Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by WWF-UK

  WWF-UK, the global environment network, welcomes this opportunity to submit evidence to the inquiry on the UN's Financing for Development (FfD) process. WWF has been following the process and attended UN preparatory meetings in New York towards the end of last year and in January 2002 (the fourth and final preparatory).

  We believe it has become increasingly apparent that aligning the trade, investment finance and sustainable development agendas is imperative in order to secure an equitable and sustainable future. Trade, in many instances, is the single most important source of development finance. Members of the WTO, in agreeing a programme of work in the WTO Ministerial Declaration, recognised the centrality of the multilateral trading regime to addressing development concerns. It is critical that the FfD conference takes steps to better align the trade and sustainable development agenda and make them mutually reinforcing, both in terms of multilateral trade agreements as well as regional and bilateral agreements.

  Addressing economic issues in isolation from sustainability concerns can actually aggravate poverty and inequities, and accelerate the degradation of the earth's environment and natural resource base.

  WWF would like to take this opportunity to emphasise that there must be a strong link between the FfD process and the forthcoming World Summit on Sustainable Development (WSSD). It is imperative that the outcomes at WSSD are funded by the extra finance arising from Monterrey.

How successful has the UN financing for development summit been and what can we learn from the processes leading up to the summit?

  The FfD Conference could forge the appropriate links between trade, investment, finance and sustainable development, by ensuring that the outcomes of the FfD Conference inter alia:

    —  Underscore the important relationship between the FfD and WSSD Conferences, notably by aligning more clearly the six FfD focal areas with sustainable development objectives.

    —  Support the harnessing of international trade and resource flows to support sustainable development—not just development.

    —  Endorse the principle that development should be pro-environment, pro-poor and pro-equity.

    —  Engage all stakeholders to make progress—particularly business and industry (including transnational corporations)—in the pursuit of financing for sustainable development

  The FfD process so far has acknowledged that combating poverty, achieving sustained growth, and ensuring sustainable, sensitive, people-centred development is a critical challenge. However, there is not sufficient incorporation of these issues into the six operative sections of the consensus text.

What progress is being made by the UK and other Governments in moving towards meeting the target of providing 0.7 per cent of GNI in official development assistance?

  Northern governments committed themselves in 1970 to spending 0.7 per cent of their (GNP) on international development. In 2001, the DAC average was 0.22 per cent of (GNP). The Financing for Development conference in March in Monterrey should be a key opportunity to make good their commitments. The estimated costs of achieving the Millennium Development Goals (MDGs) requires a rapid doubling of ODA. (The Zedillo report prepared in advance of the Financing for Development Summit estimates the costs of achieving the MDGs at an extra $50 billion a year. If the DAC members actually delivered ODA according to the 0.7 target, aid would increase by about $100 billion a year).

  The UK Government is currently committed to the 0.7 per cent target and to reaching 0.33 per cent of GNI by 2003-04 (from 0.27 per cent in 1997-98). At this rate of increase, the target would not be reached for another 40 years, well beyond the Millennium Declaration goal of 2015. The Comprehensive Spending Review set for June provides the opportunity to announce a timetable to accelerate the increase in aid spending and set the target date as the end of this current Parliament for achieving the 0.7 per cent target.

  The EU and its member states have reaffirmed several times their commitment to reaching the 0.7 per cent target. To date, EU member states give an average of 0.33 per cent and only four EU countries have met the target of 0.7 per cent (Denmark, Netherlands, Sweden and Luxembourg). Disappointingly, Denmark which was well in the lead in recognising its global responsibilities, has recently announced its intention to decrease its ODA which is currently 1.06 per cent GNP. The most recent suggestion from the Commission to the Council suggests that EU Member states could individually and collectively commit to a sizeable increase in ODA volume—at a minimum that by 2006 all those States which have not yet reached the 0.7 target, would at least reach the EU average for the year 2000 (0.33 per cent ODA/GNI). This minimum is far from the sort of commitment required to show leadership and acknowledge their responsibilities towards the least developed countries. We acknowledge the Chancellor's and Secretary of State for Development's calls to the EU and the wider world, but call this should be backed up by the UK making a substantial commitment themselves.

  Aid is an essential complement to other forms of support for economic growth such as foreign direct investment, especially for those countries with the least capacity to attract private direct investment. For countries in Africa and the least developed, small island and landlocked developing countries, ODA still provides the bulk of external financing and is critical to the achievement of the millennium development goals. It is also an investment in global political and economic security.

