Bridging the Gaps for Sustainable Development

Delivering on the SDGs requires more than incremental improvements. It demands policies that function together rather than in isolation. To this end, this chapter focuses on how integrated policy action across water, energy, industry and cities can strengthen resilience and accelerate the implementation of the SDGs. Maximising impact means aligning decisions on infrastructure, resource use, innovation and territorial development to unlock synergies and reduce systemic risks, while making distributional risks explicit, including who bears costs and who benefits. The key messages from this analysis are summarised in Box 2.1.

This chapter directly responds to Chapter 1’s call for coherence as a governance imperative. Whereas Chapter 1 explained why fragmentation persists and where systemic interlinkages bind SDG delivery, Chapter 2 focuses on how governments can sequence regulation, investment and incentives to convert interdependencies into measurable gains in efficiency, resilience and inclusion. It applies these requirements to concrete policy domains and integrated approaches. It focuses on addressing three main questions:

• Where are the highest-return cross-sector synergies?

• What are the binding trade-offs, and who bears costs?

• When do spillovers undermine domestic progress, and how can we manage them?

As shown in Chapter 1, the ability to manage interdependencies across water, energy, industry and cities has become a decisive factor for accelerating SDG progress. These domains are deeply interconnected through shared infrastructure, resource flows and investment choices, making coherence a requirement for effective and durable strategies. This section aims to highlight the highest-return cross-sector synergies and explores how coherent approaches – such as circular economy practices, nature-based solutions and strategic use of STI – can simultaneously advance water security, energy access, industrial innovation, and sustainable urban development. By leveraging these intersections, governments can reduce costs, accelerate technology diffusion, strengthen resilience and deliver social and environmental benefits. This section also highlights what’s needed to move from pilots to scale, including aligned regulation, coherent procurement practices, bankable investment pipelines, and multi-level co-ordination that clarifies responsibilities and funding. Drawing on OECD analysis and country experiences, the section illustrates practical ways to turn systemic interdependencies into opportunities for widely shared and sustainable growth.

The circular economy offers a compelling framework to advance environmental, industrial, and territorial development objectives in tandem (OECD, 2025[1]). By promoting resource efficiency and reducing material waste, circular approaches can reinforce decarbonisation strategies, stimulate green innovation, and reduce dependence on fragile supply chains. Yet there is a coherence challenge in the disconnect between the treatment of circularity as a waste policy, while industrial incentives, construction standards and procurement rules continue to favour linear production and consumption. To unlock these benefits, governments need to embed circular principles beyond waste management into mainstream economic and urban policies.

At the local and regional levels, integrated circular economy strategies are increasingly being used to support sustainable urban development, clean energy transitions and industrial upgrading (OECD, 2022[2]). Cities and regions are aligning spatial planning, infrastructure investment, and public procurement with circular goals to generate synergies across mobility, construction, housing and digital services. In Zuid-Holland (Netherlands) for instance, the regional government aligned its energy and industrial decarbonisation goals by embedding circular economy principles in sectoral policies, supporting innovation and employment while reducing emissions (see Box 2.2).

Some subnational authorities are embedding circular design principles in construction, expanding reuse and repair infrastructures, or integrating circular targets into sustainable procurement strategies. These place-based approaches demonstrate how multi-level governance, coupled with local experimentation, can turn systemic sustainability challenges into engines of regional competitiveness.

To scale such approaches, the elements of policy packages could include regulatory standards (e.g. circular design requirements in building codes and product rules), demand signals (e.g., green public procurement and performance-based contracting), enabling infrastructure (e.g., reuse/repair networks, secondary materials marketplaces), and support for SMEs to manage compliance costs and avoid exclusion from public markets.

Water and wastewater management also illustrate the potential of circular approaches to reinforce resource security and resilience. Integrated strategies that link water reuse, energy recovery and waste-to-resource solutions can improve cost-efficiency, reduce environmental impact and create co-benefits across sectors. In Mar del Plata (Argentina), a cross-sector sanitation strategy was developed and aligned with broader urban development and tourism priorities, showing how circular water policy can advance multiple territorial goals simultaneously (see Box 2.2). Meanwhile, Singapore and Hong Kong have expanded desalination, reuse and efficiency measures to secure water supplies while reducing the energy intensity of water services.

Cities are experimenting with mechanisms to improve water-energy planning. Budapest has introduced joint regulatory instruments, while Barcelona, Hong Kong and Singapore invest in water supply solutions that reduce energy intensity. The rapid uptake of generative artificial intelligence (AI) in water utilities also shows promise, improving monitoring, leak detection, and disaster preparedness. However, AI is energy- and water-intensive itself. Estimated global water withdrawals for AI could reach 4.4 to 6.6 billion m³ by 2027 (Ren, 2023[3]). These trends illustrate both the opportunities and emerging trade-offs of digitalisation, reinforcing the need for integrated governance that anticipates environmental footprints while leveraging innovation for resilience.

More broadly, the SDGs offer a unifying framework for governments to align social, economic and environmental priorities. Cities and regions that anchor their development strategies in the SDGs are better equipped to manage trade-offs and seize synergies. Kitakyushu (Japan), for instance, used the SDGs as a strategic lens to align industrial transition with clean energy goals and youth employment initiatives, demonstrating how integrated planning supports social inclusion and green growth (see Box 2.2). This example shows that the success of this approach depends on the translation of SDGs into decision systems, such as budgeting tags, procurement criteria and outcome indicators, rather than remaining high-level statements. These integrated strategies reflect a growing recognition that successful green transitions must be not only technically feasible but widely shared and territorially balanced.

Chapter 1 highlighted that fragmented responses to the triple planetary crisis often shift risks across domains. Embedding nature-based and nexus approaches into core planning processes offers a way to counter this dynamic by creating integrated solutions that deliver resilience and efficiency together.

