Harnessing COVID-19’s digital dividend to finance the Sustainable Development Goals

Digital is the clear winner of the COVID crisis, as hundreds of millions of people have migrated to the world of bytes to socialize, work and consume. Although only some of this unprecedented behavioural shift will stick in the long term, there is no doubt that COVID has catapulted us into the digital future.

COVID’s digital dividend could be huge, from helping to deliver our climate goals to improving health and education access. Whether we can actually get this dividend, however, depends on how digitalization reshapes finance.

Whether digitalization underpins a transition to a low-carbon, climate-resilient, more inclusive development pathway depends on whether it contributes to “return the financial services industry to what it is supposed to be - an industry that serves people”, as IMF’s Managing Director Kristalina Georgieva noted in January 2020. The digital dividend will be positively transformative if digitalization can deliver on calls by former Bank of England Governor Mark Carney to reset finance to establish a “sustainable financial system to stop runaway climate change” and deliver on the 17 global goals.

Time has come for the financial system to fulfill the needs of people – the ultimate owners of the world’s financial assets. Digitalization can fuel that change.

With this in mind, UN Secretary General António Guterres established the Task Force on Digital Financing of the SDGs in late 2018. He asked its 17 extraordinary members – leaders in finance, technology, governance and development – to “make recommendations and catalyze action to harness digitalization in financing the SDGs”.

Almost two years later, in a world transformed by COVID, the Task Force has released its landmark report, People’s Money: Harnessing Digitalization to Finance the SDGs, setting out the state of play, opportunities and recommendations, as well as a roadmap to turn good ideas and innovation into scaled practice.

It maps for the first time the many hundreds of innovative developments around the world at the nexus of digital, finance and sustainable development, leveraging big data, Artificial Intelligence, blockchain and mobile platforms. It points to five multi-trillion dollar, catalytic opportunities for harnessing digital in aligning finance with the SDGs. It sets out an Action Agenda focused on accessing such opportunities, building national sustainable digital finance ecosystems and building a more inclusive international financial governance.

The Task Force describes how digitalization can help to channel the huge growth in domestic savings – rising three-fold over two decades to $23 trillion in 2019 – into long-term development investment. For example, Kenya’s M-Akiba is the world’s first government bond subscribed to exclusively by citizens through their mobile devices. As another example, Bangladesh could reduce the cost of financing sustainable infrastructure by an estimated 20% by substituting domestic savings for international capital, as well as by paying dividends to Bangladeshi citizens rather than external financial institutions.

It highlights the role of digitalization in extending the volume of ESG-directed financial assets from the current level of $30 trillion across the world’s $185 trillion capital markets. It illuminates how digital can increase the transparency and accountability of public finance that accounts for about 20% of global spending. It shows us how algorithmic lending can unlock the $5 trillion needed annually to finance SMEs, the source of much of the world’s employment and livelihoods.

The Task Force’s key message to world leaders is that digitalization will be a force for good – if it delivers a citizen-centric finance. As Co-Chair Maria Ramos, former CEO of Absa in South Africa, remarked at the launch, “We have an historic opportunity to accelerate and expand the transformative impact of digitalization…extending the boundaries of financial inclusion by empowering citizens as savers, investors, borrowers, lenders and tax-payers in a way that gives them choice and power over their money”.

Still, the Task Force recognizes the barriers and risks involved. Along with exclusionary gaps in digital infrastructure and unequal distribution of skills, digitalization risks perpetuating discrimination against women and marginalized groups. Moreover, it presents new possibilities for data security breaches, embezzlement and fraud, and could intensify short-termism and market concentration.

As Patrick Njoroge, Kenya’s Central Bank Governor and member of the Task Force, said, “[T]he COVID-19 crisis is a tragedy. But it is also an opportunity for change. After decades of rising inequality and unsustainable investment, we have the tools and knowhow to do better. We just need the will to use them”.

The choice is ours. Let’s make sure the COVID-19 digital dividends shape the world we want to live in.