Getting it done - key tools for SDG implementation

Part 4

Europe is a global leader on decarbonization and meeting the SDGs because the European public is well educated about and supportive of the need to curb human-induced climate change, ensure healthy and sustainable food, reduce inequalities, and foster sustainable technologies. But there is also opposition within the EU to the objectives of the Green Deal and other SDG Transformations. Political upheavals in the US and many other democracies have shown that populists can undermine a broad societal consensus for sustainable development. In response, the EU and Member States must promote sustainable development education (as proposed in SDG Target 4.7) and public outreach to strengthen awareness of the need for and indeed the feasibility of the SDG Transformations. A strong outreach, education, and engagement strategy is a sine qua non for a successful Green Deal and achieving the SDGs.

To implement the SDGs, the European Commission needs a “one-EC work programme approach” covering the Green Deal and other SDG Transformations in close relation to the Recovery and Resilience Plans which will shape European politics for the remaining years of the Commission. This approach needs to outline how the college of Commissioners will organise itself around the SDGs under the overall responsibility of the President of the European Commission. Based on extensive consultations with stakeholders, we see six major tools for implementing the SDG Transformations.

4.1 A New European Industrial Strategy and Innovation for the SDGs

Sixty years of successful European integration have built peace in Europe and protected the interests of smaller Member States, established a strong Internal Market with a level playing field for European companies, supported the convergence of living standards, secured favourable trade agreements, and maintained high social and environmental standards for European citizens. Brexit has been a shock to the EU, but it has shown the strengths of the European model and the importance of EU institutions and values for all 27 Member States.

Today the EU and its Member States compete with China, the United States, and other regions for technological and industrial leadership. The digital revolution gives rise to enormous economies of scale and first mover advantages where successful technologies (such as social media platforms, cloud computing, 5G, artificial intelligence, e-payment, and big data) can be deployed by large companies that dominate world markets. The emphasis here is on scale, because new technologies and their piloting and deployment require very large R&D budgets and supportive policies.

While many European companies continue to be highly successful on global markets, including some of its world beating SMEs, Europe lacks large companies focused on digital technologies. Among the world’s ten largest companies by market capitalization are seven IT companies (two from China and five from the US) and not a single European company (Statista, 2020). European technology companies are mostly sub-scale and struggle to mobilise the R&D investments needed to compete with American and Chinese companies. Tesla is now more valuable than Volkswagen, the largest carmaker in the European Union, demonstrating how new technologies can threaten established technologies and industries that have been at the core of European innovation and prosperity.

The need for scale applies to R&D as well as the piloting of new technologies. European compa- nies are increasingly being outspent by their US and Chinese rivals, particularly in digital technol- ogies (European Commission, 2020j). Meanwhile, the government’s support of electric vehicles has led to 99% of the world’s electric buses being operated in China (Bloomberg NEF, 2020). Unless this gap is reversed, it will give China a remarkable advantage in this critical technology platform.

The proposed New Industrial Strategy for Europe rightly identifies the digital revolution, alongside the transition to climate neutrality, as the defining challenge and opportunity for securing long-term well-being and prosperity in Europe. New digital and clean energy technologies are essential for realizing the ambition of the European Green Deal and achieving other SDGs through m-health, e-learning, e-government, digital finance, precision agriculture, artificial intelligence for novel materials, and so forth.

European companies and research institutions must secure a leading position in these defining technologies for the 21st century if the EU is to maintain its current high living standards. Europe’s population must have access to cutting-edge digital infrastructure and skills. Says the New Industrial Strategy, “This is about Europe’s sovereignty”.

To be successful, the New Industrial Strategy for Europe must consider the position of European innovation hubs and companies within a global context. This will require a shift in mindsets – from considering state aid and competition rules overwhelmingly in the context of intra-EU competition to a more global perspective in which European research and companies need to compete with their peers in the US and China. This will require bold steps and integrated public-private strategies for the entire EU, for example in the form of Important Projects of Common European Interest (IPCEIs). These need to be closely coordinated with research funding and priorities under the Horizon Europe.

The New Industrial Strategy recognises these challenges and emphasises the urgency to develop new approaches. It positions industrial strategy at the centre of the future of the EU and its ability to meet the SDGs. To this end, the New Industrial Strategy makes important links to the Green Deal, the European Education Area, and Digital Transformation (Section 3.1). The proposals also emphasise rightly the need for the EU to protect its intellectual property and to consider how trade agreements and foreign direct investment can support the objectives of a New Industrial Strategy.

