The world is off course to achieve the Sustainable Development Goals (SDGs) by 2030. Various shocks, such as the COVID-19 pandemic and geopolitical tensions, alongside climate change, have left us on track to meet only 15% of SDG targets. About 48% are moderately or severely behind schedule, while 37% are stagnating or have even regressed. None of the seventeen SDGs are on track to be achieved, with major challenges related to SDG11 (Sustainable cities and communities). Alarmingly, more than 80% of regions in OECD countries have not achieved any of the 17 goals, while 70% of cities have not yet achieved more than two.
Struggling to make an impact
Regional and local governments play a pivotal role in delivering the 17 SDGs, with powers over education, social welfare, healthcare, water access, housing, transportation, infrastructure, land management, local economic growth, environmental stewardship and climate action. According to the OECD-UCLG World Observatory on Subnational Government Finance and Investment (SNG-WOFI), covering 135 countries, subnational governments (SNGs) contribute 21.5% of total public spending and 8.3% of global GDP, while also driving nearly 40% of public investments. As a result, achieving the SDGs depends on progress made at the regional and local levels.
Yet subnational governments are struggling to secure the resources to make an impact. According to a recent OECD-SDSN-European Committee of the Regions survey, two-thirds of subnational governments cited the lack of financial resources as their main challenge in achieving the SDGs. This finding chimes with an earlier OECD-CoR survey, which revealed that 44% of local and regional governments did not use the SDGs to shape COVID-19 recovery strategies due to limited financial resources. In developing countries alone, the SDG financing gap increased by more than 50% in 2020 because of the COVID-19 pandemic, reaching USD 3.9 trillion.
This funding gap is partly a result of poor fiscal frameworks, which do not adequately align resources with ambitions for progress on the SDGs (or other areas). The SNG-WOFI highlights the constraints faced by subnational governments due to poor fiscal decentralisation which results in unfunded or underfunded mandates. The situation is likely to get even more challenging for subnational governments in the current inflationary context, increased energy costs and rise of interest rates. OECD analysis shows that, with current interest rates, the subnational government debt profile implies a growth in interest payments of up to 1% of GDP in OECD countries, further limiting their ability to borrow further to finance crucial SDG investments.
Subnational Governments Lack the Financial Resources to Deliver on the SDGs
What are the governance challenges your city/region has faced or is currently facing in implementing the 2030 Agenda?
Source: (OECD, 2024) Note: Share of respondents selecting the respective options, multiple responses possible. The survey was conducted from 22 February 2023 to 9 June 2023.
Improving subnational fiscal space and deploying new tools
To create fiscal space and strengthen creditworthiness, subnational governments must receive sufficient and stable inter-governmental transfers and be permitted to mobilise own-source revenues, including local taxes, charges and fees, and align them with the SDGs.
As highlighted in a recent OECD report, there are many options available, including earmarked taxes, land-value capture instruments and revenues from assets including through financing instruments. Cities are also experimenting with local investment crowdfunding platforms, such as in Rotterdam, where this tool was used to finance a bridge connecting a deprived neighbourhood to the city centre. There are also mechanisms that can be deployed to reduce the costs of land acquisition for new infrastructure, such as Transferable Development Rights, which are deployed in several cities in India like Hyderabad, Ahmedabad and Mumbai.
Once the funding base is secure and there is fiscal room and capacity, subnational governments should be permitted to deploy new of financing instruments to meet the substantial investment needs to deliver the SDGs. Today, debt financing by subnational governments at the global level remains under-utilised, constituting just 9.8% of total public debt in 2020, but only 4% of public debt (i.e. 2% of GDP) in low and lower middle income countries. Governments could allow greater flexibility for subnational governments to secure loans and issue bonds, including sustainability bonds. The city of Kitakyushu, Japan, established the Kitakyushu SDG Future Bonds, a sustainability bonds programme aimed at financing initiatives to achieve the SDG. For this, national governments must play a pivotal role in enhancing subnational fiscal capacity and creditworthiness, while concurrently establishing appropriate checks, and balances.
