SDG INVESTING: ADVANCING A NEW NORMAL IN GLOBAL … · 1 This paper an informal background paper...
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1 This paper an informal background paper for an expert group meeting (EGM) of the FFD Business Sector Steering Committee. It was commissioned by the Financing for Development Office and the Division for Sustainable Development of the United Nations Department of Economic and Social Affairs. The views and opinions expressed herein are those of the authors and do not necessarily reflect those of the United Nations Secretariat. The designations and terminology employed may not conform to United Nations practice and do not imply the expression of any opinion whatsoever on the part of the Organization. The United Nations (UN) does not guarantee the accuracy of the data included in this work. Boundaries, colours, denominations, and other information shown on any map in this work do not imply any judgment on the part of the UN concerning the legal status of any territory or the endorsement or acceptance of such boundaries. SDG INVESTING: ADVANCING A NEW NORMAL IN GLOBAL CAPITAL MARKETS Spring 2017 Discussion paper prepared by C-Change (www.c-change.io) * Jointly commissioned by the Financing for Development Office and the Division for Sustainable Development of the United Nations Department of Economic and Social Affairs
Transcript of SDG INVESTING: ADVANCING A NEW NORMAL IN GLOBAL … · 1 This paper an informal background paper...
1
This paper an informal background paper for an expert group meeting (EGM) of the FFD Business Sector Steering Committee. It was commissioned by the Financing for Development Office and the Division for Sustainable Development of the United Nations Department of Economic and Social Affairs. The views and opinions expressed herein are those of the authors and do not necessarily reflect those of the United Nations Secretariat. The designations and terminology employed may not conform to United Nations practice and do not imply the expression of any opinion whatsoever on the part of the Organization. The United Nations (UN) does not guarantee the accuracy of the data included in this work. Boundaries, colours, denominations, and other information shown on any map in this work do not imply any judgment on the part of the UN concerning the legal status of any territory or the endorsement or acceptance of such boundaries.
S D G I N V E S T I N G :A D VA N C I N GA N E W N O R M A LI N G L O B A LC A P I T A L M A R K E T S
Spring 2017
DiscussionpaperpreparedbyC-Change(www.c-change.io)*
Jointly commissioned by the Financing for Development Office and the Division for
Sustainable Development of the United Nations Department of Economic and Social Affairs
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TABLEOFCONTENTS1 EXECUTIVESUMMARY..................................................................................................................................4
2 ABOUTTHISREPORT.....................................................................................................................................8
Context..........................................................................................................................................................8
Objectives......................................................................................................................................................8
Defining‘SDGInvesting’................................................................................................................................8
ResearchMethodologyandDefinitions......................................................................................................10
Readingguide..............................................................................................................................................10
1. THESUSTAINABLEFINANCEandSDGINVESTING(SDGI)LANDSCAPE........................................................12
2.1LookingBack:FromMonterreytoAddisandbeyond..........................................................................12
2.2The2030SustainableDevelopmentAgenda&SustainableDevelopmentGoals(SDGs)....................13
2.3FinancingtheSDGs:HowMuchCapitalIsNeededtoFinancetheSDGs?...........................................14
2.4CurrentInvestmentinSustainabilityAcrossInvestorSegments..........................................................16
3 THESDGIMARKETOPPORTUNITY...............................................................................................................22
3.1Unlockingthe‘TrueValueoftheSDGIorBusinessOpportunity’........................................................22
3.2‘Investability’ofthe2030Agenda&SDGs...........................................................................................25
3.3AReviewofInvestorPerceptions&theValueoftheSDGFramework...............................................26
4 DRIVERS&BARRIERSTOSDGINVESTING...................................................................................................28
4.1Overarching,Cross-CuttingBarriers.....................................................................................................31
4.2SupplySideBarriers.............................................................................................................................33
4.3Intermediationbarriers........................................................................................................................35
4.4Demandsidebarriers...........................................................................................................................36
5 PUBLICSECTORINSTRUMENTSFORMAXIMIZINGSDGI.............................................................................38
5.1MechanismsforAddressingOverarching,Cross-cuttingBarrierstoSDGI...........................................40
5.2MechanismsforAddressingSupply-relatedBarrierstoSDGI..............................................................46
5.3MechanismsforAddressingIntermediation-relatedBarrierstoSDGI.................................................49
5.4MechanismsforAddressingDemand-relatedBarrierstoSDGI...........................................................55
CONCLUSIONSANDRECOMMENDATIONS..........................................................................................................60
APPENDIX1|INTERVIEWLIST.............................................................................................................................62
APPENDIX2|LEADINGTOPICALKNOWLEDGEHUBS..........................................................................................63
APPENDIX3|DETAILEDREVIEWOFTHESDGIMARKET.....................................................................................64
BIBLIOGRAPHY......................................................................................................................................................66
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ListofTablesTable1-1 OverviewofRelevantTypesofSDGinvestors..............................................................................20Table3-1 FrequentlyMentionedBarrierstoInvestwithImpact.................................................................30Table4-1 PrevalentPublicSectorMechanisms:OVERARCHING.................................................................40Table4-2 PrevalentPublicSectorMechanisms:SUPPLY.............................................................................46Table4-3 PrevalentPublicSectorMechanisms:INTERMEDIATION.............................................................49Table4-4 PrevalentPublicSectorMechanisms:DEMAND..........................................................................55