However, current proposals lack specifics and ambition on budgets for investments in digital infrastructure and the piloting of new technologies that are critical for Europe’s future, such as electric vehicles. They identify new challenges to competition rules and their application but do not yet propose clear answers. These issues must be addressed as a matter of urgency to secure Europe’s long-term prosperity and indeed sovereignty. The Six SDG Transformations proposed by this report could provide a helpful framing for the required next steps.

Over the coming year, EU Institutions and Member States need to develop clear roadmaps and investment programmes for key industries and technology areas. The New Industrial Strategy for Europe identifies renewable power, robotics, microelectronics, high-performance computing and data cloud infrastructure, blockchain, quantum technologies, photonics, industrial biotechnology, biomedicine, nanotechnologies, pharmaceuticals, advanced materials and technologies. In many areas, the EU and its Member States will need to find a way to increase private and public investments, which raises once again the question of how to finance strategic EU initiatives for the SDGs.

4.2 Financing the SDG strategy

The SDGs and the European Green Deal are an investment agenda. They require increased public and private investments in education, research and development, power, mobility, communication, agriculture, environmental protection, and other areas. Additional investments are needed through the Just Transition Fund to support territories in making the transitions under the Green Deal. The Commission estimates that the current 2030 climate and energy targets alone will require additional annual investments of 1.5% of EU GDP. Much European infrastructure transcends national borders or generates public goods for Europe as a whole, so financing must be mobilised or at least coordinated at the European level.

The Multiannual Financial Framework (MFF) and the Next Generation EU COVID-19 recovery package (NGEU) will be the EU’s key financial instruments up to almost 2030, deciding whether the EU will deliver on the SDGs. Neither make meaningful references to the SDGs. Nevertheless, the financial resources foreseen under the next MFF and NGEU have the potential to support SDG Transformations, both within the EU and in partner countries. While the negotiations on the MFF and NGEU are still ongoing, much will depend on the actual programming of the financial instruments and the extent to which individual programmes and projects are geared towards the SDGs. At the same time, the potential contribution of the EU’s financial resources will also depend on Member States’ willingness to reform key policies areas such as the CAP (Section 3.1.2) and cohesion policy in a way that fosters collective priorities rather than individual Member States’ interests. For this to happen, increased involvement and engagement by SDG-stakeholders and knowledge institutions and Member States’ levels is required.

The total European budget under the MFF adopted on 21 July 2020 is only around 1% of EU GDP. There is therefore little scope for shifting funding within the current MFF envelope to meet substantially higher investments in sustainable infrastructure or other priority SDG needs. Indeed, each priority spending area under the 2021-27 MFF – sustainable agriculture, research and innovation, official development assistance and diplomacy – faces increased budget needs if the SDGs are to be achieved across the EU.

The Commission proposal for a Sustainable Europe Investment Plan seeks to fill this gap. Proposed in January before the COVID- 19 pandemic hit Europe, the Plan aims to (i) raise €1 trillion over ten years of sustainable investments (including a Just Transition Fund) by leveraging the EU budget, drawing on InvestEU guarantees for de-risking and mobilizing the EIB as the “climate bank”;4 (ii) support public and private investors to identify sustainable investments, including by increasing flexibility for State aid in support of the Green Deal; and (iii) support public administrations and private project promoters in identifying, structuring, and executing sustainable projects.

The Sustainable Europe Investment Plan is probably as ambitious as European Institutions could be within the current limits on the overall EU budget, but it is clearly not enough. The proposed Plan emphasises that while SDG investment needs outside the energy, transport, and building sectors still need to be quantified, substantially more resources will be needed at the EU level to implement the Green Deal and the other SDG Transformations.

There is simply no getting around the fact that an EU budget of about 1% of GDP is insufficient to meet critical EU-wide investment needs. European governments must therefore mobilise greater public resources for the Sustainable Europe Investment Plan or empower the European Union to raise its own resources. The recently adopted €672.5 billion Recovery and Resilience Facility (RRF) in response to the COVID-19 pandemic shows the way. In response to a common threat and to finance very specific needs, Member States empowered the EU to raise additional financing from financial markets. The increased long-term investments laid out in the proposals for the European Green Deal and the New Industrial Strategy are just as urgent and critical for Europe’s future as a successful short-term recovery from the economic devastation of the COVID-19 pandemic.

