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Digital economy can put citizens in control of finance

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Congolese refugee, Henriette Kiwele Kiyambi, develops Natural Beauty app at the App Factory in Dzeleka refugee camp in Malawi, part of the Connectivity for Refugee project, a UNHCR and Microsoft sponsored program. UNHCR/Tina Ghelli

A UN taskforce set up to look into the risks and benefits of the digital economy, has concluded that it could have a transformational impact on sustainable development, and empower citizens, both as taxpayers and investors.

The report, “People’s Money: Harnessing Digitalization to Finance a Sustainable Future”, was released by the UN Secretary-General’s Task Force on Digital Finance on Wednesday. 

The Task Force, led by UN development chief Achim Steiner, and made up of senior figures from the tech sector, financial institutions, governments, and UN bodies, was set up by UN Secretary-General António Guterres in 2018, to improve understanding of the benefits and risks of the fast-moving financial technology (fintech) and digital finance sectors.

The initiative is part of the UN chief’s strategy to support financing for the 2030 Agenda, the UN’s blueprint for a better future, for people and the planet. The financing needs for the Agenda, Mr. Guterres said in 2018, are in the order of between $5 and $7 trillion per year. The shift to digital, conclude the authors of the People’s Money report, could provide the means to meet those projected costs.

“Digital technologies, which are revolutionizing financial markets, can be a game-changer in meeting our shared objectives”, said Mr. Guterres in response to the launch of the report. “The Task Force on Digital Financing of the Sustainable Development Goals provides leadership to harness the digital revolution.”

The COVID-19 acceleration effect

During the COVID-19 pandemic, the popularity of digital tools has grown rapidly, and demonstrates the potential of digital finance to provide relief for millions around the world, support businesses and protect jobs and livelihoods. 

Speaking to UN News, Mr. Steiner outlined the acceleration effect of the pandemic. “Things that we anticipated would happen over the next few years, have happened in weeks. The pandemic has allowed governments to see the importance of overcoming traditional limitations, and identifying and reaching the most vulnerable.”

Examples include digital cash transfers, which have helped millions of people in Pakistan, the connection of schools to broadband, and governments and parliaments connecting remotely in ways that are now common practice, he added.

The widespread adoption of smartphones, continued Mr. Steiner, puts powerful digital tools in the hands of more than a billion people, allowing them to work, socialize, and manage their finances. He emphasized the importance of remodelling the financial system, to underscore the fact that the trillions of dollars’ worth of investment flowing around the world, ultimately come from ordinary people.

“Citizens are the owners of this wealth, which is made up of pensions, and savings. The Task Force was keen to bring back the notion that the citizen is at the centre of the economy. Citizens need greater transparency, and to have a say over where their pension contributions go. And, as well as returns for investors, we also need to see public purpose benefits. Digital finance is a significant opportunity for citizens to re-engage, because this is a way to address major challenges, such as climate change.”

Digitalization is a choice

The report identifies five ways for harnessing digitalization, which cover much of global finance. Firstly, the huge amounts of money flowing around the world needs to be invested in a way that supports the Sustainable Development Goals of the 2030 Agenda. Public finances need to be more effective and accountable. Savings need to be invested for long-term development projects, using digital tools. And there needs to be more financing for small and medium-sized businesses, which are crucial for generating employment and income.

A key message of the report is that digitalization, and the way that it is used, is a choice, not an inevitability. There are considerable digital risks, such as increased exclusion, discrimination and inequalities. The five action areas point the way for governments to use digitalization for good.

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Development

Principles for Strengthening Global Cooperation

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Global leaders are advocating for cooperation to be the new compass for international relations and have released a set of seven Principles for Strengthening Global Cooperation. The World Economic Forum’s Global Action Group, comprised of senior members of government, business, civil society, and the expert community, developed the principles.

Børge Brende, President of the World Economic Forum, convened the Global Action Group in virtual meetings beginning in June 2020. François-Philippe Champagne, Minister of Innovation, Science and Industry of Canada; Sigrid Kaag, Minister for Foreign Trade and Development Cooperation of the Netherlands; Tarō Kōno, Minister in charge of Administrative Reform of Japan; Tito Mboweni, Minister of Finance of South Africa; Dina Powell McCormick, Global Head, Sustainability and Inclusive Growth, Goldman Sachs; and Kent Walker, Senior Vice-President, Global Affairs, Google,co-chaired the group.