ListofFiguresFigure0-1 SpectrumofCapital&WorkingdefinitionSDGinvesting(SDGI)...................................................9Figure1-1 Overviewofthe17SustainableDevelopmentGoals...................................................................13Figure1-2 GlobalSDGI/RIAssetsbyRegion(inUSDbillion,2014/2016).....................................................17Figure1-3DevelopmentofResponsibleInvestingintheUnitedStates(1995–2016,US$Bn).....................18Figure1-4 RIStrategiesinEurope,Canada,USA,andJapan.........................................................................19Figure1-5 ResponsibleInvestingasapercentageoftotalAuM(USDbillions,2015)...................................18Figure2-1 TheSDGinducedmarketopportunitiesascapturedbytheB&SDC............................................23Figure2-2 LargestSDGbusinessopportunitiesbysizein2030(US$billions:2015values).........................24Figure2-3 ShareofValueofSDGBusinessOpportunitiesbyRegion&System(Percent)............................25Figure2-4 TranslationofSDGsintoinvestmentopportunities.....................................................................26Figure3-1 Thefourdimensionsofinvesting.................................................................................................28Figure3-2 SignificanceofbarriersagainstapplyingSDGfocus.....................................................................29Figure4-1FiveLikelyRolesofGovernmentInstitutions&Actors.................................................................38
ListofBoxesBox0-1 SummaryofResearchInsights&Hypotheses.................................................................................6Box1-1 FromMDGstoSDGs:WhatDidWeLearn?..................................................................................15Box1-2 GSIAInvestmentCategories(2016)..............................................................................................19Box1-3 ADeepDiveonPensionFunds.....................................................................................................21Box3-1 SDGUptakeToday:HowPopularAretheSDGs?..........................................................................31Box4-1CaseStudy:ADutchSDGInvestingAgenda..................................................................................44Box4-2CaseStudy:GlobalReportingInitiative&theSDGCompass........................................................44Box4-3CaseStudy:FinancialStabilityBoard’sTaskForceforClimateDisclosure....................................45Box4-4CaseStudy:ChinaGreenCreditGuidelines...................................................................................45Box4-5CaseStudy:LaosHydroelectricityfromblendedfinance..............................................................48Box4-6CaseStudy:ClimateRiskPoolingMechanism:AfricanRiskCapacity............................................48Box4-7CaseStudy:Convergence:‘BlendingGlobalFinance’....................................................................52Box4-8CaseStudy:SDGIWholesaleBankIdea.........................................................................................52Box4-9CaseStudy:SDGBlockchainLab&‘SDGCoins’.............................................................................53Box4-10CaseStudy:StarbucksInclusiveSupplyChainBond......................................................................53Box4-11CaseStudy:Ex’Tax,ShiftingTaxationfromLabourtoNaturalResources.....................................54Box4-12CaseStudy:BenefitCorporations:ManagingforProfitandPurpose...........................................57Box4-13CaseStudy:VillageCapital:AcceleratingSocialEnterpriseGrowth..............................................57Box4-14CaseStudy:IFCStartupCatalyst....................................................................................................58Box4-15CaseStudy:SustainableProductionThroughSupplyChainFinance............................................58
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1 EXECUTIVESUMMARY
In2015,worldleaderssignedoffonaglobalstrategyforsustainabilitythroughthreemajorinternational
agreements,theAddisAbabaActionAgenda(ThirdInternationalConferenceonFinancingforDevelopment,
2015),theParisClimateAgreement,andthe2030SustainableDevelopmentGoals(SDGs).Realizingthese
commitmentsrequirethe“strengtheningofpublicpolicies,regulatoryframeworksandfinanceatalllevels”as
wellas”unlockingthetransformativepotentialofpeopleandtheprivatesector“(AddisAgenda,para5),
MemberStatescommitto“worktowardsharmonizingthevariousinitiativesonsustainablebusinessand
financing,identifyinggaps,includinginrelationtogenderequality,andstrengtheningthemechanismsand
incentivesforcompliance”inparagraph37oftheAddisAgenda.
Thisreport,whichwascommissionedbytheDepartmentofEconomicandSocialAffairsoftheUnitedNations
(UN-DESA),seekstocontributetotheongoingandexpandingdiscussiononhowtoincreaseandoptimizethe
involvementoftheprivatesectorinfinancingsustainabledevelopment.Itsmainobjectiveistounderstandthe
financingchallengesoftheabovementionedlandmarkagreementsthroughaprivatesectorlens.Insights
resultedmostlyfromdeskresearch,yetwerevalidatedthroughinterviews.Toensurethatmarketdynamics,
drivers,andbarrierstoSDGIreceivedsufficientconsideration,interviewswithfinancialsectorexecutiveswere
prioritized.Interviewee‘voices’wereaddedthroughoutthereporttobringsuchfactorstolife.
Thereporthighlightstheneedfora‘sustainablefinancialsystem,’flagsthecriticalroleofinvestmentcapitalin
sustainabledevelopmentfinance,describesdriversandbarrierstoinvestingwithimpactaswellastousingthe
SDGframeworkofchoice,andreviewsavailablepublicsectormechanismsforadvancingtheroleofprivate
sectorcapitalindevelopmentfinance.Italsolistscriticalsuccessfactorstopublicsectorinterventions,and
beginstoarticulaterecommendationsforongoingUNeffortstocontributetotheestablishmentofmore
sustainablefinancialsystemsandtheadvancementofprivatesectorinvestmentsinthe2030Agenda.Box1-1
summarizestheinsightsandhypothesesthatarepositedinthereport.
Thereportcoinstheterm‘SDGinvesting’(SDGI),describingSDGIasallinvestmentstrategieswhereby
sustainabilityand/ortheSDG’sforma‘material’factorininvestmentdecisions.Withthisterm,theauthors
offeranumbrellatermthatrecognisesafullspectrumofsustainable,responsible,andimpactinvestingand
recognizestheconnectionsbetweeneachstrategy,yetalignstoexistingmarketdefinitionsandterms†/‡.
PrevailingbarrierstomaximizingSDGIcutacrossthesupply,intermediation,demand,andinfrastructuralsides
ofglobalcapitalmarkets,alsoreferredtoas‘marketelements’.Thepublicsectorcanplayanimportantrolein
addressingsuchbarriers,inestablishingsustainablefinancialsystems,andultimately,inacceleratingSDGI.
Publicsector‘SDGIstrategies’arelikelytotouchongovernmentsplayinganumberofdifferentroles,i.e.,that
oforchestrator,investor,regulator,policymaker,deliveryorganization,andconnector.Thisreportprovidesa
†Theterm‘SDGI’whichwasfirstusedby20+DutchfinancialinstitutionsthatcommittedtoanationalSDGIagendainDecemberof2016.‡Whileclearlytwosidesofthesamecoin,thereportexcludescorporatesustainabilityagendas–oftenreferredtoascorporatesocialresponsibility(CSR)or‘sharedvalue’initiatives–fromitsprimaryfocus.
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cursoryoverviewofmechanismsthatcanplayaroleinpublicsectorSDGIstrategiesandextendsacrosseach
ofthesepossibleroles.Importantly,thereportdoesnotprovideacomprehensiveoverviewofpublicsector
mechanisms,yetoffersareferenceframeworkthatpublicsectorpractitionerscanuseastheyarticulateand
rollouttheirprivatesector‘activation’agendas.
Furtherresearchandconveningtovalidatethefindingsofthisresearchandtostimulatetheadoptionof
forward-lookingSDGIagendasacrossgovernmententitiesarerecommended.Sucheffortsshouldensure
broadrepresentationfromacrosstheinvestorcommunity,governments,andother‘marketbuilders’.
