s budgets to the SDGs. How do you actually help the government to create a budget that is aligned to the SDGs? For example, we’re supporting governments on taxation issues. We have a partnership with the OECD and through the project called Tax Inspectors without Borders that we conduct jointly, we support tax administration conducting jointly tax orders of large corporations and recovering money. We’re also working with companies to align their business models to the SDGs, to make the SDGs a central part of their core businesses.

Q: What are the major hurdles that businesses and the private sector have to cross to be more aligned towards the SDGs and to contribute to them?

Marcos: I think there are several: from the policy level and from the regulatory level. If you were a bank, you have to follow some global rules set by the Basel III which don’t necessarily have the SDGs and haven’t been adapted to the SDGs theories. Considering the short-term nature of capital market, a public listed company has to report every quarter to the capital markets. I think we have seen enough evidence that companies’ return when they work on the SDGs as a part of their core businesses is equal and even higher than a business that doesn’t do that. But it is true that to invest or to work with SDGs, that financial return might take longer to happen. So that’s really where you have a tension between the investing or operating a business for the long term, which is what the sustainable development demands, and the current pressures of the public listed company on short term returns.

Also, generally speaking, companies don’t know how to do this. There are lots of companies that say, I don’t know how to adapt my business model, or I don’t know what it means to invest for the SDGs. How do I know that, if I am an investor, that my money is going to the SDGs? There’s lack of impact measurement in the marketplace. That’s why UNDP have created a program called SDG Impact where we are working on providing authenticities, assurances, and standards for different asset classes to help an investor know better, and differentiate the market better, which investor is investing in a way that enables the SDGs. We are working with China, the UNDP China country office on SDGs Impact as well. Another challenge that investors and companies have is a pipeline. Even if we find one to invest in the SDGs, let’s say that Ping An here in Shenzhen, which is a very large company - that invests very large as all insurance companies do, but they need a portfolio of SDG aligning investments. That pipeline is not necessarily there. So again, we at UNDP are working on a tool that would convert SDG development data into investment opportunities as an attempt of ours to start closing this pipeline gap. We also have theories of tools, management practices that we work with companies to try. Governments also have responsibilities to this. Because companies don’t operate outside an enabling environment, so this is where the government comes into place, with policies put in place to help companies overcome this challenge. We advise governments by asking them what kind of business model do you want to see develop in their country, what kind of SME growth do they expect? With the right policies, you can push and see a transformation from the traditional business models to inclusive and social business models that aim to generate a social, environmental and financial return. Policies matter. Governments matter. There’s a notion in the last few years that points to the private sector to solve everything alone. It’s not true. Governments are important and an essential part of the society. The way they design the right policies and provide the right support can be incredibly effective.

Q: Have you, in your work in the past year, seen how the governments, if any, have oriented towards these policies?

Marcos: For example, we have been working together with other partners with the Philippines government to create a certification process that provides an extra tax incentive to a company whose business model is inclusive of the base of the pyramid (BOP). That’s one of the incentive policies in that sense. We’re working increasingly with governments in terms of understanding what kind of regulatory framework, and legal structure a social enterprise needs to be put in place, for example. We are working, as a request of the G7, to create a potential regulatory framework for what sustainable finance means. Those are the few examples of our work with governments. We also work with G20 including the Chinese government on the creation of the G20 inclusive business framework. We are now working very closely with the government on the public finance side to create specific financing strategies for the SDG priority plans.

Q: On December 2019, CASVI, together with Bosera Funds launched the first sustainable development themed ETF product in China. How do you see that ETF product in its role in promoting sustainable finance?

Marcos: All innovation of financial instruments that can drive and align capital to the SDGs are essential and welcomed. Once that ETF is fully capitalized, I think it is about a billion dollars? That would become one of those examples that you can actually use and adapt these financial instruments to drive large sums of capital towards the SDGs. That’s the value of the instrument like that. I wish CASVI and Bosera all the success. We’re happy to help in any shape and form. And we hope it to be this is the first of many ETFs, in an example for us to follow in China and beyond.

Q: How can China contribute to the 2030 agenda and towards sustainable development finance?

Marcos: China has shown the world what can be done in terms of transformation of a country: in just 40 years, 170 million people have been lifted out of poverty, and a metropolitan city such as Shenzhen has been built. China has an accumulated expertise on financing development, which I think can be very useful and be adapted to the context of SDGs. Financing is also moving to digital. More and more we have seen the takeover of digital finance and China is the global leader of digital finance. I think China has a lot to contribute thanks to its experience, andits current innovation and progress. And that’s why UNDP, and my team particularly, is very interested in working with China on SDG financing and digital financing going forward.

Q: And especially as China and all these countries unite together to works in financing the SDGs. How can the private sectors and investors, seize the opportunity to take part in SDG finance?

Marcos: The great news is that the SDGs is a business opportunity. The Business Sustainable Development Commission has calculated the opportunity of USD 12 trillion a year to be unlocked for the companies that put the SDGs in their core business. I think if we are addressing some of the bottlenecks that we talked about earlier through policy advice, knowledge sharing, inclusive business models, incentives, in fact the business case for the SDGs is clear. One of essential things is that we are not asking the private sector to join the SDGs bandwagon for charity or for corporate social responsibilities. As a matter of fact, that’s not enough. We must have the private sector move beyond corporate social responsibility and put the SDGs in the center of their strategies, in the center of their operations because that is the only way they are going to unlock the prices of 12 trillion dollars a year. Governments and organizations like UNDP must be ready to support.

Q: What’s your biggest takeaway from this trip to China?

Marcos: China is on a fast track on finance, on digital finance especially, but its critical to understand that is not just an opportunity but an opportunity that has to be governed and regulated properly, and to contribute to long-term sustainable development. I’m very excited about the potential of partnering with China on the issues of the SDGs finance and digital finance.