The seven principles call for prioritizing peace and security, equity, gender equality and sustainability because each of these is advanced by and is needed to advance global cooperation. Their absence can cause deep fractures as highlighted by the Global Risks Report 2021 released earlier this week by the Forum.

The seven Principles for Strengthening Global Cooperation:

  • Strengthen global cooperation
  • Advance peace and security
  • Re-globalize equitably
  • Promote gender equality
  • Rebuild sustainably
  • Deepen public-private partnerships
  • Increase global resilience

“Having leaders articulate the importance of working with one another – at a moment that so clearly calls for greater unity but lacks it – can serve as a vital step in rechannelling momentum in the right direction,” said Børge

Brende, President of the World Economic Forum. “The direction we need to head is toward greater dialogue, coordination and collective action. Only in this way can we shape a more equitable and sustainable recovery and increase our future resilience.”

Members of the Global Action Group

Mohammed Alardhi, Executive Chairman, Investcorp Holding

John R. Allen, President, The Brookings Institution

Niels Annen, State Minister for Foreign Affairs of Germany

Thomas Bagger, Head, Foreign Policy Division, Office of Presidential Affairs of Germany

Thomas Buberl, Chief Executive Officer, AXA

Mevlüt Çavuşoğlu, Minister of Foreign Affairs of Turkey

Mathias Cormann, Candidate of the Government of Australia for Secretary-General of the Organisation for Economic Co-operation and Development

Ivo Daalder, President, The Chicago Council on Global Affairs

Jeroen Dijsselbloem, Chairman, Dutch Safety Board

Jeffrey D. Feltman, Senior Fellow, United Nations Foundation

Fu Ying, Chairperson, Center for International Security and Strategy, Tsinghua University

Orit Gadiesh, Chairman, Bain & Company

Arancha González Laya, Minister of Foreign Affairs, European Union and Cooperation of Spain

Samer Haj Yehia, Chairman of the Board, Bank Leumi Le-Israel

Jane Harman, Director, President and Chief Executive Officer, The Woodrow Wilson International Center for Scholars

Mohammed Al-Jadaan, Minister of Finance, Economy and Planning of Saudi Arabia

Ann Linde, Minister of Foreign Affairs of Sweden

Susana Malcorra, Dean, IE School of Global and Public Affairs, IE University

Luis Alberto Moreno, Member of the Board of Trustees, World Economic Forum

Vali R. Nasr, Professor of International Relations, Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University

Patrick Odier, Chairman of the Board of Directors, Bank Lombard Odier & Co.

Maxim Oreshkin, Aide to the President of the Russian Federation

Suresh Prabhakar Prabhu, Indian Prime Minister’s G20 Sherpa

Ayman Al Safadi, Deputy Prime Minister and Minister of Foreign Affairs and Expatriates of the Hashemite Kingdom of Jordan

Kevin Sneader, Global Managing Partner, McKinsey & Company

Achim Steiner, Administrator, United Nations Development Programme (UNDP)

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Finance

Net-Zero Challenge: The Supply Chain Opportunity

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The commitment to tackling climate change is accelerating in all sectors of society, with net-zero pledges from companies, cities, states, and regions doubling in the past year. Decarbonizing supply chains is a major opportunity for companies to put these commitments into practice.

New research published today by the World Economic Forum and Boston Consulting Group (BCG) shows how tackling supply chain emissions can be a game changer in the global fight against climate change. Net-Zero Challenge: The Supply Chain Opportunity analyzes the top eight global supply chains that account for more than 50% of global greenhouse gas emissions and finds that end-to-end decarbonization of these supply chains would add as little as 1% to 4% to end-consumer costs in the medium term.

The report breaks down the major sources of emissions along each of the eight major supply chains—food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services, and freight. It assesses the key levers to reduce emissions in each supply chain and shows that many can be easily deployed today and cost very little to implement. The report also points to the global nature of many supply chains, enabling companies to support decarbonization across borders and in countries where governments do not yet prioritize climate action.

The opportunity for impact is especially high for consumer-facing companies, whose supply chain emissions far outweigh their direct emissions from manufacturing. These companies can use their buying power to push for rapid decarbonization and help fund the transition by co-investing with upstream raw-material producers, which struggle to finance the transition alone.

For example, while it costs a steel producer significantly more to make zero-carbon steel, raw input materials like steel account for such a low proportion of end-consumer prices that a zero-carbon car is only about 2% more expensive for the buyer in the medium term.