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Box1-1 SummaryofResearchInsights&Hypotheses
Insightsandhypothesesthatemergedfromthisresearcheffortcanbesummarizedasfollows:
Despitepositivemomentumaroundtheneedfora‘newnormal’incapitalmarkets,asignificantuptakein‘SDGinvesting’(SDGI)isneededtoachievethe2030SustainableDevelopmentAgenda
The2030AgendaandtheSustainableDevelopmentGoals(SDGs)areincreasinglywelcomed,yetnumerousbarrierstoSDGIandtotheestablishmentofasustainablefinancialsystemexist
1. Recentyearshaveseensignificantmomentumsurroundingtheneedfora‘newnormal’where
financialmarketsaredesignedtonotonlyminimizetheirnegativeonthesocietyandtheenvironment,butpositivelycontributetosustainabledevelopment;
2. Despitethistrend,significantlymoreprivatesectorcapitalisneededtohelpfinancetheimplementationofthe2030Agenda,whichrequiresinvestmentsintheamountofseveraltrillionsUSDeachyear;
3. Whileonlylimiteddataareavailable,roughestimatesindicatethatcurrentinvestmentsintoSustainableDevelopmentGoalsanditsassociatedtargetsamounttoapproximatelyUSD$23trilliontoday,or~30percentofglobalAssetsunderManagement(AuM).Impactinvestmentsareestimatedtoinvolvelessthan1%ofAuMandamounttoroughlyUS$110billionin2015;
4. TheBusiness&SustainableDevelopmentCommission(2017)suggeststhatUS$12trillioninnewmarketvaluecanbeunlockedthroughSDGI.Ifthelong-termeffectsofinvestmentdecisions(i.e.,externalities)areincluded,thisnumberincreasesbyanestimatedUS$1trillion;
5. ToincreaseandbolsterSDGI,twoshiftsareparticularlykey:First,ashifttowardscapitalmarketswhereallinvestmentsarereviewedagainstasustainableor‘SDG’lens;andsecondly,ashifttowardsmarketswhereinvestorsseektoachieveapositiveimpactthroughtheirinvestments(i.e.,movefromresponsible,tosustainable,orevenimpactinvesting);
6. Investmentclustersthatareseentoofferdisproportionatevalueand/orareconsideredmost‘investable’tendtoinvolveinfrastructure(goal9),economicgrowth(goal8),tacklingclimatechange(goal13)andsustainableenergy(goal7)relatedinvestments
7. TheSDGsaregenerallywellreceivedbythoseinvestorswhoarefamiliarwiththeAgendaand
takeactiveinterestindevelopmentand/oremergingordevelopingmarkets:yet,SDGawarenesscanstillbesignificantlyimproved;
8. TheSDGframeworkiswelcomedbymanyinvestorsasapossiblyunifyinglanguageandpointofreferencebetweenactors,aswellasaleverforputtingSDGIsquarelyandstrategicallyontheagendaofprivateandpublicsectorleadersacrosstheworld;
9. Geographically,awarenessandinterestappearshighestintheNorthernHemisphere,withnotableuptakeinEurope.AbetterunderstandingofthistrendcouldhelpunderstandeffectivewaystoadvanceSDGIelsewhere;
10. EarlyadoptersofSDGIsuchasfoundations,governments,anddevelopmentfinanceinstitutionshavebeguntoscreentheirportfoliosagainsttheSDGs,whilededicatedimpactinvestorsorfundshavebeguntoreferencetheframeworkintheirstrategiesandcommunication;
11. Amonginstitutionalinvestors,uptakeoftheframeworkverymuchremainsanexception.Onlysomepioneers–usuallywithlongerinvestmenthorizonsandmoreexposuretoclimatechangeorother‘externalities’,suchaspensionfundsandinsurancefirms–are‘leaningin’toconverttheframeworktousableinvestmentindicators;
12. Acrosstheboard,investorsflagtheintrinsic‘investability’oftheSDGsandthe2030Agendaatlarge,asaconstrainttoattractinginvestmentcapital.EffortssuchasthosebytheSustainableBusinessCommission,UBS,andShareActionhavebeguntounpackthisconstraintfurther;
13. FrequentlymentionedbarrierstoinvestingwithimpactandadoptionoftheSDGframeworkcutacrossthesupply,demand,intermediation,andinfrastructuralsideofthemarket.Barriersincludealackofawarenessandurgencytoinvestwithimpact;restrictivemandates;misalignedincentivesystemsandcapabilities;insufficientaccesstoriskcapital;andalackofsocialandenvironmentaldatastandards
SeeChapter1:SustainableFinance&‘SDGInvesting’(SDGI)&Chapter2:TheSDGIMarketOpportunity
SeeChapter2:TheSDGIMarketOpportunity&Chapter3:Drivers&BarrierstoSDGI
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Thepublicsectorplaysacriticalroleinovercomingsuchbarriers,buildingbridgesbetweenactors,andinorchestrating2030success
PublicsectorstrategiesformaximizingSDGIshouldconsideratleastfivecriticalsuccessfactorstodosoeffectively
14. Attimesrootedinengrainedbeliefsabouttheroleofthepublicsectorinmarketsingeneral,
intervieweesdifferedintheirperspectivesontheextenttowhichgovernmentshouldbeinvolvedinadvancingSDGI.Similarly,perspectivesonwhattherightbalancebetween‘stickandcarrot’mechanismswouldbe(i.e.,enforcingpracticesforexamplethroughtaxationversusincentivizingSDGIforexamplebyprovidingriskcapital)differedgreatlybetweeninterviewees;
15. MechanismsorincentivesforgovernmentactionthataremoreoftenconsideredcriticaltounlockingandshepherdingSDGImarketgrowth,cutacrossmarketelementsandaresimilarinnatureacrossinvestorsegments,assetclasses,geographies,andimpactareas;
16. Intervieweesreiteratedthattherightmixanddesignwherebymechanismsshouldbeapplieddependsonthecontextinwhichtheyaredeployed,aswellasonthecapacity,andcapitalthatisavailabletostimulateSDGIgrowth;
17. FrequentlymentionedpublicsectormechanismstostimulateSDGIinvolvegeneralawarenessraisingactivities;catalyticfinancialinstrumentsorade-riskingofcapital;andeffortstoadvanceinvestmentprinciples,data,andreportingstandards.Policies,regulations,pricing,andtaxationsystemswerealsorecognizedaspowerfulwaystogettoamoresustainablefinancialsystem,andtoachievingsocietalmarkettransparencyandaccountability;
18. Boldideasforgovernmentinterventionincludedtheestablishmentofan‘SDGwholesalebank’(supply/intermediation);aglobalpushtosurfacethe‘truecost’ofexternalitiesusingbigdatatechnologies,orconverselygettingtoasinglemeasurefordevelopmentsuccess(supply/cross-cutting);andfinally,concertedoutcomedriveneffortstooriginate,replicate,andfund‘investibleandsustainable’projectsatscaleacrossconsortiaofactors(demand);
19. AsfortheUnitedNations,manyflagitsroleinraisingtheAgenda’sprofileAgendaandinensuringthatappropriategovernancemechanismsandinterimmilestonesareinplaceinsupportofSDGs.TheycommenditsconveningpowerandthecontributionstheUNcanmakeinforgingnewnorms,andtriggeringactionata(sub-)national,regional,andgloballevel;
20. Carefulcurationofthe2030AgendaandadoptionoftheSDGsasaframeworkofchoiceiscrucial.
Manyinvestorswarnagainstatoorigidapplicationoftheframeworksincethiscouldlimitmarketgrowth,andtheriskof‘SDGwashing’whereexistinginvestmentsaresimplyrebrandedasSDGIwithoutpropervalidationmethods
21. GiventheglobalnatureoftheSDGs,governmentsplayacriticalroleinconnectingthedotsandadvancingsharedagendasthatareadjustedtolocalcontextsbutextendbeyond(sub-)nationalborders.Thisisparticularlytrueforprioritiesrelatedtotheestablishmentofanenablingdataandregulatoryenvironment.SomeexpertsflagthatrapidprogressiontowardsasinglemeasurefordevelopmentimpactwouldgreatlyhelpthemainstreamingofSDGs;
22. Puttingexistingclustersofcompetitiveadvantageorexisting‘valuechains’ofstrength(e.g.,agriculture,water,healthcare)attheheartofpublicsectorSDGIagendaswillhelpunlockgreatermarketvalueandimpact;
23. Theroleofpublicsectorentitiesinde-riskingSDGinvestmentopportunitiesandtherebycatalysinggreaterSDGIisfrequentlymentionedasbeingcritical.Todosoeffectively,integratingapproachesandfiltersthatensuremaximumleverageiscomplex,butacriticalingredienttoone’s‘blendingsuccess’;
24. Onarelatednote,takingaportfolioapproachtoSDGinvestingisconsideredcriticalnotonlyforprivatesectorinvestors,butalsoforIFIsandDFIsthatseektoadvancedevelopmentoutcomes.Expertspositthatbytakingaportfolioapproach,investorswillbeabletomoreeffectivelyoptimizetheir‘risk-return-impactfrontiers’andmakebettertrade-offs;
25. Settingcleartimetablesforactionismentionedbyafewexpertsandpolicymakersasbeingcriticaltoensuresufficientprogressagainstthe2030Agendaismade.