Nature-based solutions (NbS) offer a powerful lever for policy coherence, advancing economic, environmental and social goals simultaneously (OECD, 2021[6]). In urban contexts, NbS such as green spaces, tree cover and green roofs help reduce the urban heat island effect and lower energy demand for cooling (SDG 7), while also enhancing water retention and stormwater management (SDG 6). Yet, the implementation of NbS is often under-delivered, given that benefits accrue across sectors and overtime, while costs sit in a single budget and maintenance responsibilities are unclear, thus calling for appraisal methods that value co-benefits, procurement rules that treat NbS as core infrastructure, and long-term stewardship arrangements before integrating NbS.

Combining NbS with traditional infrastructure creates cost-effective resilience solutions. Hybrid approaches, such as wetland and mangrove restoration, can buffer coastal communities from storm surges and erosion, often outperforming single-purpose grey infrastructure (SDGs 9 and 13). These “low-regret” strategies deliver long-term environmental dividends, such as biodiversity restoration, carbon sequestration and avoided emissions, even in the absence of extreme events. They provide adaptive capacity without the sunk costs or rigidity of capital-intensive assets (OECD, 2020[7]) (OECD, 2021[6]). Key trade-offs usually tend to include land availability and opportunity costs, distributional impacts (e.g., who gains access to green amenities), and the need to fund operation and maintenance, all of which must be managed through governance and financing design.

Proactive ecosystem management can deliver a ‘triple dividend’ of resilience by generating economic, environmental and social benefits even outside of crisis periods (OECD, 2025[8]). Drought risk, for example, can be reduced through agroforestry and natural water retention systems that improve soil health, store carbon and buffer agricultural livelihoods (SDGs 2, 6, 13). Improving irrigation efficiency could reduce global water withdrawals by up to 76%, while also lowering energy use for pumping and treatment. Similarly, shifting from wildfire suppression to prevention – including Indigenous practices like cultural burning – reduces fire intensity, protects carbon stocks and restores ecosystem integrity, while integrating social equity and resilience goals (SDGs 11, 15). Practical realisation of these gains however depends on the reorientation of planning, financing and land-use incentives toward prevention rather than post-disaster reconstruction.

While NbS offer powerful levers for resilience, they are most effective when integrated into broader resource planning frameworks. A water-energy-land nexus perspective complements NbS by ensuring that investments are sequenced to maximise benefits across sectors and minimise conflicts among users. OECD work in Central Asia shows how cross-sector governance and financing mechanisms can align energy, agriculture and urban water decisions, strengthen resilience and foster regional co-operation. In that region, basin‑level water-energy-land initiatives are improving cross‑sector co-ordination, reducing drought risk and preventing conflicts between agriculture, cities and power systems. (Kato, 2025[9]). Embedding such approaches into country platforms and transition finance strategies can accelerate high-impact projects across energy, water, industry and cities.

Escalating climate hazards combined with continued greenhouse gas emissions are amplifying vulnerabilities across water, energy, industry and urban systems. These risks are systemic: floods disrupt energy supply chains, droughts undermine industrial operations, and urban heatwaves strain infrastructure and health systems. As climate change alters hazard patterns, the boundaries between climate adaptation and disaster risk reduction are increasingly blurred, making fragmented responses more costly and less effective (OECD, 2020[10]). Embedding disaster resilience in infrastructure governance and investment decisions is critical to safeguard lives and sustain economic development (OECD, 2024[11]) (OECD, 2025[12]). Resilience must be treated as a core governance principle This means integrating risk assessments into planning, budgeting and regulatory frameworks to ensure that infrastructure and public services remain functional under stress.

Disaster risk reduction (DRR) is fundamentally a governance challenge. Fragmented mandates and siloed sectoral policies often lead to trade-offs. For example, energy expansion without considering water stress, or rapid urban growth without resilient drainage and land-use planning. Coherent policy frameworks align objectives across sectors, embed risk-informed standards and link resilience with climate adaptation and social protection. By promoting whole-of-government and whole-of-society approaches, policy coherence reduces duplication, optimises resource allocation and accelerates progress on SDGs 6, 7, 9 and 11. Integrating DRR into fiscal and regulatory instruments, such as green budgeting, procurement and performance evaluation, ensures that resilience is embedded throughout the policy cycle, reducing exposure to shocks and safeguarding investments (OECD/FAO, 2021[13]) (OECD, 2024[11]).

Unlocking the full potential of cities to advance the SDGs requires integrated urban strategies that bridge sectoral divides and align urban development with environmental, social and economic goals. This means embracing integrated urban strategies that align housing, land use, infrastructure, digitalisation and environmental objectives within shared planning and investment frameworks (see Box 2.3). National Urban Policies and multi-level governance frameworks are essential to foster co-ordination between national and local actors. Digital innovation, spatial planning and nature-based solutions can also improve resilience, reduce emissions, and enhance liveability. Cities that take a place-based approach and engage local stakeholders are better positioned to manage trade-offs and unlock synergies across the SDGs.

These examples illustrate how coherent urban strategies can deliver multiple SDG outcomes simultaneously, linking climate mitigation, affordability, health and inclusion. Integrated urban strategies demonstrate how place-based approaches can unlock synergies across housing, mobility, energy and digitalisation. Yet scaling these solutions depends on innovation ecosystems that provide the technologies, data and capabilities to make integration feasible.

Science, technology and innovation (STI) are key drivers of transformative solutions that can unlock synergies across sectors and accelerate progress on multiple SDGs (OECD, 2025[14]). By linking technological progress with regulatory, fiscal and skills frameworks, STI can ensure innovation accelerates integration rather than amplifies resource and equity risks. Strategic public investments in STI – particularly in energy, infrastructure, circular economy and nature-based technologies – can generate positive spillovers for water security, industrial upgrading, health, and climate resilience. Innovations in battery storage, smart grids, hydrogen, and digital water systems, for example, support both decarbonisation and widely accessible service delivery. However, these gains are not automatic, as they depend on policy coherence that links R&D funding to enabling regulation, skills strategies and procurement that create demand and accelerate diffusion, while managing emerging risks.