  The goal of lifting more than a billion people out of extreme poverty will not be achieved without tackling the environmental challenges at the same time. Environmental degradation impacts the poor by disproportionately affecting their health, livelihoods, and security. Each year, between 5 and 6 million people die from water-borne diseases and air pollution in developing countries. The livelihoods of more than a billion rural people are at risk because of land degradation and water scarcities. Natural disasters such as floods and droughts threaten many more vulnerable groups of poor people. Economic costs of environmental degradation have been estimated at 4 to 8 per cent of GDP a year in many developing countries. The Millennium Development Goals include the goal of environmental sustainability and stopping and reversing the loss of environmental resources.

  Targeting aid towards building national policy capacity for better environmental management is therefore a central means to achieving long-lasting poverty reduction. Policies and programmes that integrate environmental, social and economic aspects of development and deliver sustainable livelihoods for the poor are vital aspects of a good poverty reduction strategy. Pro-poor policies such as reform of water and power subsidies, provision of forest and land rights to rural communities and devolution of decision-making powers have been shown to alleviate poverty while increasing sustainable use of the natural capital. National strategies for sustainable development (NSSDs) which are being prepared in most countries, provide a comprehensive framework for achieving environmental sustainability. In this context, we welcome the consultation document that has been developed by DFID, EC Development, UNDP and World Bank on "Linking Poverty Reduction and Environmental Management—Policy Challenges and Opportunities" as a contribution to the World Summit on Sustainable Development process.

  Increasing aid budgets can also be used for the provision of global public goods such as biodiversity conservation, climate change mitigation, global health and conflict prevention whose benefits spill over national boundaries. Current aid spending by DAC donors on GPGs amounts to 9 per cent of the total aid budget. If aid was to increase by $50 billion, and current patterns of spending maintained, funding for the environmental GPGs would increase by $2.84 billion. However, this will still be insufficient, and more innovative sources of financing GPGs should be explored.

How desirable and realistic are proposals for novel forms of financing development, including currency transactions taxes?

  WWF supports many other NGOs in calling for a levy on currency speculation to raise substantial revenues for projects targeted towards the eradication of global poverty and sustainable development objectives. This would be an innovative way of raising the much-needed money to give further support to the achievement of the Millennium Development Goals. We would urge the UK government to give serious consideration to the introduction of such an internationally co-ordinated currency transactions tax which should enhance and not substitute for existing and internationally agreed development aid commitments.

  These revenues could, for example, also provide financing for investment in global public goods, including oceans, climate change mitigation, biodiversity conservation, ecosystem services, global health and conflict prevention whose benefits spill over national boundaries.

  Currently, the Monterrey Consensus document ignores the call in earlier texts for innovative methods of financing for global public goods, although we understand that the EU is intending to devote some further research into this area.

What are the prospects of developing countries domestically generating sufficient finance for development? To what extent would these prospects be increased by countries practising good governance and promoting the rules of law?

  The current Monterrey Consensus document acknowledges the important role of development frameworks which are owned and driven by developing countries and which embody poverty reduction strategies, including Poverty Reduction Strategy Papers (PRSPs), as vehicles for aid delivery. Country-owned plans for sustainable development, where they have been developed with full stakeholder participation, and with cross-governmental engagement provide the criteria for funding and coherence amongst donors.

  Integrating the principles of sustainable development into country policies and programmes is a key target under the MDGs. Aid can be strategically deployed to build capacity for achieving such integration into NSSDs, PRSPs, and other policies and plans. These strategies should be viewed as processes not new plans; integrate the different dimensions of sustainability, demonstrate a commitment to good governance and provide a basis for measurable outcomes. In the long-term, aid will be effective if it is untied, targeted, where possible pooled internationally, conditional on presence of good policies, and cost effective in its delivery.

  Poverty and environment are closely interrelated issues. Environmental resources such as forests and freshwater support economic development and also contribute to incomes and livelihoods of the poor directly. Poverty reduction efforts on the other hand can encourage sustainable utilisation of natural resources. Integrating environmental factors into national policy processes such as the PRSPs can become an important means for achieving sustainable development.

  PRSPs provide a comprehensive development framework for countries to strengthen macroeconomic stability and redirect public expenditures towards poverty reduction. These are nationally owned strategies prepared as part of the World Bank/IMF led HIPC initiative to provide deeper and faster debt relief to 42 highly indebted countries. PRSPs share their key principles and priorities with the NSSDs prepared as part of commitments towards the international development targets (IDTs) and the millennium development goals MDGs, PRSPs and NSSDs do not have to be separate documents, but should rather reflect a convergence in thinking and instruments for achieving sustainable development.