SeeChapter4:PublicSectorInterventionstoMaximizingSDGI&
Chapter5:Conclusions&RecommendationsSeeChapter5:Conclusions&Recommendations
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ABOUTTHISREPORT
Context
Thisdiscussionpaperiswritteninsupportoftheimplementationofparagraph37oftheAddisAbabaActionAgendaand
paragraph67ofthe2030Agenda,andinrecognitionoftheacuteneedforgreaterprivatesectorinvolvementtoachievethe
SustainableDevelopmentGoals.Thepaperinvestigatesthe‘SDGinvesting’(SDGI)opportunityandreviewsthelandscapeof
keyactorsinthefinancialsector,investmenttypes,andtheinvestmentnatureofindividualSDGs.Thereportbuildsonan
extensivebodyofexistingresearcheffortsandrecognizestheinsightsfromtheseeffortsthroughout.Indoingso,itreviews
leadingframeworksandillustrativeexamplesforunderstandingsustainableinvestingandfinancingandcomplementsthese
withquotesfrominterviewswithleadinginvestorsinthespace.
Objectives
Withthereport,expertsinvolvedinboththeFfDandSDGprocesses,hopetocontributetotheongoingandexpanding
discussiononwaystomaximizetheroleoftheprivatesectorinthe2030Agenda.Forthepurposesofthiseffort,SDGIsuccess
isdefinedas:
• MaximizationofthescaleofSDGI,i.e.,thetotalamountofcapitalthatisinvestedwithactiveconsiderationoftheir
environmentalandsocialimpact.Orinotherwords,theextenttowhichsuchconsiderationsforma‘material’factorin
investmentdecisions
• MaximizationoftheeffectivenessofSDGI,i.e.,theextenttowhichdevelopmentoutcomesareachievedwitheverydollar
thatisinvested.Thisincludestheextenttowhichnegativeimpactsareavoidedandpositivecontributionsachieved
Relatedoutcomesofrelevanceinvolve:
• Theestablishmentofsustainablefinancialsystems,i.e.,marketsthatareeffective,efficient,andresilient4.
• MaximizationofthebreadthandthedepthofSDGI,i.e.,theextenttowhichSDGIisadoptedacrossinvestorsegments
andgeographies,andtowhichindividualinvestorportfoliosarereviewedfortheirsustainability
• MaximizationoftheuptakeoftheSustainableDevelopmentGoals(SDG)frameworkininvestmentdecisions,including
theextenttowhichtheycontributetotheemergenceofuniversalinvestmentstandards
Thereportseekstoofferausefulreferencedocumenttothosegovernmentofficialswhoseektoincreaseprivatesectoraction
andSDGIintheirgeographiesanddomainsoffocus.Takingtheperspectiveoftheinvestorcommunityasastartingpointtoits
analysis,itseekstoprovidegovernmentofficialswithnecessarymarketcontextandaninitialsenseofmechanismsforaction
thatcanbeconsideredastheydevelopandrollouttheirSDGIstrategies.
Defining‘SDGInvesting’
TheemergenceoftheAddisAbabaActionAgendaandthepivotalroleoftheprivatesectorintherealizationoftheglobal
sustainabledevelopmentagendahasmaterializedagainstabackdropofachangingfinancialsector.Withthefinancialcrisis
4(UnitedNationsEnvironmentProgramme,2016):Effectiveness:Thedegreetowhichthemarketpricessustainabilityfactorsintofinancialassetvalues;Efficiency:Thecostofrunningthefinancialsystemthatdeliversfinancialflowsalignedwithsustainabledevelopment;Resilience:Thesusceptibilityofthefinancialsystemtodisruptionsrelatedtounsustainabledevelopment,suchaswaterscarcity,airpollition,includingtransitionrisks.
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servingasacatalyst,theroleofthefinancialsectorinrelationtosocietyhasbecomepartofthepublicagenda.Investorsare
nolongermerelyrequiredtoshowandaccountforthefinancialresultsthattheyachievebutareincreasinglyaskedtoindicate
howtheyachievedtheseresultsinrelationtosocietalimpactsornon-financialaspects.Similarly,assetownerslikepension
fundsandfamilyofficesareincreasinglyaskingtheirassetmanagerstoinvestinamoreresponsiblemanner.Thisincludes
consideringexternalities,orthelong-termenvironmentalandsocialimpactofcapitalallocations,ininvestmentdecisions.
Traditionallythishasentailedthatmanagersconsideraselectsetofenvironmental,socialandgovernance(ESG)indicatorsin
investmentdecisions.
TheextenttowhichsuchESGfactorslieatthecoreofinvestordecisionsandcanjustifyshort-termfinancialtrade-offshas
shiftedinrecentyears,andresultedintheemergenceofarangeof‘investmentstrategies,’eachrepresentingauniquesetof
managementresponsibilitiesasitrelatestotheirimpactperformance(SeeFigure0-1).