STI systems also face trade-offs, such as resource intensity, digital environmental impacts, or equity gaps in access to innovation. Integrated governance mechanisms, foresight tools and open science can help manage these tensions. The OECD Recommendation on Digital Technologies and the Environment [OECD/LEGAL/0380] (OECD, 2025[15]) offers a global framework to promote environmentally sustainable digital transitions, while broader STI policy alignment, across borders, sectors and stakeholders, can amplify the positive impacts of innovation.

Realising this agenda requires common metrics for digital footprints (energy, water, materials and e-waste), mission-oriented strategies with cross-ministerial governance, and safeguards that broaden participation and reduce widening inequities in access to innovation. Strengthening open science, safeguarding research security, and building international STI partnerships with wide participation will be essential to ensure all countries can help to shape and benefit from transformative innovation. To maximise the positive impacts of innovation STI must be embedded into broader systems of planning, finance and regulation.

Coherent action on SDGs 6, 7, 9 and 11 also depends on aligning systems-level levers that shape how governments plan, spend and regulate. The latest OECD Environmental Outlook (OECD, 2025[16]) identifies six strategic levers to accelerate progress on the “triple planetary crisis” of climate change, biodiversity loss and pollution. These include leveraging existing national planning, budgeting and reporting frameworks to better reflect cross-cutting interlinkages; aligning public and private financing to target synergies across water, energy, industry and land systems; addressing key gaps in research, data and assessment to improve understanding of system interactions; and advancing circular economy approaches across material use, energy policy and food systems. Applied in combination, these levers can help governments move from fragmented interventions to integrated strategies that reduce resource intensity while ensuring that the benefits and costs of transitions are managed fairly.

Mobilising finance for clean energy transitions in emerging and developing economies (EMDEs) is critical to achieving SDG7 and related goals. As developing countries confront rising energy demands, limited fiscal space, and climate-related vulnerabilities, collaborative platforms that bring together governments, development partners and private investors are critical to scale solutions (OECD, 2025[17]). These platforms can help align energy transition goals with industrial, social and environmental priorities, and provide a structure for mobilising private investment, policy reform, and technical assistance. Box 2.4 highlights how country platforms are evolving to support energy access, decarbonisation and much needed transitions in emerging and developing economies. Still, platforms are not substitutes for concessional finance or domestic reforms, and their effectiveness depends on clear governance, credible transition plans and accountability for results.

Reaching climate neutrality requires economic transformations of unprecedented scale and speed. Adopting a place-based, regional economic approach can make the most of economic opportunities while avoiding costs and risks. Achieving such transformations requires working closely with local business communities, harnessing their incentives to adapt business models in line with climate neutrality objectives.

Businesses can already identify profitable opportunities, notably by optimising low-cost renewable energy and coupling it with end-use applications across different sectors, taking advantage of declining electrification costs. Many of these opportunities remain underexploited because they are insufficiently visible, span multiple sectors, or require collective action, rather than isolated firm-level decisions.

Businesses also face significant risks from investments that may become “stranded assets” as economies transition toward climate neutrality. Such “stranded assets” can raise the overall cost of the transition and undermine competitiveness. Anticipating and avoiding these risks is therefore a key condition for cost‑effective and durable economic transformation.

Bringing the business perspective into climate action broadens the range of actors supporting the transition, which is essential given the scale and pace of required change. Engagement with local business communities can also strengthen public policymaking by fostering co-operation, reducing resistance to reform and improving understanding of business constraints and incentives in climate change mitigation. This in turn can reinforce and accelerate public and private action.

To make climate neutrality economically viable, local economic contexts need to be taken into account. Placed-based approaches help develop locally suitable alternatives to carbon-intensive production, that sector-specific and place-neutral policies, including carbon pricing alone, are often unable to deliver. This is particularly the case where zero-carbon alternatives depend on shared infrastructure, skills and knowledge, and therefore require collective action with a strong local dimension.

Early and co-ordinated action by local business communities can avoid unnecessary costs from stranded investments and generate wellbeing co-benefits that strengthen regional comparative advantage. This includes making better use of low-cost renewables, including through prosumption, improving energy efficiency in buildings, including by addressing skills bottleneck, and responding to challenges and opportunities in transport and industry. Such approaches can also reveal local potential for hydrogen hubs and accelerate the adoption of circular economy practices. Overall, these experiences illustrate that a regional perspective and co-ordinated business action are critical to achieving climate neutrality while supporting economic prosperity (OECD, 2024[19]).

Closing the financing gap for industrial transformation is essential not only for reducing emissions but also to improve coherence across water, energy and industry systems. OECD work has supported the development of practical tools to help governments and partners close the financing gap. The 2025 Climate Club Financial Toolkit (OECD/Climate Club, 2025[20]) compiles economic, de-risking and financing instruments to support industrial decarbonisation, supported by case studies showcasing enabling conditions for the adoption of low-carbon technologies, as well as initial economic assessments in hard-to-abate sectors. The OECD has also developed the Mapping of Financial and Technical assistance for Industry Decarbonisation in EMDEs. This Mapping provides evidence-based trends on the level and the characteristics of the international assistance provided to EMDEs to support industry decarbonisation, as well as key areas for action to increase the impact of this assistance. These insights are contributing to the implementation of the Belém Declaration on Global Green Industrialisation and the Roadmap of the COP30 Working Group on Green Industry for EMDEs, which aim to align industrial development with climate, competitiveness and equity goals. The value of such tools lies in how they help governments select instruments to improve market conditions, institutional capacity and development priorities.

