United Nations — Millions of lives lost. Trillions of dollars in economic damage. Over 120 million more people pushed into extreme poverty. The human and economic toll of the COVID-19 pandemic is almost unimaginable – a once-in-a-century catastrophe.
But in fact, the pandemic heralds a new normal – a world of systemic risks, where disasters and shocks do not remain local, but can have unpredictable and escalating global consequences. Humankind must come to terms with our fragility and heed the harsh lessons COVID-19 has taught us.
Our economies and societies are ever more interconnected. This is a source of prosperity and efficiency, but also makes us vulnerable to contagion and cascading crises. Global risks – pandemics, financial crises, climate change – increasingly undermine the progress we have made in the fight against poverty.
Unless we adjust, the Sustainable Development Goals will almost certainly be out of reach.
What are COVID-19’s lessons for us? What investments are needed to reduce systemic risks and better prepare for the next crisis? The United Nations’ 2021 Financing for Sustainable Development Report sets out recommendations for long-term investments in prevention and risk reduction. It also identifies measures to make development finance more resilient to shocks – and prevent disasters from derailing development progress.
Managing risks should be a routine aspect of all financial management. But COVID-19 has demonstrated that this is often not the case. The pandemic has exposed vulnerabilities in both public budgets and corporate balance sheets which have been growing over the last decade, leaving countries ill-prepared for the current crisis. More than half of the poorest countries are now either in or at risk of debt distress.
Countries will need a multi-instrument approach. For example, debt management needs to better account for growing risks.
Official lenders can help. Going forward, they should routinely include state-contingent clauses in their loans to vulnerable countries, to have automatic standstills in debt service in case of disasters and shocks.
Lenders can also support the poorest countries with risk-transfer and insurance mechanisms for low-frequency high impact events such as climate-related disasters, as well as budgetary instruments such as contingency funds for more frequent but less costly shocks.
Much of the corporate world was also caught flat-footed when COVID-19 hit, due to high leverage and just-in-time supply chains without built-in redundancies to accommodate shocks. Massive public support packages have prevented a systemic financial crisis and helped many companies weather the storm. But such support may be less forthcoming next time.
Private investors must take into account all material risks in their investment decisions – including longer-term social and environmental risks — just as they now increasingly account for climate risks. This will require, as a critical first step, mandatory disclosure of environmental, social and development impacts of corporate behaviour.
But it’s not enough just to manage material balance sheet risks more effectively. We have to break the cycle of spending large sums on post-disaster support while neglecting new risks we create along the way.
We must focus on investments in prevention, in risk reduction and in resilience. As these are a public good, the public sector must take the lead in ensuring they are provided and funded.
Policy makers must make sure that incentives to private investors are fully aligned with sustainable development. That can include measures such as adequate pricing of carbon emissions and other externalities, bans of single-use plastics, or requirements to conduct due diligence from suppliers on social risks.
Political cycles often make investments in prevention – with uncertain or long-term pay-offs – seem unattractive to governments. Yet public finance can be a powerful tool to reduce risks, through investments in climate mitigation, and in structural and societal resilience.
Structural resilience includes investments in resilient infrastructure or early warning systems; societal in strengthened social protection mechanisms that can deliver rapid and scaled up support in times of crisis.
Many developing countries will need additional financial and technical support. For example, aid programmes have so far not sufficiently prioritized health system strengthening, which is crucial to survive the next pandemic.
No country can do it alone. Systemic risks tend not to respect national borders. Both climate mitigation and the COVID-19 pandemic underline the need to work together. It is not only that developing countries with limited resources need international support to address the fallout from crises not of their making, but these crises cannot be solved without a global approach. Just as it is in everyone’s interest to have vaccinations for all; it’s equally true for carbon-neutral development pathways.
The world needs new forms of international cooperation that amplify the voices of the most vulnerable countries in global decision-making processes. Only when their priorities are fully reflected, will the risks to their sustainable development be adequately addressed.
*Secretary-General António Guterres visited Tuvalu as part of a trip to the South Pacific to spotlight the issue of climate change ahead of the Climate Action Summit in September in New York. In addition to Tuvalu, the trip took him to New Zealand, Fiji and Vanuatu. In each country, the Secretary-General met with government leaders, civil society representatives and youth groups, to hear from those already impacted by climate change and who are also successfully engaging in meaningful climate action.
The writer is UN Under Secretary-General for Economic & Social Affairs