The European Commission’s Green Deal gingerly outlines modest proposals for EU-wide revenue sources, such as levies on on-recycled plastic packaging waste or revenue shares from auctioning of EU Emission Trading System. Other options include revenues from the Common Consolidated Corporate Tax Base, an EU-wide road fuel tax, the Financial Transaction Tax, proposals to tax big tech companies and curb other base-erosion and profit shifting (as recently proposed by the OECD), or EU-wide carbon border levies.

So Member States need to either agree to raise their budgetary contributions to the EU substantially beyond the MFF, empower the EU to issue bonds along the lines of the RRF, or entrust the EU with additional revenue sources. We are under no illusion that any of these proposals are easy to implement or would find unanimous support among Member States. But without an adequate budget, the EU cannot reach the objectives of the Green Deal, pursue its own Industrial Strategy to maintain its sovereignty, or implement the other SDG Transformations.

4.3 Coherent national and EU SDG policies: the SDG-based European Semester

Achieving the SDGs and implementing the European Green Deal will require a transformation of European and national policies, coordinated across sectors and jurisdictions within the EU. The European Commission’s Better Regulation Agenda can help integrate the SDGs into EU and national regulations and policies. Impact assessments, evaluations and fitness checks will need to evaluate the environmental and socio-economic impacts of every measure, proposed and ongoing, to ensure that all EU policies support the SDGs. Building on lessons from the REFIT Platform, the new Fit for Future Platform (European Commission, 2020i) will bring together the European Commission and national authorities with other stakeholders in regular meetings, to ensure that EU legislation is prepared for the challenges of the future. This Platform should also take into consideration the implementation of the SDGs.

The EU budget is tiny (Section 4.2), and most investments and accompanying policies are designed and implemented at national and sub-national levels. This in turn makes the coordination of EU and national SDG policies a particularly important challenge for the Green Deal and other SDG Transformations.

Improved coordination of national and EU-wide SDG policies is needed to achieve several objectives that go beyond the traditional issues of macroeconomic coordination pursued under the European Semester since the 2008 financial and economic crisis. Firstly, some elements of the Green Deal will require cross-border infrastructure, such as power grids, that must be coordinated across members states. Secondly, implementing the Green Deal will necessitate tackling many first-of-its-kind problems: European Institutions and Member States will have to learn from one another about what works and what doesn’t. Enhanced policy coordination facilitates knowledge transfers and promotes learning. A third challenge stems from the need to coordinate a large number of policy areas – such as biodiversity, nutrition, agriculture and climate (under the SDG Transformation towards sustainable food, land, and ocean use) – involving national and subnational governments. The environmental pillar of sustainability has to date been only marginally addressed by the Semester, with Semester Country Reports tracking 21 green growth performance indicators, most of which are energy focused (European Commission, 2020i). New sector policies must promote social inclusion and be supported by adequate financing and sound macroeconomic policies, which in turn will require EU-wide coordination mechanisms. Finally, coordinating national policies will identify lessons that can help bolster the ambitions of national and EU policies to meet the “stretch goals” of the Climate Law, the Green Deal and other SDG Transformations.

Ursula von der Leyen identified this coordination challenge during her confirmation hearings with the European Parliament, and she has pledged to align the European Semester with the SDGs. The Commission’s first attempt to integrate the SDGs into the 2020 Semester process was largely derailed by the COVID-19 pandemic, which led to deep falls in GDP across the EU. The recently adopted €672.5 billion Recovery and Resilience Facility (RRF) is now linked to the Semester process, with the result that RRF proposals should also explain their alignment with the SDGs. The financial firepower of the RRF should give the Commission additional leverage to promote the integration of the SDGs into the Semester process.

Aligning the European Semester with the SDGs will be a critical tool for achieving the SDGs in the EU, but it also represents a major challenge (Charveriat and Bodin, 2020). Yet it may simply not be possible or even desirable to coordinate all SDG policy aspects through a single tool. Earlier efforts to broaden the scope of the European Semester beyond macroeconomic policies have not been entirely successful. For example, the Semester process still struggles to consider national social policies, including the Social Scoreboard,5 which have been part of its mandate from the start.