The real test of integrated policy action lies in how it handles hard trade-offs. Progress on the SDGs often stalls not because ambition is lacking, but because policies fail to reconcile competing objectives: such as, industrial competitiveness versus decarbonisation, urban growth versus water security, affordability versus sustainability. Coherence helps manage these tensions more effectively by making them visible and governable through clear prioritisation, transparent identification of who bears costs and who benefits, and the use of sequencing and compensation to maintain political and social support. As highlighted in Chapter 1, coherence is not about avoiding conflict, but about structuring it. This section analyses the binding trade-offs and who bears costs, focusing on concrete policy solutions that transform these tensions into opportunities. These include industrial strategies that drive net-zero innovation without sacrificing jobs, land-use and housing policies that curb sprawl while improving affordability, fiscal and regulatory tools that align incentives for resource efficiency, and investment frameworks that embed environmental and social standards. Drawing on OECD analysis and country experience, this section shows how smart policy design and coherence can turn trade-offs into levers for sustainable growth.

Urban land use, housing, transport and energy are interlinked policy domains where trade-offs often arise. Affordable housing programmes, when implemented without sufficient co-ordination, can lead to urban sprawl, increased car dependency and higher emissions. In contrast, co-ordinated metropolitan governance can support integrated solutions that balance access, sustainability and economic opportunity (see Box 2.5).

Fiscal instruments can reinforce these outcomes. Tax policy can also support efficient land use and reduce sprawl (OECD, 2022[21]). Recurrent taxes on immovable property raise the cost of holding vacant or under-developed land, encouraging its more productive use, particularly at the urban fringe. Taxes on land alone, rather than on buildings or improvements, are a comparatively efficient form of taxation that minimise distortions to land-use and investment decisions. In contrast, taxes on real estate transactions may reduce mobility and distort the location decisions of households. Yet these reforms create distributional impacts and require enabling conditions such as up-to-date property valuations, strong land registries and local fiscal autonomy to be effective. (OECD, 2021[22]).

National Urban Policies (NUPs) can play a pivotal role in resolving these tensions (OECD, 2020[23]). By aligning sectoral decisions, across housing, transport, energy and the environment, with local realities and national sustainability goals, NUPs help embed climate and resilience objectives into city design. Yet these mechanisms often underperform as a result of weak cross-ministerial mandates, fragmented funding streams and limited implementation capacity at local level. In many OECD countries, past housing programmes were implemented without transport co-ordination, leading to urban periphery development disconnected from jobs and services. Integrated planning frameworks are needed to avoid locking in unsustainable growth paths. Fiscal tools such as land value capture (LVC) can help align development with sustainability outcomes (OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center, 2022[24]). When new infrastructure or zoning decisions raise land values, LVC instruments can ensure that some of this value is reinvested in public goods such as transport or green infrastructure. LVC can help finance nature-based solutions, which often face financing challenges due to limited direct revenue streams. Well-designed LVC schemes can help offset the opportunity cost of preserving green spaces, while promoting equity and long-term resilience.

OECD Environmental Performance Reviews (EPRs) and thematic studies provide evidence-based analysis on how countries address policy coherence to reconcile economic and environmental objectives across water, energy and industry, among others. They identify misalignments, such environmentally-harmful subsidies, including energy price support, that undermine environmental goals and are often fiscally costly and socially unfair. EPRs also identify policies that amplify exposure and vulnerability to climate risks, including certain forestry and agriculture policies and inadequate land use planning. Recent EPRs of countries such as Colombia (OECD, 2026[27]), Sweden (OECD, 2025[28]), Japan (OECD, 2025[29]), Germany (OECD, 2023[30]) and Chile (OECD, 2024[31]) have documented how fiscal, regulatory and planning reforms can help reconcile environmental and economic priorities. Key recommendations include phasing out environmentally-harmful subsidies, including support for fossil fuels, strengthening carbon pricing, improving the management of protected areas and linking agricultural support to environmental objectives.

Regulatory tools, in particular, play a critical role in managing trade-offs: spatial planning instruments, licensing rules and risk-based regulations can align private investment with climate adaptation goals. For instance, new OECD work on wildfire (OECD, 2023[32]) and drought risk management (OECD, 2025[8]) shows how governance and regulation can mitigate tensions between land-based sectors and long-term environmental resilience.

Regulatory instruments can also play a pivotal role in aligning urban development with sustainability. Examples such as green roofs, solar mandates and urban greening illustrate how regulatory tools can deliver multiple benefits when integrated into planning frameworks. For example, San Francisco’s "Better Roofs Ordinance" mandates solar panels or green roofs on new buildings to reduce energy use and stormwater runoff. Tokyo requires urban greenery to mitigate heat and enhance flood resilience, an example of nature-based solutions (NbS) which deliver both environmental and health benefits.

Beyond spatial and infrastructure policies, governments can also address trade-offs by creating an environment for aligning private investment with sustainability considerations. This includes the frameworks that guide businesses, financiers and investors across the infrastructure lifecycle. From financing and planning to construction and operations, businesses are central actors in delivering the infrastructure needed for sustainable cities, clean energy transitions, and resilient economies. The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (RBC) (OECD, 2023[33]) set global expectations for businesses to identify, prevent and mitigate environmental and social risks in their operations and global value chains. Under the OECD Recommendation on Common Approaches (OECD, 2025[34]), Adherents, through their export credit agencies in the OECD Export Credits Group, are expected to promote awareness of the MNE Guidelines and consider statements issued by National Contact Points (NCPs) at the conclusion of specific instance procedures. Integrating RBC into infrastructure policies, public-private partnerships and procurement systems can help governments and firms align incentives and strengthen accountability, helping to maximise infrastructure contributions to the SDGs and avoiding harm. Recent OECD research in Southeast Asia (OECD, 2025[35]) including, Thailand (OECD, 2024[36]), the Philippines (OECD, 2024[37]), and Indonesia (OECD, 2024[38]) has shown how policy frameworks, including legal requirements for stakeholder engagement, can support better outcomes across the SDGs.