Figure0-1 SpectrumofCapital&WorkingdefinitionSDGinvesting(SDGI)
Thisreportregardsallinvestmentstrategieswheresustainabilityfactorsplayamaterialroleininvestmentdecisions.Itcoins
SDGinvesting(SDGI)astheumbrellatermforsustainable,responsible,andimpactinvesting.5Thetermandunderpinning
framework–whichwasadaptedfromthatofferedbyBridgesVentures–alignswithexistingmarketdefinitionsandterms,yet
recognizestheconnectionsbetweeninvestmentstrategiesandoffersawaytodepicttheshiftsthatareneededinglobal
capitalmarketstomaximizethescaleandeffectivenessofSDGI.Furthermore,andasisdescribedinsubsequentchapters,the
5ThistermwasfirstusedbysignatoriesofaDutch‘SDGinvesting’orSDGIagendainDecember2016.Theagendawassignedby18financialinstitutions,collectivelyrepresenting2,800+EurosinAssetsunderManagement(AuM)
Impact-first
Address societalchallengesthatrequireabelow-marketfinancialreturnand/ordisproportionateriskforinvestors
Responsible
MitigateriskyESGpracticesinordertoprotectvalue.includes‘negativescreening’,i.e.,screeningoutofharmfuleffects ofinvestments
Traditional
Limitedornoregardforenvironmental,social,orgovernance(ESG)practices
Philanthropy
Address societalchallengesthatcannotgenerate afinancialreturnforinvestorsandgrantsorsubsidiesarerequired
Sustainable
AdoptprogressiveESGpracticesinportfoliodecisionsthatmay/areexpectedtoenhancevalue
Focus
Finance-first
Address societalchallengesthatgeneratecompetitivefinancialreturnsforinvestors
Address societalchallengeswherereturnsareunproven,and/orwhereriskstoinvestorsarenotknownasyet
ImpactInvesting
Deliveringcompetitivefinancialreturns
MitigatingEnvironmental,SocialandGovernance(ESG)risks
PursuingEnvironmental,Social,andGovernanceOpportunities
Focusingonmeasurablehigh-impactsolutions
Source: Bridges Ventures 2016, European SRI Study 2012, C-Change analysis
‘SDGinvesting’(SDGI)
DirectionoftheshiftthatisrequiredtoincreasethescaleandeffectivenessofSDGI
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frameworkalsoenablesareviewoftheuniquetrade-offs,impactreportingexpectations,andthelandscapeofactorsthatis
likelytoplayarolediffersbetweeninvestmentstrategies.6
ThisreportismostlyfocusedonamainstreamingofSDGIamonginstitutionalinvestorsanddevoteslessdepthonimpact
investing,orsocialentrepreneurship.Similarly,whilecorporatesustainability–oftenreferredtoascorporatesocial
responsibility(CSR)or‘sharedvalue’–agendas,inmanyways,formtheoppositesideofthesamecoinandconstituteacritical
dimensiontotheestablishmentofthrivingprivatesectormarketsforsustainabilitythatoperateatscale,thissegmentofthe
marketisn’treviewedin-depth.Andfinally,theroleof‘shareholderactivism’isincreasinglyflaggedasacriticalstrategyforthe
mainstreamingof‘long-termism’andSDGIincapitalmarkets.Somehavearguedthatthisshouldbeaddedasacross-cutting
strategyunderneaththeabove-mentionedstrategies.Wehavereferencedandflaggedtheimportanceofproactive
shareholderinfluencingonoccasion,yethavenotunpackedthisphenomenonindepth.
ResearchMethodologyandDefinitions
Thisreportisbasedonextensivedeskresearch,aswellasover20expertandinvestorinterviewstofurthertestour
hypotheses,andtobringinthevoicesoftheseinvestors.Guidingprinciplehasbeentoproduceareportthatispracticaland
action-oriented,yetacademicallysound.Theauthorsofthereporthaveadoptedacademicresearchpractices,yethavenot
soughttoquantifyorseekstatisticalsignificanceforitsfindings.Beforecommencingontheactualresearchactivities,a
selectionofresearchquestionswasdevisedandfine-tunedtoguidetheinitiative.Thefieldsofresponsibleinvesting,impact
investingandthereforealsoofSDGIarecurrentlysubjectedtofastmovingchanges.Interviewswereconductedintheweeks
betweenthe15thofNovemberandthe20thofDecember,2016.Ofthe20interviews,4werewithassetowners;9asset
managers;3publicsectorexecutives;and4sustainableandimpactinvestingthoughtleaders.7Importantly:Askewtowards
investorswhosecapitaloriginatedindevelopedmarketdidemerge,whichwouldneedtobeaddressedtovalidateglobal
applicability.
Readingguide
Themainbodyofthereportconsistsoffivechaptersfollowedbytwoappendixsectionscoveringtheinterviewsconductedon
behalfofthisreport,leadingknowledgehubswhererelevantinsightsareaggregatedonanongoingbasis,andabibliography.
Chaptersareprecededbyanexecutivesummaryandintroductorysection.
Chapter1:TheSustainableFinance&SDGILandscapereviewrelevantmarketfactsanddynamicsthatshouldbeconsidered
byreadersastheydeterminetheirSDGIactivationstrategies.Itprovidesestimatesofthefinancingneedsofthe2030Agenda,
exploresthenatureofSDGI,andoffersacursoryoverviewofthevarious(potential)playersinsustainablefinanceandSDGI.
Chapter2:TheSDGIMarketOpportunitysummarizesexistingresearchintothevaluethatcanbeunlockedbyinvestinginthe
2030Agenda,complementedwithareviewoftheSDGsthatinvestorstodayconsidermore‘investable’SDGs.Whilenot
conclusiveinnature,itoffersreadersaninitialsenseofwhereopportunitiesfortheadoptionofmarket-basedsolutionsfor
addressingtheSDGsmaylie.
6Anoften-usedexpressionamongimpactinvestorsisthat‘oneday,allinvestmentswillbeimpactinvestments’.(Monitorresearch,FordFoundation(2015)).Thiswouldimplythatovertimeallinvestorsandinvestedcapitalwouldshifttowardstherightofthespectrumofcapital.7Seetheannexforanoverviewoffulllistofinterviewees
11
Chapter3:Drivers&BarrierstoSDGIdetailsdriversandprevalentbarrierstoSDGI.Barriersareorganizedbasedonwhere
theymanifestthemselvesacrossalargerinvestmentvaluechain,dividingthisvaluechainintofourmarketelements,i.e.,
supplyofcapital,intermediation,demandforcapital,andinfrastructuralfactors.
Chapter4:PublicSectorInterventionstoMaximizingSDGIlooksatthemechanismsthatareatthedisposalofthepublic
sectortomitigateeachofthepreviouslybarrierstoinvestment.Whilenotacomprehensiveoverview,itoffersconcreteways
inwhichpublicsectorentitiescan–andhavebeenseento–stimulateSDGinvestingandremovebarriersthatinhibitthescale
andeffectivenessofSDGI.AimistounearththepathwaysforeffectivepublicsectortomaximizeSDGIsuccess.Initiativesthat
wereseentobeparticularlyinnovativeoreffectivewereaddedthroughout.
Chapter5:Conclusions&Recommendationsdetailaninitialoverviewofconclusionsthatcanbedrawnbasedonthisresearch
andhighlightfactorsthatemergedfromourresearchasbeingofparticularimportanceforachievingSDGIsuccess.
Importantly,andasnotedbefore,thisresearchdoesnotseektoprovideconclusivenorcomprehensiverecommendationsfor
achievingSDGIsuccessthroughpublicsectorinterventions.TheconclusionsandrecommendationsinthisChaptertherefore
needtobereviewedkeepingtheneedforfurthervalidation,expansion,anddeepeninginmind.
12
1. THESUSTAINABLEFINANCEandSDGINVESTING(SDGI)LANDSCAPE
ThisChapterprovidesashortsummaryofnotableAgreementsthatprecededorarehighlyrelatedtothe2030Agenda,reviews
thenatureofthesustainabledevelopmentgoalsaswellastheincrementalcapitalthatisneededtofinancetheagenda,and
reviewsthesizeofSDGinvestingtoday.Wheredeemedrelevant,investorsegmentsand/orregionalcomparisonswereadded.