The report points to nine major actions that CEOs should take today to address supply chain emissions, including:

  • Building a robust view of emissions with supplier-specific data and setting ambitious targets for emissions reductions
  • Redesigning products and reconsidering geographical sourcing strategies to optimize for CO2
  • Cofunding abatement measures and educating suppliers on how to implement low-carbon solutions
  • Engaging in industry ecosystems to share best practices and create a demand signal for green products
  • Aligning incentives internally to ensure that decision makers focus on lowering emissions

Quotes

Nigel Topping, the UNFCCC’s high-level climate action champion, said: “Supply-chain decarbonization will be a ‘game changer’ for the impact of corporate climate action. Addressing Scope 3 emissions is fundamental for companies to realize credible climate change commitments.”

Dominic Waughray, managing director, World Economic Forum, said: “This important report shows how companies have the opportunity to make a huge impact in the fight against climate change by also decarbonizing their supply chains. The interaction between governments and companies to seize this opportunity is an important one. We welcome more leaders to join and help build momentum on this important agenda.”

Patrick Herhold, a report coauthor and managing director and partner at BCG’s Centre for Climate Action, said: “The argument that costs are a major barrier to reducing emissions is increasingly flawed—around 40% of the emissions across the eight major supply chains we analyzed can be eliminated with measures that bring cost savings or are at costs of less than €10 per ton of CO2 equivalent. Increasing process efficiency and the use of recycled materials, as well as buying more renewable power, provides companies with major climate gains at very low costs.”

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Development

Driving Growth Using ‘Practical Wisdom’: Japan’s Perspectives

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In response to the COVID-19 crisis, the World Economic Forum has taken an initiative to create a more sustainable and resilient world. Further to the regular dialogues held on managing the crisis and shaping a positive post-COVID world, the Regional Action Group for Japan (RAGJ), a community of leaders engaged with the World Economic Forum, published a report “Driving Growth Using ‘Practical Wisdom’: Japan’s Perspectives”

The report suggests that the country should create a well-structured, forward-thinking society based on sustainability, inclusivity and resiliency through four pillars: attitude, business culture, economy, and the global collaboration framework. The report also suggests that Japanese leaders can implement the concept by drawing on the country’s “practical wisdom,” or its long tradition of practicing stakeholder-based capitalism, sustainable business models, disaster resilience, and the championing of environmental values.

“There is an urgent need for global stakeholders to cooperate in simultaneously managing the direct consequences of the COVID-19 crisis. It is of great significance for the World Economic Forum that Japanese leaders came together to propose what it takes for the country, as well as for the international community, to improve the state of the world. Japan’s perspectives, laid out in the report, are one of the first responses to our call to present a vision of that guides us through the post-COVID future,” said Makiko Eda, Chief Representative Officer, World Economic Forum, Japan.

“The current crisis requires us to revisit the status quo of every aspect of society. At the same time, it presents us with a unique opportunity to accelerate necessary reforms to shape a better future,” said Nobuhiro Hemmi, Partner and Chief Strategist, Deloitte Japan, who supported the organization of the discussion of the RAGJ. “Capitalizing on this momentum, Japanese leaders are committed to making long-lasting impacts to society while fostering engagement with the public and communities around the world. I hope that the report serves as a catalyst in implementing ‘great resets’ that help shape the post-COVID future,” he added.

The report proposes that Japan draws on its “practical wisdom” in its effort to resetting four areas:

Attitudes: To address systemic challenges such as sustainability and climate change, leaders must abandon wishful thinking that such a task will be easy. Three approaches should help this shift: sharing a greater sense of urgency among officials, businesses, and the public; accelerating necessary reforms for a long-lasting impact on public trust; and addressing unresolved issues to usher in a new era for Japan.

Business Culture: Leaders should transform their own businesses’ behavior, moving the focus away from their own successes in favor of contributing to the common good. Three steps are proposed: growing truly purpose-driven businesses for long-term value generation; upgrading community and environmental solutions via digital leapfrogging; and promoting diversity and inclusion to revitalize the leadership.

Economy: Japanese leaders must transform the economy system, shifting the emphasis away from shareholders to stakeholders. Three measures should support the shift: redefining economic success; striking a shareholder-stakeholder balance to reframe economic focus; and shifting investor focus from short-term returns to long-term value creation.

Global collaboration framework: Japan must rebuild the bonds of global cooperation by growing out of its traditional role as a rule-follower and becoming a rule-shaper. This is made possible by three approaches: adjusting or adopting rules to create a new era of cooperation; renewing global trade systems; and serving as a great mediator for transnational cooperation.

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