OECD work on Foreign Direct Investment (FDI) further highlights the complexity of investment-related trade-offs. The FDI Qualities Indicators Visualisation Platform, developed under the FfD4 Sevilla Platform for Action, presents country-level data on the impacts of FDI across key SDG dimensions. For instance, foreign firms in developing economies employ 9% more women than domestic firms, yet these jobs are often concentrated in low-wage, low-mobility sectors. Foreign investors are 70% more energy-efficient, thanks to access to cleaner technologies, but also emit 16% more CO₂ per unit of output, reflecting sectoral concentration in more polluting activities (OECD, 2022[39]). Addressing these tensions requires coherent policy frameworks that align investment incentives with national development strategies, support domestic capability-building, and promote higher-quality FDI (OECD, 2024[40]).

In emerging sectors such as critical raw materials (CRM), where global demand is surging, the push for traceability should enhance responsible business conduct, rather than become an end in itself. A joint OECD/IEA roadmap sets out how traceability frameworks can foster sustainability and market integrity when supported by effective governance and international co-operation (OECD/IEA, 2025[41]). Current efforts to ensure a reliable supply of CRM are leading to increased foreign investment in industry and infrastructure, including in jurisdictions that present significant risks of corruption, conflict, insecurity and human rights violations (OECD, 2025[42]). Indeed, given the geographical concentration of CRM production and processing, the secure supply of transition minerals cannot rely solely on investment in low-risk environments. This can create a series of high-stakes trade-offs where efforts to accelerate transition supply chains are contributing to environmental harm, social conflict and loss of trust. Companies sourcing minerals from areas with higher risk profiles are expected to so in a way that mitigates, not overlooks, these risks. RBC allows balancing such trade-offs. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals (OECD, 2023[43]; OECD, 2016[44]) provides a globally recognised framework to help companies engage responsibly in high-risk areas.

RBC standards also apply to institutional investors (OECD, 2017[45]). However, many environmental, social and governance (ESG) data and ratings are not sufficient to assess sustainability efforts and performance of investee companies (OECD, 2025[46]). ESG rating products diverge significantly in available and comparable metrics, often relying on self-reported input-based data. This results in inconsistent coverage of key topics creating confusion for users, limiting meaningful performance evaluation, and increasing the risk of greenwashing and capital misallocation.

Technology and innovation are key drivers of sustainable development, yet their deployment can exacerbate existing tensions if environmental and social impacts are not adequately managed. Anticipating and managing the environmental footprint of STI and digitalisation is therefore critical to achieving coherent, long-term sustainability. While technological progress increases productivity, connectivity and growth, it also contributes to climate change, biodiversity loss and inequality. Many innovation pathways remain carbon- and resource-intensive, and rapid digitalisation is placing increasing pressure on energy and water systems. Coherence gaps often arise because digital strategies, industrial policies and environmental regulations evolve separately, leaving risks – such as e-waste, rebound effects and the environmental impacts of digital infrastructure – overlooked or misunderstood.

The OECD Recommendation on Digital Technologies and the Environment [OECD/LEGAL/0380] (OECD, 2025[15]) recognises that digital technologies can both support and undermine environmental goals. While digital tools offer solutions for clean energy, resource efficiency and sustainable mobility, they also drive demand for critical raw materials, generate growing volumes of e-waste, and increase emissions through energy-intensive applications such as data centres and AI systems. Rebound effects, where efficiency gains lead to increased overall consumption, are well documented, especially in consumer behaviour (OECD, 2024[47]). Therefore, implementing the Recommendation on the ground should go beyond voluntary initiatives and requires clear measurable targets and standards for digital footprints, procurement and infrastructure planning.

Supply chains for ICT infrastructure are global and complex, contributing to environmental degradation at each stage, from raw material extraction to transport, manufacturing, and disposal. OECD work highlights growing concerns around the water and energy footprint of digital technologies. This is particularly troubling in drought-prone regions where semiconductor and data centre operations face increasing disruption (OECD, 2025[14]), which create a dual coherence challenge between mitigating environmental footprints while also reducing exposure to climate-related supply disruptions.

Digital infrastructure poses many of the same concerns. For example, environmental impacts in AI value chains arise at multiple stages, including the energy- and water-intensive operation of data centres, the material footprint and eventual e‑waste associated with specialised hardware used to train and deploy AI systems (OECD, 2022[48]). If not managed properly, the construction and operation of data centres may also have an impact on community relations, local energy prices and water availability (Mozur, Satariano and Rodriguez Mega, 2025[49]). These issues are explicitly recognised in OECD instruments. The OECD Recommendation on Artificial Intelligence calls for AI to support “beneficial outcomes for people and the planet,” emphasising the need to understand and reduce environmental impacts across the lifecycle of AI systems (OECD, 2025[50]).

Similarly, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct require companies to identify, prevent, and mitigate adverse environmental impacts linked to their operations, products, and services, including those arising in AI value chains (OECD, 2023[33]). Recent OECD due diligence guidance for responsible AI clarifies how enterprises should apply risk-based environmental due diligence throughout the AI value chain, from suppliers of compute and data, to developers and downstream users, ensuring that environmental risks are addressed coherently alongside other RBC expectations (OECD, 2026[51]).

The OECD Recommendation on Policy Coherence for Sustainable Development calls for systematic assessment and management of transboundary impacts (OECD, 2019[52]). This is not only a matter of fairness, but of effectiveness. Without the right policies that factor in cross-border impacts, domestic gains risk being offset by negative externalities abroad, slowing global progress. OECD analyses highlight how greater transparency and alignment – through instruments such as effective carbon rates, border adjustment mechanisms, and due diligence standards – can reduce harmful spillovers and foster a level playing field for climate and sustainability action.

Addressing transboundary impacts is essential for three main reasons:

• Global interconnectedness: SDG progress in one country is increasingly influenced by actions elsewhere.