A balanced approach towards coordinating national and EU-level SDG policies can be built around three components. To promote policy coherence and reduce the complexity of the coordination process, we propose that these components be organised along the Six SDG Transformations for the EU, plus a seventh chapter on macroeconomic policy coordination. For each component of the European Semester, Member States and the Commission would describe and review the three components below. Since our focus is on the long-term transformations towards the SDGs, we do not discuss issues around macroeconomic policy coordination in detail:

1. National targets and long-term pathways: As part of the European Semester, each country would specify targets and interim milestones for each SDG Transformation plus macroeconomic policy coordination. Countries would also map out the key elements of their national transformation strategies. The Commission could then help ascertain consistency in targets across Member States and flag areas in which the sum of national ambitions might fall short of EU-wide objectives. Because this analysis would only need to be updated periodically following major changes, Member States could append the description of national targets and pathways to their annual Semester reports.

2. Progress towards national targets and implementation challenges: During each Semester round, Member States and the Commission would describe progress made towards the national targets and identify major challenges related to the implementation and coherence of EU and Member States’ policies. Such assessments and comparisons would greatly benefit from “policy action trackers” that track forward-looking indicators for Member States policies (Section 4.6). Both sides would make proposals for how these major implementation and coordination challenges can be addressed.

3. Coordination mechanisms for each SDG Transformation: The Commission may consider a mechanism for coordinating national and EU-wide policies for each transformation. National Climate and Energy Plans under the Energy Union Governance Regulation could be broadened to cover Transformation 2 (Sustainable Energy) and Transformation 3 (Sustainable Communities Mobility, and Housing). CAP strategic plans under the Common Agricultural Policy could be broadened to cover Transformation 4 (Sustainable Food Production, Healthy Diets, and Biodiversity Protection). Sector mechanisms (e.g. the national long-term renovation strategies under the Energy Performance and Buildings Directive) could be pooled and built on to become coordination mechanisms for the other European SDG Transformations. Each sector coordination mechanism would review the corresponding national and EU policies on an annual basis. If such detailed reviews of each Transformation were conducted in the second semester, then the European Semester could consider high-level findings and recommendations, including alignment with macroeconomic policies.

Such a coordination process through the European Semester is complex, but much needed to deliver on the ambition of the EU’s SDG policies. This Semester process will require transparent reviews of national strategies, including through multi-stakeholder consultations. We recommend that the EU and its Member States mobilise the technical and scientific communities in each country to support diagnosis and problem solving. As one example, SDSN has been mobilizing national networks of universities and other knowledge institutions that are ready to support the Semester process in their countries.

4.4 Coordinating Green Deal and SDG Diplomacy

In Section 3.2, we highlighted the need for coherent Green Deal and SDG Diplomacy covering all aspects of the EU’s bilateral and multilateral relationships, including development cooperation. Seizing these diplomatic opportunities will require focus and organisation within the EU’s External Action Service and close coordination with the directorate-generals for Trade (DG TRADE) and International Cooperation and Development (DG DEVCO) as well as the directorate-generals in charge of the Green Deal. The Commission might consider establishing a dedicated unit focused on the SDGs, which would help align major diplomatic initiatives as well as bilateral relations with an EU focus on promoting the SDGs domestically and internationally. Working closely with other DGs, this SDG unit could play an important role in identifying and seizing opportunities for greater policy coherence in support of the SDGs with a particular focus on reducing negative spillovers (Section 3.3).

One particular priority for the EU’s Green Deal and SDG Diplomacy should be regional and supranational bodies in other regions. For example, the African Union, the Association of Southeast Asian Nations (ASEAN), and various bodies in Latin America, but also the United States–Mexico–Canada Agreement and the recent Regional Comprehensive Economic Partnership in Asia-Pacific, are all aiming to deepen regional integration. Such integration efforts focus on trade facilitation and the creation of single markets, but they are also often a means to strengthen political cooperation, to accelerate the transformation towards sustainable development, and to promote peace. Explicitly or implicitly, the EU serves as a role model for many of these regional efforts, and many would like to learn from Europe’s experiences, including under the Green Deal.

4.5 Business standards and reporting

European businesses play a central role in achieving the SDGs in Europe and through their international operations and value chains in other countries, too. They need to orient their activities towards the SDGs and report on their contributions, which in turn will require clearer metrics. Several organisations, including the World Benchmarking Alliance, are proposing benchmarks for SDG alignment for businesses.

We recommend a simple 4-pillar approach for business and their stakeholders to track their contributions towards the SDGs, as is currently being applied to the agri-food sector (SDSN et al., 2020).