1.1 LookingBack:FromMonterreytoAddisandbeyond
Aswasreiteratedbytheexpertsweconsultedforthiseffort,animportantprefacetothisresearchisthatthe2030Sustainable
DevelopmentAgendaisarecentmilestoneinalonger-runningagenda.Notableagreementstoconsiderinthiscontextare
detailedhere.
In2002,whatbecameknownastheMonterreyConsensusemergedduringtheInternational
ConferenceonFinancingforDevelopment(FfD).Thefinaltextofagreementsandcommitments
includesaclearacknowledgementoftheimportantroleforprivateinvestmentsinfurtheringthe
causeofdevelopmentaroundtheglobe:“Privateinternationalcapitalflows,particularlyforeign
directinvestment,alongwithinternationalfinancialstability,arevitalcomplementstonationaland
internationaldevelopmentefforts.”(UnitedNations,2003,p.9).Thisacknowledgementindicated
thatatransitionofdevelopmentfinancewaswellunderway.Nolongerwasthistobeanarea
predominantlyoccupiedbyOfficialDevelopmentAssistance(ODA)orcharitablecontributionsalone.
Theroleoftheprivatesectorandprivateinvestorswaswelcome.8
Thesummerof2015sawtheemergenceofyetanotherimportantstepinthespaceofdevelopment
finance,namelytheadoptionofwhathasbecomeknownastheAddisAbabaActionAgenda(United
Nations,2015).Thisagendaoutlinesandtherebyformsthefoundationfortheoverall
implementationoftheglobalsustainabledevelopmentagenda.Intheagenda,andthetitlesaysas
much,financeispresentedasthekeycomponentandthuslinchpinforthesuccessoftherealization
oftheSDGs.TheAgendaoffersacomprehensivesetofpolicyactionsthatcontributetothe
realizationoftheSDGsandthecontoursofanewglobalframeworkforfinancingsustainable
development(UNDESA,2015).Itlists300+measurestouchingonvarioussourcesoffinance,
coveringprioritiessuchastechnology,science,innovation,tradeandcapacitybuilding.The
documentunderscorestheimportancetoalignprivateinvestmentwithsustainabledevelopmentandaneedforpublicpolicies
andregulatoryframeworksthatalignincentives.(UnitedNations,2015).
8ThesubsequentUNFinancingforDevelopmentConferenceheldinDohain2008wasarguablytoomuchovershadowedbytheglobalfinancialcrisistoyieldcomparableresults(Martin,2015).
13
TheParisAgreementonClimateChange,asadoptedbyworldleaderson12December2015atthe
conclusionoftheCOP21Conference,formedanextmilestoneand–alongsidetheFfDmeetingarethe
secondofatotalofthree‘2015Agreements’.TheAgreementincludedacommitmentbydeveloped
countriestoprovidefinancialresourcestoassistdevelopingcountryPartieswithrespecttoboth
mitigationandadaptationoftheeffectsofclimatechange.Italsooutlinedtheircommitmenttotake
theleadinmobilisingclimatefinancefromawidevarietyofsources,instrumentsandchannels,while
encouraginggreatercoordinationofandsupportfrom,interalia,publicandprivate,bilateraland
multilateralsources.TheAgendaformedanimportanttothe2030SustainableDevelopmentAgenda
thatbroughttogetherasetofshared,global,environmentalandsocialtargets.
1.2 The2030SustainableDevelopmentAgenda&SustainableDevelopmentGoals(SDGs)
InDecember2015,globalleaderssignedoffonthethirdofthe2015Agreements,the2030SustainableDevelopmentAgenda.
TheseventeenSustainableDevelopmentGoalsembodytheaspirationsofgloballeadersacrosssectorsforasustainableworld
forfuturegenerations,andofferasingle,sharedglobaldevelopmentagendathatcutsacrossissueareas,sectors,and
geographies.(seeFigure1-1)
Importantly,the2030Agendawassignedoffbygloballeadersfromthepublic,private,andsocialsectoralike.Underpinning
theseventeenSDGsreside169sub-goals,and230concretetargets.(Sub-)goalsincludeoutcomeorientatedandprocess
orientatedgoals.Forinstance,thegoalsoferadicatingpovertyandhungerareclearexamplesofoutcomeorientatedgoals.In
contrastgoalssixteenandseventeen(“Peace,JusticeandStrongInstitutions”and“Partnershipsforthegoals”)aremore
processorientatedandformprerequisitesfortherealizationoftheothergoals.Andwhiletheframeworkwasnotdeveloped
asa“MECE”(i.e.,mutuallyexclusive,collectivelyexhaustive)frameworkforevaluatingdevelopmentoutcomes,itoffersa
reasonablycompleteoverviewofthebiggestchallengesthatneedtobetackledtoachievesocialandenvironmentalprogress
forall.Challengestotheframeworkitselfarereviewedingreaterdetaillaterinthisreport.Animportantdynamicthatall
thoseadoptingtheframework–includingtheinvestorcommunity–shouldbeawarethatspecificinterventionsor
Figure1-1 Overviewofthe17SustainableDevelopmentGoals
14
investmentsmayinfluenceoneSDGinapositiveway,yethaveanegativeimpactontheother.Toillustratethispoint,oneof
theinterviewspaintedasituationwhereininvestmentinagriculturecancontributetoSDG2:ZeroHunger,yetintheprocess
mightoveruseexistingwatersuppliesputtingSDG6:CleanWater(andSanitation)underpressure.Suchnegativeandpositive
correlationsneedtobegivensufficientattentiontomaximizetheimpactcontributionstotheSDGagenda,achallengeand
contextualconsiderationthatisfurtherdescribedinChapter3:Drivers&BarrierstoSDGI.
1.3 FinancingtheSDGs:HowMuchCapitalIsNeededtoFinancetheSDGs?
Achievingthe2030Agendarequiresanunprecedentedlevelofresources,technicalassistance,andeffortfromallsectors
(Martin,2015)(UnitedNations,2015,p.8).Investmentsareneededinenterprisefinancing,butalsothefinancingofsocial
goods(e.g.education,health),andinfrastructure.The2015Agreementsandthelaunchofthe2030Agendawasaccompanied
byvariousattemptstoassesstheexactfinancingthatisneededtorealizetheSDGs.Andwhileconsensusisthattheannual
financinggap–i.e.,theamountbywhichexistingcapitalflowsand/orinvestmentfallsshortinfinancingthegoals–isnota
matterofbillionsbutratheroftrillionsofdollars.MostrecentestimatesinvolvethosebytheBusiness&Sustainable
Commission(2017)whichestimatesthefinancinggaptoamounttoUS$2.4trillionofadditionalinvestment.Thereport
reinforcesthatalargeshareofthisamountrelatestoinfrastructureandotherprojectswithlongpaybackperiods9.This
numberisinlinewithpreviousestimatesbyDFIandOxfamInternational(2015),whileUNCTAD(2014)intheirWorld
InvestmentReport2014comewithacomparableoutline.Intheircontributiontothedebateonfinancingfordevelopment,a
collectiveofMDBsheadedbytheWorldBankpublishedareportthatechoesthemessagefromtheAddisAgenda:“From
BillionstoTrillions:MDBContributionstoFinancingforDevelopment”(WorldBank,2015).ExtensiveanalysisbySchmidt-Traub
(2015)outlinesthelogicofthe‘pricetag’(i.e.financingneeds)forvariousindividualSDGs.Aswillbecomeclearinsubsequent
Chapters,toaddresstheSDGfinancinggaprequiresasubstantialincreaseinprivatesectorinvestment.Onthistopic,oneof
ourintervieweescommented:“Thegapinfundingissolarge,thatweneedfundamentallynewanddifferentsolutionsand
waystochannelinvestmentcapitaltowardstheAgenda.”