• Risk mitigation: incoherent policies pose systemic risks, from supply chain disruptions to environmental degradation.

• Scaling positive impacts: International co-operation can amplify positive spillovers – such as technology diffusion, investment flows, and shared innovation – that accelerate progress for all.

This section explores policy instruments to manage transboundary effects, drawing on OECD tools and country experiences. It highlights policies and frameworks for aligning carbon pricing, managing cross-border water and energy systems, and promoting responsible business conduct through global supply chains.

Carbon intensity metrics are increasingly central to the design of international mitigation efforts, including border carbon adjustments and product standards. These metrics reflect emissions per unit of production, facilitating cross-border comparability. Their effectiveness depend on robust monitoring, reporting and verification systems as well as on international co-operation to ensure consistent methodologies and data quality across jurisdictions.

Beyond metrics, carbon pricing instruments translate mitigation objectives into economy‑wide incentives, but their application remains uneven. The OECD Effective Carbon Rates indicator (OECD, 2025[53]) tracks the combined cost applied to CO₂ emissions from energy use, including carbon taxes, emissions trading systems and fuel excise taxes. As of 2025, carbon pricing instruments are in place in more than 50 countries, yet large disparities remain. Only 42% of global emissions face a positive carbon rate, and effective prices vary widely across sectors, with rates in road transport more than four times higher than in industry or buildings, on average. These asymmetries raise equity and efficiency concerns, particularly for countries with limited administrative capacity or economic diversification (OECD, 2024[54]).

To support countries with navigating cross-border effects, the OECD has developed a range of analytical tools and databases. The Carbon Pricing and Energy Taxation series (OECD, n.d.[55]) provides comparative data on pricing instruments and energy use across countries. A separate database tracks corporate income tax incentives across more than 70 countries. The Tax Policy Reforms series (OECD, 2025[56]) tracks global trends in tax policy, including in carbon taxation and green tax reform.

In addition to these tools, the Inclusive Forum on Carbon Mitigation Approaches (IFCMA) provides a multilateral platform to help governments better understand the combined global effects of different mitigation policies. Bringing together more than 60 members and additional participating countries, the IFCMA fosters dialogue, transparency and trust outside formal negotiation settings, supported by shared data and analytical frameworks. By improving understanding of national mitigation approaches, the Forum helps reduce risks of negative cross border impacts such as carbon leakage or trade distortions, while identifying opportunities for innovation, cost savings and shared benefits from the climate transition. Its work includes dedicated workstreams on carbon intensity metrics, addressing challenges related to product level emissions measurement and interoperability of monitoring, reporting and verification systems (OECD, 2025[57]), and on spillovers, which analyse how domestic mitigation policies generate cross border economic, technological and policy effects (OECD, 2026[58]).

To maximise positive spillovers and manage transboundary effects, international co-operation on due diligence policy is essential. The OECD Inclusive Platform on Due Diligence Policy Co-operation provides a forum for policymakers to exchange experience, reduce regulatory fragmentation and promote greater alignment around key concepts, reporting expectations and supervisory approaches. OECD analysis highlights several design features that can help reconcile ambition with feasibility. These include embedding proportionality and flexibility in due diligence requirements, introducing phase-in and transition periods, consulting with trade partners, and streamlining reporting obligations to avoid cumulative and conflicting expectations cascading through supply chains.

Complementary policy instruments are also critical to support effective implementation (see Box 2.6). Financial and technical assistance, such as sustainable supply chain finance, targeted loans, premium payments and Aid for Trade programmes, can help suppliers upgrade production processes, improve environmental and social performance, and strengthen risk management capabilities. Capacity-building measures, including help desks, guidance, training, peer learning and digital tools, can further enable firms in partner countries to meet regulatory expectations.

STI co-operation offers another avenue to manage transboundary challenges, accelerate progress, and build global resilience. Scientific discovery and innovation are embedded in a global ecosystem reliant on cross-border knowledge flows, shared infrastructure and collaborative research.

For global action to be both effective and equitable STI policies should foster positive international collaboration. Strengthening the capabilities of low- and middle-income countries to engage as equal partners in global research and decision making are essential. This should include aligning capacity-building efforts with local transformation needs and research systems, such as through shared infrastructure and platforms. Greater alignment of national STI priorities, supported by cross-country information sharing, joint funding calls and harmonised research strategies, can reduce duplication, improve resilience, and amplify the impact of global research.

Expanding open science and global knowledge-sharing has become a critical lever for widely accessible STI co-operation. Broader access to research outputs – while balancing public, private and community interests – can strengthen participation and accelerate innovation across borders. At the same time, growing concerns about research security and integrity are reshaping governance approaches. Analysis highlights a coherence trade-off: overly restrictive controls risk slowing diffusion and widening capability gaps, while weak safeguards can erode trust and create vulnerabilities. Proportionate risk-based frameworks are therefore emerging to protect freedom of inquiry while maintaining openness, illustrating how policy designers increasingly seek to reconcile openness with security rather than prioritising one at the expense of the other.

The global diffusion of STI-based solutions increasingly depends on coherent policy frameworks that harmonise standards, regulatory signals and voluntary norms across jurisdictions to help reduce fragmentation and enable cross-border interoperability and scaling. Recent analysis points to the central role of integrated policy instruments – combining formal regulation with soft law tools – in shaping predictable market conditions for emerging technologies and widening diffusion beyond frontier clusters. In practice, this includes open science and flexible research‑infrastructure governance that allows facilities to operate together towards shared goals, coupled with proportionate, risk‑based research‑security frameworks co‑designed with scientists, industry and public authorities to safeguard openness without chilling collaboration (OECD, 2025[14]).

