The United Nations Sustainable Development Goals (SDGs) are ambitious. And deliberately so. Spearheaded by the target of ending extreme poverty by 2030, the 17 “Global Goals” are essentially an international charter for sustainability.
It is with some validity therefore that UK charity ShareAction had the good sense to canvass the views of the institutional investors whose capital and knowledge of markets will surely be indispensable for ensuring the Global Goals are met.
The results are published in a report entitled Transforming Our World Through Investment. The responses – from 52 institutional investors with almost $6 trillion under management – can be taken in one of two ways by governments and development agencies for which the Global Goals are a roadmap without exit.
On the surface, it seems like good news: 65% of respondents agreed that acting on the Goals ‘aligns with their fiduciary duties’ while 75% believed that acting to support the Global Goals will bring their organisation reputational benefits. Above all, more than half of respondents identified working toward achieving all 17 Goals as having either high or medium potential to help meet their organisations’ investment objectives. Moreover, three quarters of respondents said they were already taking action on three or more of the Goals.
So are investors sufficiently engaged to help achieve the Goals? Not quite. Just 16% of institutional investors surveyed said they will ‘definitely’ seek clients’ views on the Global Goals. And while 89% of respondents were prepared to report on their impacts on the Goals to their clients, only 21% said they would definitely do so.
While ShareAction quite rightfully points to a raft of recommendations to forge better engagement and reporting against the Global Goals, the survey also reveals a deeper truth. And that is, institutional investors – as asset managers – are seemingly under no immediate pressure from their investors to make investment decisions based on the ambitious demands of the SDGs.
This should come as no surprise. Developing nations are hardly rolling in domestic or international sources of private capital. When a rural bank shuns lending to a local entrepreneur, what is the prospect from an asset manager sitting in London behind twin screens?
The SDGs may be more holistic and encompassing than its predecessor – the Millennium Development Goals (MDGs) – but it is worth remembering that people are lifted out of extreme poverty when they share in the benefits of sustained economic growth. More than 700 million people escaped extreme poverty during the 15 years of the MDGs, with China – which showed little interest in the Goals – accounting for three quarters of this number.
There will be no such fillip for the new Global Goals, which underlines the urgent need for the international community to take tangible steps for attracting investment to the world’s poorest countries. After all, the Global Goals were not developed with or for investors. So while the survey suggests institutional investors are pre-disposed to supporting the Global Goals, they will not deviate from the simple principle of risk and reward when it comes to allocating their clients’ funds.
With this lens in mind, it is questionable whether the existing plethora of international standards for responsible investment will result in that much needed capital reaching the least developed countries. By way of example, financial institutions must navigate the UNPRI, Carbon Disclosure Project and the Equator Principles, to name but a few. Away from finance, businesses comply with both numerous ISO and sector specific standards.
This is not to advocate avoidance of such standards but rather to point out that investing in less developed countries can be a risky and costly business. As such, it appeals to a cadre of specialist investors as opposed to institutional investors writ large.
So rather than a new set of standards, the Global Goals could offer a framework for more venture capitalists and impact investors to engage in emerging markets.
The goals align with a more impactful orientation from investors towards both emerging markets and global environmental challenges, rather than one focused on downside risks. To solve problems, people need more investment, not less. The key is backing sectors and firms that will thrive because they help people within an increasingly unstable environment.
Clear and consistent policy contexts are important for investors. The Goals indicate a broad consensus among emerging nations which in turn brings more stability to policymaking and enabling environments.
On that basis, investors can engage governments committed to realising the Global Goals in a domestic setting. It creates hope that some of the toughest questions in financing for development can finally be answered. Not least, how to catalyse a market for channelling private capital to rural communities and the small business sector which hold the key to job creation and escaping extreme poverty.
The Global Goals effectively offer a window in time for “market making” investors to engage in some serious problem solving and innovation. This is risky but when successful comes with a massive socio-economic dividend.
Until new markets for sustainable investment open up across developing nations, there is little point in requiring asset managers to report against the Global Goals. They have responsibility to those who already have resource, and not to those that need it most.