9Bycomparison,theannualinfrastructuregapindevelopingcountriesisestimatedat$1-1.5TTrn(UnitedNations,2015,p.8)
15
Box1-1 FromMDGstoSDGs:WhatDidWeLearn?
InSeptember2000,theUNMillenniumDeclarationwasadoptedduringtheMillenniumSummitbringingintoexistence
theMillenniumDevelopmentGoalsorMDGs.Thesegoalsthataretiedinwiththereductioninextremepoverty
constituteaseriesofeighttime-boundtargetswiththeobjectivetoachievetherealizationofthesegoalsby2015.The
MDGsencompassedthefollowinggoals:(1)EradicateExtremeHungerandPoverty;(2)AchieveUniversalPrimary
Education;(3)PromoteGenderEqualityandEmpowerWomen;(4)ReduceChildMortality;(5)ImproveMaternalHealth;
(6)CombatHIV/AIDS,Malariaandotherdiseases;(7)EnsureEnvironmentalSustainability;(8)DevelopaGlobal
PartnershipforDevelopment.(UN,2006).
Foreachofthesegoals,specificindicatorswereadoptedwhichweretobeusedtoassesswhethertherealizationof
thesegoalswasontrack.Forinstancethemetric“Target1.A:Halve,between1990and2015,theproportionofpeople
whoseincomeislessthanonedollaraday,“wasoneofthemetricsusedtomeasuretheadvancementsregardingthe
firstoftheMDGs(OECD,2012).HerewefindoneofthekeydifferencescomparedtotheSDGsinthatthelatterarenot
onlygreaterinnumber(17versus8),comewithalargerarrayofstatisticalindicators(169versus60)butmore
importantlyaimsattheeradicationofparticularoccurrences(aka“zeroobjectives”)ratherthanhalvingorensuringa
significantreduction(Coonrod,2014).Thisinturnbringsincreasedclarity(totheSDGs)whichhelpsinpavingthewayfor
moreprivatesectorinvolvementwhich–asstatedabove–isalsoakeydifferencebetweenMDGsandSDGs.
Justlikethefactthatthisagendaismoreholistic,itacknowledgesagreaterinterconnectednesswiththevariousissues
indevelopmentwhileatthesametimebeingatrulyuniversalagenda,meaningthegoalsareapplicabletoeverycountry
regardlessofincome-levels.InthatsensetheSDGsmayalsocontributetowhatonecommentatorcalledincreasing
engagementand“gettingpeoplearoundtheworldtothinkalittlebitmoreasglobalcitizensandthinkaboutpoverty,
inequality,sustainability,consumptionanddiscrimination,anddosomething”(SandlerClarke,2015).
Fromafinancingperspective,afewlessonsstoodoutaswell:First,ensuringbroad-basedawarenessofandsupportfor
theAgendaisafundamentalunderpinningrequirementforsuccess(SDGISignatories/C-Change(NL),2016).Related,
translationofglobalgoalstolocalandsectoralcontextsiscritical.Asoneintervieweenoted,“theMDGswerenever
translatedinto‘investorready’indicators.Thismeantthatitcontinuedtofeelasanaidratherthananinvestment
agenda”.Andfinally,cross-sectoralcollaborationwherethecharacteristicsofcapital(intermsofrisk-return-impact
expectations)canbeblendedintoajointfinancingstrategywhereeachisabletoreachtheirownreturnexpectations
andmandates,turnedouttobecritical.SDG17specificallyaddressesthenotionofcross-sectorcollaborationand
partnershipsexplicitly.
16
1.4 CurrentInvestmentinSustainabilityAcrossInvestorSegments
Asnotedearlier,theauthorsdefineSDGinvestingasallinvestmentstrategies–excludingphilanthropy–thatconsiderthe
socialandenvironmentalimpactofinvestmentsmaterialinshapingtheirportfolios.Aswasoutlinedawell,SDGIsuccessnot
onlyrequiresanincreaseinthescaleatwhichsuchfactorsareconsideredininvestmentdecisions.Italsorequiresashiftfrom
theleftoftheSDGIinvestmentframework,whereinvestorsfocusonscreeningoutpossiblyharmfulimpactsoftheir
investmentstotherightofthisspectrum,whereinvestorsseektoderivepositivesocialorenvironmentalresults.Figure1-2
boththeshiftthatisneededtomaximizeones’SDGIsuccess,andoffersahigh-levelindicationofthecurrentsizeofeach
investmentstrategy.Ascanbeseen,mostrecentindicateSDGIacrossdevelopedmarketsaddeduptobewellbeyondUS$23
trillion,or~30%ofglobalAssetsunderManagement(AuM).ThemajorityoftheseassetswerelocatedinEuropefollowedby
NorthAmerica.ImportanttonoteisthatAfrican,LatinAmerican,andMiddle-EasternAuMestimatesarenotcurrently
available.10
Figure1-2 GlobalSDGInvestingbyStrategy(AuMinUSDbillion,2014/2016)
Animportantconclusionfromthisanalysissignalsthatthecurrentplayingfieldisquitesubstantial,indicatingthatan
importantshiftinthebroader‘SDGIconversion’challengeliesbothinachievingashiftfromresponsibletosustainable
102015totalAuMsfortheMiddleEast,African,andLATAMwereestimatedat1.3and1.9US$trillion(BCG,2016)SeeannexA3;AccordingtoJ.P.Morgan,theprofitopportunityforinvestmentsinhousing,ruralwaterdelivery,maternalhealth,primaryeducation,andfinancialservicesfortheportionoftheglobalpopulationearninglessthan$3,000peryearwilltotalfrom$183billionto$667billion.
Impact-first
Address societalchallengesthatrequireabelow-marketfinancialreturnand/ordisproportionateriskforinvestors
Responsible
MitigateriskyESGpracticesinordertoprotectvalue.includes‘negativescreening’,i.e.,screeningoutofharmfuleffects ofinvestments
Traditional
Limitedornoregardforenvironmental,social,orgovernance(ESG)practices
Sustainable
AdoptprogressiveESGpracticesinportfoliodecisionsthatmay/areexpectedtoenhancevalue
Focus
Finance-first
Address societalchallengesthatgeneratecompetitivefinancialreturnsforinvestors
Address societalchallengeswherereturnsareunproven,and/orwhereriskstoinvestorsarenotknownasyet
Deliveringcompetitivefinancialreturns
MitigatingEnvironmental,SocialandGovernance(ESG)risks
PursuingEnvironmental,Social,andGovernanceOpportunities
Focusingonmeasurablehigh-impactsolutions
Source: (a) Boston Consulting Group (2015); (b) Multiple Sources, see Annex 3, C-Change Analysis
DirectionoftheshiftthatisrequiredtoincreasethescaleandeffectivenessofSDGI
AuM a,b2014 -2016(USD)
Global:~71Trillion
SDGI:~23Trillion (30%)
15Trn (19%) ImpactInvesting:0.12Trn (0%)8.0Trn (11%)
17
investing,andfromsustainabletoimpactinvesting.Separately,worthflaggingisthenegligiblesizeofimpactinvesting,i.e.,
thoseinvestmentsthatseektofinancemeasurablehigh-impactsolutions11,today.