To translate these frameworks into market outcomes, whole‑of‑government co-ordination is pivotal. Country experiences illustrate how centres of government leverage policy experimentation – regulatory sandboxes, strategic foresight and strategic‑intelligence systems – to align innovation incentives with market‑shaping rules, synchronising STI priorities with diffusion strategies. Ecosystem approaches that span entire value chains and create “convergence spaces” for interdisciplinary work (e.g. synthetic biology, neurotechnology, quantum and earth observation), further accelerate standardisation, interoperability and cross-border uptake. These mechanisms help bridge gaps between STI, trade, investment and sectoral agendas, accelerating innovation and improving access to transformative technologies internationally (OECD, 2025[14]).

Digitalisation can reinforce or undermine sustainability goals across borders. Initiatives such as the UN-supported Coalition for Digital Environmental Sustainability (CODES) are helping reorient digital innovation and governance toward addressing the triple planetary crisis of climate change, biodiversity loss, and pollution (OECD, 2024[47]). The OECD Recommendation on Digital Technologies and the Environment [OECD/LEGAL/0380] (OECD, 2025[15]) provides a comprehensive policy framework to align digitalisation with environmental sustainability, calling for coherent governance, sustainable procurement, and international co-operation. By fostering collaboration on digital standards, open data and education, these efforts can help ensure that digitalisation contributes to environmental goals.

[9] Kato, T. (2025), “Strengthening the water-energy nexus for a climate resilient Central Asia”, OECD Green Growth Papers, No. 2025/02, OECD Publishing, Paris, https://doi.org/10.1787/632162c2-en.

[49] Mozur, P., A. Satariano and E. Rodriguez Mega (2025), From Mexico to Ireland, Fury Mounts Over a Global A.I. Frenzy, NY Times, https://www.sej.org/headlines/mexico-ireland-fury-mounts-over-global-ai-frenzy.

[58] OECD (2026), “Analysing the international spillovers of climate change mitigation policies: A methodological framework”, Inclusive Forum on Carbon Mitigation Approaches Papers. No. 10, OECD Publishing, Paris, https://doi.org/10.1787/923bba3a-en.

[51] OECD (2026), OECD Due Diligence Guidance for Responsible AI, OECD Publishing, Paris, https://doi.org/10.1787/41671712-en.

[27] OECD (2026), OECD Environmental Performance Reviews: Colombia 2026, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/968398f7-en.

[18] OECD (2026), Preliminary official development assistance levels in 2025: Detailed Summary Note, DCD(2026)8, OECD.

[1] OECD (2025), “Integrated urban policy to achieve the SDGs”, OECD Regional Development Papers, No. 179, OECD Publishing, Paris, https://doi.org/10.1787/ada07311-en.

[29] OECD (2025), “Supporting businesses in trade partner countries to meet social and environmental due diligence standards”, OECD Business and Finance Policy Papers, No. 88, OECD Publishing, Paris, https://doi.org/10.1787/63c6be24-en.

[57] OECD (2025), “Towards interoperable carbon intensity metrics: Assessing monitoring, reporting and verification systems”, Inclusive Forum on Carbon Mitigation Approaches Papers, No. 9, OECD Publishing, Paris, https://doi.org/10.1787/b185bcfa-en (accessed on 9 April 2026).

[46] OECD (2025), Behind ESG ratings: Unpacking sustainability metrics, OECD Publishing, Paris, https://doi.org/10.1787/3f055f0c-en.

[53] OECD (2025), Effective Carbon Rates 2025: Recent Trends in Taxes on Energy Use and Carbon Pricing, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/a5a5d71f-en.

[42] OECD (2025), Environmental and social impacts across industry sectors, OECD Publishing, Paris, https://doi.org/10.1787/dd39761c-en.

[16] OECD (2025), Environmental Outlook on the Triple Planetary Crisis: Stakes, Evolution and Policy Linkages, OECD Environmental Outlook, OECD Publishing, Paris, https://doi.org/10.1787/257ffbb6-en.

[8] OECD (2025), Global Drought Outlook: Trends, Impacts and Policies to Adapt to a Drier World, OECD Publishing, Paris, https://doi.org/10.1787/d492583a-en.

[17] OECD (2025), Global Outlook on Financing for Sustainable Development 2025: Towards a More Resilient and Inclusive Architecture, OECD Publishing, Paris, https://doi.org/10.1787/753d5368-en.

[12] OECD (2025), Government at a Glance 2025, OECD Publishing, Paris, https://doi.org/10.1787/0efd0bcd-en.

[59] OECD (2025), OECD Environmental Performance Reviews: Japan 2025, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/583cab4c-en.

[28] OECD (2025), OECD Environmental Performance Reviews: Sweden 2025, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/91dcc109-en.

[14] OECD (2025), OECD Science, Technology and Innovation Outlook 2025: Driving Change in a Shifting Landscape, OECD Publishing, Paris, https://doi.org/10.1787/5fe57b90-en.

[50] OECD (2025), Recommendation of the Council on Artificial Intelligence, OECD/LEGAL/0449, https://legalinstruments.oecd.org/en/instruments/oecd-legal-0449 (accessed on 30 December 2025).

[34] OECD (2025), Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (The “Common Approaches”), OECD/LEGAL/0393, https://legalinstruments.oecd.org/public/doc/280/280.en.pdf.

[15] OECD (2025), Recommendation of the Council on Digital Technologies and the Environment, OECD/LEGAL/0380, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0380.

[35] OECD (2025), “Stakeholder engagement for sustainable infrastructure in Southeast Asia”, OECD Business and Finance Policy Papers, No. 94, OECD Publishing, Paris, https://doi.org/10.1787/c932a5be-en.

[56] OECD (2025), Tax Policy Reforms 2025: OECD and Selected Partner Economies, OECD Publishing, Paris, https://doi.org/10.1787/de648d27-en.

[47] OECD (2024), “Review of relevance of the OECD Recommendation on ICTs and the Environment”, OECD Digital Economy Papers, No. 370, OECD Publishing, Paris, https://doi.org/10.1787/216766c6-en.

