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How Impact Investing incorporates the UN’s Sustainable Development Goals

18 Dec 2020

These goals aren’t just limited to climate change; they also tackle issues related to poverty, education, inequality, prosperity, peace and justice. They form an ambitious agenda but the requirement to address these challenges is urgent since the world’s population is forecast to reach 8.3 billion people by 2030. This mass of people will need 50% more energy, 40% more water and 35% more food and also need to undo the damage caused in the past and re-shape our future for generations to come. The 17 goals and 169 underlying targets cannot be achieved through government grants alone: input and action from countries, NGOs, companies and investors – both private and institutional – are needed.

 

In monetary terms, the UN Commission on Trade and Development (UNCTAD) estimates that meeting the SDGs will require US$5 trillion to US$7 trillion in annual investment from 2020 to 2030. Of that amount, government spending will only make up US$1 trillion per year. New flows of private sector capital will be key, either through new allocations or by re-routing existing capital flows.

 

Institutional Investment is leading the way, through the adoption of Responsible Investing Principles (PRIs). Institutions now actively incorporate Environmental, Social and Governance (ESG) issues into investment analysis and decision-making processes as well as their ownership policies and practices. They also now seek appropriate disclosure on ESG issues by the entities in which they invest.

Historically, economic growth has been achieved through use of fossil fuels and rapid urbanisation but since this has been responsible for an expanding list of environmental and social burdens, it is no longer a viable model.

Achieving the UN’s SDGs will be a key driver of global economic growth which any long-term investor will acknowledge as the main ultimate structural source of financial return.

Application of the SDGs at an institutional level provides a solid platform to allow investors to safely mirror and follow these global investment trends. It will allow them to contribute towards reshaping this world and avoid down turns in the market on universal investment strategies whilst making healthy returns on their investments. Furthermore, the SDGs offer investors the opportunity to use a different lens through which to filter future investment decisions.

There is a growing school of thought that investment strategies should focus upon investments that create a positive impact on society and/or the environment in addition to fulfilling their future financial risk and return requirements, thereby simultaneously creating benefits for both business and society.

Paul Polman, CEO of Unilever, said at the time the SDGs were devised that “The SDGs offer the greatest economic opportunity of a lifetime”. His words were added to by Sonia Favaretto, a senior figure at Brazilian bank B3: “It is important for investors to know, demand information and take into consideration the SDGs in their decision-making process”.

There’s no reason why investors can’t pursue a triple bottom line of “people, planet, profit.” With impact investing, values and profit no longer need to be in competition. This type of investing allows you to signal your commitment as a responsible investor without giving up returns.

Every challenge presented by the UN Sustainable Development Goals also presents an opportunity and investors can therefore contribute to the attainment of these global goals. We see global challenges as global opportunities and those who provide solutions to today’s problems will be the financial winners of tomorrow. It has always been possible to “do good while doing well,” but this is even truer today.

Impact investing allows investors to support the causes they care most about whilst putting their capital to work in the most e?ective way possible. Impact Investments compare to and often outperform traditional investment routes.

As investors, it is often easy to become overly focused on financial bottom lines and the sectors that dominate our portfolios. Investing in social or environmental opportunities broadens our horizons and gives us an opportunity to drive positive change.

Our futures are interdependent. As investors and social entrepreneurs, we have a moral imperative to act collaboratively to transform our economies and redefine our notions of value.

We may ask ourselves: what if we could really get behind the opportunities that we care about but also prosper from them? Impact investing allows us to be a part of social change that will make a measurable difference for our planet and future generations.