1. Product. Are the business’s products or services beneficial for society and consistent with the SDGs?

2. Production processes. Are the business’s production processes sustainable?

3. Value chains. Are the business’s upstream and downstream value chains sustainable?

4. Good corporate citizenship. Does the business adhere to norms of good behaviour (e.g. taxes, lobbying, marketing, treatment of employees, and suppliers)?

The EU Commission needs to align several regulatory frameworks and voluntary business standards with the SDGs. In particular, the Non- Financial Reporting Directive (NFRD) needs to be aligned with the SDGs. The same applies to the Regulation on Disclosures Relating to Sustainable Investments and Sustainability Risks as well as other aspects of the Sustainable Finance Package.

Of particular importance will be the inclusion of international supply chains for companies to identify and help tackle international spillovers (Section 3.3), as in France’s law on the duty of care of parent companies (“devoir de vigilance des entreprises donneuses d’ordre”). A German supply chain act is currently on hold, owing to opposition from the Ministry for Economic Affairs and Energy.

Similarly, the EU’s Eco-Management and Audit Scheme (EMAS) – a voluntary tool for corporations, local government, and other stakeholders to self-assess their compliance with EU environmental standards – needs to be expanded and aligned with the SDGs. This will require the inclusion of a broader set of metrics than are currently available under EMAS III, including the expansion of the framework to cover key social and governance issues.

4.6 SDG monitoring and reporting framework

Each SDG Transformation needs to be carefully monitored against agreed targets, including the SDGs. This will first of all require clarity on critical targets for each SDG Transformation, by synthesizing and prioritizing targets across the large number of EU policy instruments and decisions made by EU institutions. This could draw on the IEEP’s efforts to propose targets and indicators for the Green Deal (Charveriat et al., 2020).

Eurostat’s annual monitoring report on progress towards the SDGs in an EU context has been improving year on year, and it has become an international reference on how official reports can track the SDGs. One major improvement in the latest edition is the inclusion of an additional chapter and a new annex where SDG results are presented for each Member States (while previously the report focused almost exclusively on EU-wide SDG results). The report also highlights remaining data gaps in an EU context.

Yet Eurostat’s mandate makes it impossible to compute distance from achieving SDG targets, because the EU lacks politically agreed targets for many areas (Lafortune and Schmidt-Traub, 2019). It is also more difficult for Eurostat to include critical novel metrics, including “unofficial” data on international SDG spillovers. As a result, unofficial SDG monitoring reports, like this ESDR 2020, can provide an important complement to the official Eurostat report.

In addition to traditional “outcome measures” covered in the Eurostat and SDSN/IEEP reports (e.g. learning outcomes, greenhouse gas emissions, inequality rates), European institutions and Member States should identify forward-looking or “leading indicators” for each SDG Transformation. For example, the Climate Action Tracker (Climate Analytics and New Climate Institute, 2020), provides twice yearly assessments of countries’ policies towards decarbonizing their energy systems (SDG Transformation 2). Together with other partners in the Food and Land-Use Coalition, the SDSN is developing a Food, Environment, Land and Development (FELD) Action Tracker for SDG Transformation 4. The European Commission could develop similar policy action trackers for each SDG Transformation, to feed into the annual European Semester process (Section 4.3).

Outlook

At the time of writing, most European countries are experiencing a powerful second wave of COVID-19 infections, and many have gone back into lockdowns. As described in this report, Europe must first control the spread of disease through known and proven non-pharmaceutical interventions, and – eventually – safe vaccines.

Meanwhile, EU institutions have been commendably unwavering in their commitment to the Green Deal and to other policies in support of the SDGs. Indeed, the SDGs are the right framework for “building back better” from COVID-19.

The EU now needs to align, integrate and clearly communicate the various elements of its approach to meeting the SDGs. In this report, we have outlined six SDG Transformations that will strengthen policy coherence and provide a simple and compe\lling narrative. We have also identified tools for “getting it done”. The steps that must be taken towards fully integrating the SDGs in internal and external actions are bold and ambitious, but feasible.

China’s carbon neutrality pledge and the election of Joe Biden in the United States hold the very real promise that multilateral diplomacy will refocus on the Paris Agreement and the 2030 Agenda. By virtue of its policy leadership, its values, and its technological capabilities, the EU is well placed to lead such international efforts. Next year’s COP15 biodiversity conference in Kunming, China and COP26 climate change conference in Glasgow, Scotland, will provide opportunities for real breakthroughs.