[5] OECD (2024), “A Handbook of What Works: Solutions for the local implementation of the OECD Principles on Water Governance”, OECD Regional Development Papers, No. 72, OECD Publishing, Paris, https://doi.org/10.1787/bf54627e-en.

[40] OECD (2024), FDI Qualities Review of Tunisia: Boosting Productivity and Creating Better Jobs, OECD Publishing, Paris, https://doi.org/10.1787/d8a28bca-en.

[11] OECD (2024), Infrastructure for a Climate-Resilient Future, OECD Publishing, Paris, https://doi.org/10.1787/a74a45b0-en.

[31] OECD (2024), OECD Environmental Performance Reviews: Chile 2024, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/5bc65d36-en.

[54] OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b44c74e6-en.

[19] OECD (2024), Reaching Climate Neutrality for the Hamburg Economy by 2040, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/e1e44672-en.

[38] OECD (2024), “Responsible business conduct for sustainable infrastructure in Indonesia”, OECD Business and Finance Policy Papers, No. 67, OECD Publishing, Paris, https://doi.org/10.1787/979472ba-en.

[36] OECD (2024), “Responsible business conduct for sustainable infrastructure in Thailand”, OECD Business and Finance Policy Papers, No. 65, OECD Publishing, Paris, https://doi.org/10.1787/f22e8b78-en.

[37] OECD (2024), “Responsible business conduct for sustainable infrastructure in the Philippines”, OECD Business and Finance Policy Papers, No. 66, OECD Publishing, Paris, https://doi.org/10.1787/2d648d86-en.

[4] OECD (2024), “The Circular Economy in Zuid-Holland, Netherlands”, OECD Regional Development Papers, No. 70, OECD Publishing, Paris, https://doi.org/10.1787/d568d66e-en.

[33] OECD (2023), Guidelines for Multinational Enterprises on Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/81f92357-en.

[43] OECD (2023), OECD Briefing Note: Responsible is reliable, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/due-diligence-guidance-for-responsible-business-conduct/Responsible_is_Reliable.pdf.

[30] OECD (2023), OECD Environmental Performance Reviews: Germany 2023, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/f26da7da-en.

[32] OECD (2023), Taming Wildfires in the Context of Climate Change, OECD Publishing, Paris, https://doi.org/10.1787/dd00c367-en.

[48] OECD (2022), “Measuring the environmental impacts of artificial intelligence compute and applications: The AI footprint”, OECD Digital Economy Papers, No. 341, OECD Publishing, Paris, https://doi.org/10.1787/7babf571-en.

[39] OECD (2022), FDI Qualities Policy Toolkit, OECD Publishing, Paris, https://doi.org/10.1787/7ba74100-en.

[21] OECD (2022), Housing Taxation in OECD Countries, OECD Tax Policy Studies, No. 29, OECD Publishing, Paris, https://doi.org/10.1787/03dfe007-en.

[2] OECD (2022), “OECD toolkit for a territorial approach to the SDGs”, OECD Regional Development Papers, No. 33, OECD Publishing, Paris, https://doi.org/10.1787/2913bae2-en (accessed on 7 April 2025).

[6] OECD (2021), “Strengthening adaptation-mitigation linkages for a low-carbon, climate-resilient future”, OECD Environment Policy Papers, No. 23, OECD Publishing, Paris, https://doi.org/10.1787/6d79ff6a-en.

[22] OECD (2021), Measuring Effective Taxation of Housing: Building the Foundations for Policy Reform.

[10] OECD (2020), Common Ground Between the Paris Agreement and the Sendai Framework : Climate Change Adaptation and Disaster Risk Reduction, OECD Publishing, Paris, https://doi.org/10.1787/3edc8d09-en (accessed on 19 April 2026).

[23] OECD (2020), Managing Environmental and Energy Transitions for Regions and Cities, OECD Publishing, Paris, https://doi.org/10.1787/f0c6621f-en.

[7] OECD (2020), Nature-based solutions for adapting to water-related climate risks, OECD Environment Policy Papers, No. 21, OECD Publishing, Paris, https://doi.org/10.1787/2257873d-en (accessed on 18 April 2026).

[26] OECD (2019), OECD Territorial Reviews: Hamburg Metropolican Region, Germany, OECD Territorial Reviews, OECD Publishing, Paris, https://doi.org/10.1787/29afa27f-en.

[52] OECD (2019), Recommendation of the Council on Policy Coherence for Sustainable Development, OECD/LEGAL/0381, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0381 (accessed on 1 July 2020).

[45] OECD (2017), Responsible business conduct for institutional investors: Key considerations for due diligence under the OECD Guidelines for Multinational Enterprises, OECD Publishing, Paris, https://doi.org/10.1787/8b9e240a-en.

[44] OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264252479-en.

[25] OECD (2015), OECD Territorial Reviews: Valle de México, Mexico, OECD Territorial Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264245174-en.

[55] OECD (n.d.), Taxing Energy Use, https://doi.org/10.1787/efde7a25-en.

[20] OECD/Climate Club (2025), Climate Club Financial Toolkit: Economic, De-risking and Financing Instruments for Industry Decarbonisation, OECD Publishing, Paris, https://doi.org/10.1787/cba1a515-en.

[13] OECD/FAO (2021), Building Agricultural Resilience to Natural Hazard-induced Disasters: Insights from Country Case Studies, OECD Publishing, Paris, https://doi.org/10.1787/49eefdd7-en.

[41] OECD/IEA (2025), The role of traceability in critical mineral supply chains, OECD Publishing, Paris, https://doi.org/10.1787/edb0a451-en.

[24] OECD/Lincoln Institute of Land Policy, PKU-Lincoln Institute Center (2022), Global Compendium of Land Value Capture Policies, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/4f9559ee-en.

[3] Ren, S. (2023), How much water does AI consume? The public deserves to know, https://oecd.ai/en/wonk/how-much-water-does-ai-consume.