Private Investments, Public Goods: Regulating Markets for Sustainable Development

Abstract In the new ecosystem for financing the sustainable development goals (SDGs), private actors are no longer passive bystanders in the development process, nor engaged merely as clients or contractors but as co-investors and co-producers in development projects and programmes. This ‘private turn’ in the financing of international development and other global public goods sees the enmeshment of public and private finance that brings aid and other forms of official development finance into sharp contact with regulatory regimes commonly associated with commercial investments, capital markets and corporate activity. The shift away from public resources for financing (e.g., multilateral sovereign loans) to leveraging financial markets for development capital (e.g., equity and portfolio investments) will insert countries into global financial markets and engagements with corporate actors in ways that will change forms of regulation, accountability and transparency of public finance. Zooming in on the creation of markets for sustainable development investments (SDI), this paper explores how this broader ‘reengineering of public finance’ is establishing new forms of governance that are restructuring the relationship between states and markets and between transnational capital and their host communities. Specifically, the movement towards private investments and financial markets as key drivers of financing for sustainable development has two critical impacts on transnational governance: (a) the use of private markets, in their capital allocation roles, as quasi-regulatory tools for achieving the SDGs and other global public goods; and (b) the deployment of private regulatory regimes (e.g., contracts, codes of conduct, corporate governance codes) as mechanisms to govern the social and environmental externalities of transnational economic activity. These developments have wide-ranging impacts on the domestic legal, political and civic constitution of states that can paradoxically constrain fiscal and policy space for enabling the attainment of the SDGs.