- The world is in danger of missing crucial sustainability goals, but the provision of funding can get things back on track.
- To hit the UN’s goals by the 2030 deadline, investment is sorely needed, especially in emerging markets which tend to be disproportionately impacted by climate change.
- Emerging markets can deliver strong returns. Almost 90% of those we surveyed say their emerging market investments had matched or outperformed developed markets over the past three years.
The UN’s Sustainable Development Goals (SDGs) – aimed at combatting global challenges such as climate change, poverty and hunger – are in danger of being missed if they do not get an urgent and sizeable increase in funding.
Although sustainability has become a major talking point in the past few years, especially as the world looks to build back greener after COVID-19, a lack of both public and private investment is hampering progress. According to the UN, the world needs to invest $5-7 trillion per year in sustainable projects to meet the goals – a far cry from the estimated $3 trillion a year that is currently being talked about.
To hit the UN’s goals by the 2030 deadline, investment is sorely needed, especially in emerging markets which tend to be disproportionately impacted by climate change. Many are still building key infrastructure, so there is an opportunity to build green from the ground up.
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As governments, especially those in emerging markets, struggle to fund the SDGs, so private investment has never been more crucial. However, while interest among private investors is growing, it is yet to fully translate into the targeted investment needed to help meet the SDGs.
Standard Chartered’s recent report, The $50tn Question, which surveyed a panel of the world’s top 300 investment firms, found that only 13% of the $50 trillion assets they manage is linked to the SDGs. And, while two thirds of their investments are in the developed markets of Europe and North America, just 2, 3 and 5% respectively are invested in the Middle East, Africa and South America.
A lack of awareness
So why isn’t more money flowing to where it is needed most? One reason is that many investors don’t use the SDGs as a framework for investment, believing that they aren’t relevant to mainstream investment. However, perhaps more worryingly, one fifth of the investors we spoke to were unaware of the SDGs altogether.
To make matters worse, emerging markets are failing to attract sizeable investment due to deep-rooted investor habits and perceptions. Investors tend to stick to markets they know, which overwhelmingly means Europe and North America, and many consider emerging markets to be a gamble they are unwilling to take. This is largely due to the belief that these markets are more prone to issues such as bribery and corruption, government interference in business and political risk than their developed market counterparts.
This isn’t the case in many countries, however, and emerging markets can deliver strong returns. Almost 90% of those we spoke to say their emerging market investments had matched or outperformed developed markets over the past three years.
So how can we increase investment and help the SDGs become a reality? Governments can certainly play their part, looking at tax and regulatory environments that stimulate SDG-linked investment, for example. If they can make investing in the SDGs as attractive as possible, investment will follow.
In addition, financial institutions must ensure that investors get the rich data and measurement frameworks that will give them a better understanding of the performance of SDG-linked investments, and banks can originate emerging market assets to satiate the resulting demand.
We have tried to do our part by giving investors the information they need to make the most of their sustainable investments. In October 2018, we launched a dedicated team to help identify sustainable finance opportunities for clients. And, at Davos 2020, we launched Opportunity 2030, which revealed a $10 trillion investment opportunity across all emerging markets to help achieve the SDGs.
Meanwhile, the build back from COVID-19 may also have a role to play - many investors (almost three quarters) believe that a green recovery is now a global priority and 61% said the crisis had already encouraged them to direct investment towards a green recovery. Evidently, the crisis has encouraged asset managers to actively consider investments that propel us towards a greener future.
The consequences of failure
Despite these potential positives, we are still a long way from hitting our goals. Based on the Social Progress Imperative’s latest index, at the current rate of funding we will not meet the SDGs for many decades.
In addition to the expected climate change consequences, with the world’s population projected to be 8.5 billion by 2030, missing targets on poverty and hunger will be disastrous, especially considering that COVID-19 pushed an estimated 71 million into extreme poverty in 2020 and that a quarter of the world’s population is affected by moderate or severe food insecurity.
There is still time to get things right and ensure the SDGs get the funding they need, especially in emerging markets, and increasing investment is the key.