Subnational governments should encourage the private sector to fund urban-development projects aligned with the SDGs. Recently, partnership agreements with local businesses, including local green deals, have emerged across G20 and OECD countries to drive sustainable development. One example is the Mannheim Local Green Deal (LGD). Guided by a mission statement developed together with more than 2,500 Mannheim residents, companies, institutions, initiatives and associations, universities, and others, Mannheim’s Local Green Deal is underpinned by 19 contracts with local industry and businesses committing to implement and support the Local Green Deal and contribute to the European Union’s mission for 100 climate-neutral and smart cities by 2030.
Last June, the SDSN Global Commission for Urban SDG Finance was set up to generate practical recommendations solutions for scaling-up access to long-term and affordable SDG finance in cities and regions.
Finally, subnational governments must improve the alignment of their funding and financing with the SDGs in budgeting processes and come up with credible pathways to achieve the SDGs. The Basque Country and the city of Strasbourg assess the contributions of different budget items to each of the 17 SDGs, which helps them identify the direct and indirect impact of public spending on the SDGs. In Strasbourg, the analysis revealed that the more transversal the spending is, the more it advances the city’s progress towards sustainable development.
Moving forward
Looking ahead, all levels of government must work together to secure the resources to deliver the SDGs. That is why the Pathfinder Commission, supported by a coalition of partners including the SDSN and OECD, is working across the to develop policy and technology pathways to accelerate a just net-zero transition that also brings human health benefits. Happily, there are already many examples of subnational governments taking the lead with inspirational new measures to get the 2030 Agenda back on track!
Stefano Marta is Head of the Smart and Sustainable Cities Unit and oversees OECD work on A Territorial Approach to the SDGs, decentralised development co-operation and city-to-city partnerships as well as smart cities for inclusive growth. He previously led the initiative “Adopting a Territorial Approach to Food Security and Nutrition Policy,” jointly developed by the Food and Agriculture Organization of the United Nations (FAO), OECD and UNCDF. He also worked on various other projects, including on urban-rural linkages in Morocco and on territorial indicators in Tunisia. Prior to joining the OECD, Stefano worked at FAO on the territorial approach to food security and nutrition policy. In addition, he was part of the FAO Task Force for the formulation of the Sustainable Agriculture and Rural Development Strategy 2040 of Oman and he also participated in the FAO Al-Ghab Development Programme in Syria.
Isabelle is the Head of Unit “Decentralisation, Subnational Finance and Infrastructure” at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. Her work covers several topics related to multi-level governance and regional development, including decentralisation and territorial reforms, subnational government finance, subnational climate finance and infrastructure investment. She is co-author of several thematical and country multi-level governance reviews, and is the OECD coordinator of the World Observatory on Subnational Government Finance and Investment. Prior to joining the OECD, Isabelle worked at Dexia Crédit Local’s Research department and Caisse des Dépôts et Consignations and was also an independent consultant. Graduated from the French “Ecole Normale Supérieure of Fontenay-Saint Cloud” (ENS), Isabelle holds an "agrégation" in geography.
Lorenz Gross is a Policy Analyst in the Smart and Sustainable Cities Unit at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE). As part of the OECD programme, A Territorial Approach to the SDGs – which supports cities and regions to develop, implement, and monitor strategies to achieve the SDGs – Lorenz has co-ordinated national and subnational policy dialogues on the localisation of the SDGs in cities and regions in various OECD countries and beyond. He has also been involved in several projects focussing on decentralised development cooperation and city-to-city partnerships in collaboration with national governments and the European Commission. Prior to joining the OECD, Lorenz worked for a think-tank and different government institutions in Germany.
Guillaume Lafortune is Vice President and Head of the Paris Office at the UN Sustainable Development Solutions Network (SDSN) – the largest global network of scientists and practitioners mobilized for the implementation of the Sustainable Development Goals (SDGs). Previously, he served as an economist at the OECD in Paris and at the Ministry of Economic Development in the Government of Quebec (Canada). Guillaume is the author of 50+ scientific publications, book chapters, policy briefs and international reports on sustainable development, economic policy and good governance.
Eamon Drumm is a sustainable urban development specialist. He previously worked as a senior programme officer at the UN Sustainable Development Solutions Network (SDSN), at the UNESCO World Heritage Centre, and in the energy services industry, where he specialised in collaborating with local governments on urban regeneration programmes and smart city software applications. He has an MPA from Sciences Po Paris and degrees in urban planning and policy from the Université Paris-Sorbonne and the University of Virginia.