  The PRSPs are not meant to be limited to countries' dialogue with the Bretton Woods institutions. Rather, these are intended to serve as a broad framework within which both domestic stakeholders and development partners can engage in and support the design and implementation of country-owned poverty reduction strategies. This point is reinforced by the fact that aid-dependant countries are seeing a movement towards not only broader policy dialogue in the context of the PRSPs, but also an evolution in donor instruments away from funding stand-alone projects towards provision of budgetary support to government programmes.

  The PRSP approach is still in its early stages of development. By January 2002, only eight countries: Bolivia, Burkina Faso, Honduras, Mauritania, Mozambique, Nicaragua, Tanzania and Uganda, had completed full PRSPs, and about a dozen others were well advanced towards that goal. As the process moves forward, it is essential that the quality of full PRSPs is not sacrificed, both in terms of their content (which should mainstream the essential natural resource base upon which economies and the poor depend) and participatory process. We also believe that ways should be explored to give the poor land rights and payments for stewardship of environmental resources and ecosystem services which provide benefits to local, national, regional and global users.

Foreign Direct Investment

  In terms of foreign direct investment which can be a principal means of facilitating development but from which very few developing countries currently benefit, the goal must be to ensure that the liberalisation of capital flows takes place inside a regulatory framework that alleviates poverty and promotes sustainable development. This will require a careful balancing of the interests of investors with those of host countries, and other stakeholders. Creating the right regulatory framework will be challenging and require a variety of actions at all decision-making levels. This framework should provide host countries with the flexibility and ability to control investment flows that undermine their pursuit of sustainable development. WWF calls for the following actions:


  Governments, in consultation with civil society and other stakeholders, should cooperate to ensure that:

    —  Existing and any future bilateral, regional and international investment treaties develop balanced investment rules that:

        (i)  are compatible with MEAs. They must contain explicit exceptions for measures taken pursuant to MEAs

        (ii)  allow host countries to set environmental standards in a non-protectionist manner. This requires recognition of the precautionary principle

        (iii)  prohibit the lowering of environmental standards to attract investment

    —  Transnational Corporations are held accountable through an internationally agreed code of conduct, to prevent those firms following environmental best practice from being undermined by unscrupulous competitors. At a minimum, companies must adhere to the existing OECD guidelines for multinational corporations

    —  Detailed binding regulations are developed in environmentally sensitive sectors, for example, minerals, fossil fuels, agricultural commodities and bulk chemicals. This should include stipulations on technical assistance to small and medium-sized enterprises

    —  Legal barriers to suing foreign investors and enforcing judgement in home countries are removed, for example, through instruments developed under the Hague Conference on Private International Law

    —  Restrictive business practices, transfer pricing, and the problems of bribery, corruption and excess investment incentives are addressed

    —  Information-sharing about the impacts of FDI on environment and development is improved, for example, through the provision of data, the joint development of methodologies for assessing impacts of FDI, monitoring and research and establishing fora to share experiences in harnessing investment to support of sustainable development


  Host—or recipient—countries, supported by development assistance, and in consultation with civil society, should strengthen their environmental, social and economic governance structures to support sustainable investments. This requires:

    —  Financing to monitor and enforce environmental conditions, pollution levels and other environmental impacts. This could be funded through various mechanisms, for example, from international contributions, by investors in natural resource sectors being charged higher resource rents and/or the introduction of a Tobin tax

    —  Facilitating the removal of perverse subsidies, for example, building on the outcomes of the WTO in the fisheries and agricultural sectors, whilst also addressing subsidies in the forestry and energy sectors

    —  Sustainability assessments for certain types of investment—in particular in natural resource or pollution intensive sectors.

  Home or investing countries, individually and collectively, should ensure that their investors act in a manner supportive of sustainable development. In particular, they should:

    —  Create mechanisms to lever additional funds from investors for projects aimed at sustainable development, for example private-public partnerships that promote the use of renewable energies, encourage sustainable production techniques and the development of information technology

    —  Make assistance to investors conditional on good environmental performance, for example, underwriting loans through the export-credit agencies

    —  Provide development assistance that supports recipient country efforts to develop good environmental and social governance, including capacity building and knowledge, skills and technology transfer.

  Taken together these measures, and others, should contribute to ensuring that a proper balance is struck between protecting the rights of investors and promoting equitable and sustainable development in the recipient country. The World Summit on Sustainable Development in August/September 2002 and the meeting on Financing for Development (ffd) in March 2002, present two important occasions to pursue international investment discussions that incorporate sustainability concerns, and propose concrete mechanisms to operationalise such an approach.


April 2002

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