Althoughthelevelofinsighttothesizeofthevariousinvestmentstrategiesislimitedandshowsgaps,mostnotablyexhibited
throughitsomissionofdevelopingandemergingmarketsfromitsscope,availablefiguresdoprovidesomeinsighttothe
extenttowhichprivatecapitalisdirectedtowardsSDGI.Figure1-3providesanoverviewofavailabledata,includingreference
tothesourcesthatwereused.Interestingly,whenreviewingregionalSDGIestimatestooverallAuMlevels,considerable
differencesbecomeapparentintermsofthelevelofpenetrationineachregion.
Figure1-3 GlobalSDGInvestingbyRegion(inUSDbillion,2014/2016)
Source:C-ChangeAnalysis(multiplesources,seeannex)
Figure1-4depictsSDGinvestmentsasapercentageofthetotalAssetsunderManagement(AuM)inaparticularcountryor
region(verticalaxis).ThehorizontalaxisshowsthesizesoftotalAuMinagivengeographyasanindicationoftheshareof
globalAuMeachregionrepresents,leavingthewhitespacebetweenthe100%lineandthecolouredbarstoreferencethe
amountofinvestmentsthatatthemomentappeartofalloutsidetheSDGIuniverse.12Thehighestpenetrationofcapitalthatis
subjectedtooneformofRIstrategyoranotherisinEurope(over60%)whereasthelowestpenetrationistobefoundinAsia.
ThelargestgapinabsolutetermsiscurrentlyintheUSbecauseoftheoverallsizeoftheassetsthatarebeinginvested.The
chartreinforcesboththesignificantconversionchallengethatresidesinachieving“100%SDGIpenetration”andsignalsthe
impactanymeaningfulshiftbytheUnitedStateswouldimplyfortheevolutionofSDGIinadevelopedmarketcontext.And
whileSDGIhasmorethandoubledinthelastfouryears(
11Amorecommondefinitionofimpactinvestingisasfollows‘investmentsmadeintocompanies,organizations,andfundswiththeintentiontogeneratesocialandenvironmentalimpactalongsideafinancialreturn’(GIIN,2016)12TherearevariousapproachestodeterminetheoverallglobalsizeofAuM.ArecentstudybyBCG(2016)calculatedthatglobalAuMstandsbetweenUSD70and75trillion.
18
Figure1-5)indicatingsignificantregionaluptake,itremainstobedeterminedifthistrendwillcontinuegivenrecentpolitical
changesincountry.
Figure1-4 SDGInvestingasapercentageoftotalAuMbyRegion(inUSDbillion,2015)
Source:C-Changeanalysisbasedonmultiplesources/seeannexformethodologyandunderlyingcalculations
Figure1-5 DevelopmentofResponsibleInvestingintheUnitedStates(inUSDbillion,1995–2016)
Source:USSIF(2016)
Asnotedearlier,mostofthesurveysdoneontheactualmanifestationsofresponsibleandsustainableinvesting-definedby
theauthorsofthisreportasSDGI–distinguishdifferentmarketdefinitionsasthoseofferedbyBridgesVenturesa.o.Mostof
theresearchofthemagnitudeofresponsibleinvesting–mostnotablythoseconductedbymemberinstitutionsoftheGlobal
SustainableInvestmentAlliance(GSIA),suchasUSSIF’sForumforSustainableandResponsibleInvestment”andEuroSIF–use
amethodologywherebytheinvestmentactivitiesarecategorizedintosevengroups,rangingfromnegativescreeningof
investmentstoimpactinvesting(see
19
Box1-2).
20
Box1-2GSIAInvestmentCategories(2016)
Negative/ExclusionaryScreening:Excludesparticularholdingsfromtheinvestmentuniverse,e.g.specificindustriesorsectors
areexcludedgiventhenegativesocialorenvironmentalimpactoftheunderlyingasset(s)
Norms-basedScreening:Anextensionofexclusionaryscreening.Hereapredefinedsetofvaluesandnormsguidesdecision
making,allowingforagreaterdegreeofgranularity(e.g.companylevel)comparedtoexcludinganentireindustryorsector
ESGIntegration:IntegratesESGfactorsinones’financialanalysismeaningthattheinvestmentdecisionisalsodeterminedby
non-financialinformationand/ordata
Positive/Best-in-ClassScreening:Appliesa‘best-in-classinvestmentselection’,identifyingthosestocksthatoutperformona
pre-determinedmetricvis-à-visitspeers
SustainabilitythemedInvesting:Identifiesspecificoutcomesareasand/ormarketsegments(e.g.,financialinclusion,
renewableinvesting)inwhichitwillseektodeploycapital
ImpactInvesting:Investswiththeintentiontogeneratepositivesocialorenvironmentalreturnsalongsidefinancialreturns
ShareholderEngagementandaction:Proactiveinfluencingofcompanydecisionswiththeintentiontoimproveitssocial
and/orenvironmentalperformance
Figure1-6showstowhatextentthedifferentstrategiesareappliedinthreedifferentregions,namelyEurope,Canadaand
Japan.13ThisfigureclearlyshowsthatthedominantstrategyinEuropeisstillbasedonexclusionaryinvestment,reinforcingthe
needforastrongershifttowardsinvestmentsthatseektogeneratepositivesocietalreturns.14
Figure1-6 RIStrategiesinEurope,Canada,USA,andJapan(ShareoftotalAuM,2015-2016)
Source:C-ChangeAnalysis;RIA(2015),EuroSif(2016)andJSIF(2016);Multiplestrategiescanbepursuedinparallel
13TheUSSIFonlyreportsonwhetherafundintheUSAappliesESGintegrationand/orisactiveinengagementmakingthedatalesssuitableforcomparisonwithothercountries/regions.14Giventhatmultipledatasourceswereextrapolatedtoderivethisanalysis,whileanin-depthreviewofthesefigureswasnotconducted.Furtherreviewwouldberequiredtoprovidegreaterinsightintothecausesofsuchdifferences.
21
MuchcanbesaidinreviewingtheroleofindividualinvestorsegmentsinSDGI.Aspreviouslyindicated,theextenttowhich
eachsegmentislikelytoapplytoeachinvestmentstrategy(i.e.responsible,sustainable,andimpactinvesting)willdiffer
significantlyacrosssegments.Thisisafunctionoffactorssuchasasegment’sfinancialhurdlerates,riskappetites,scale,and
capabilities.15Table1-1offersahigh-leveloverviewofthelandscapeofinvestorsandtheirrelativeexposureandpotential
contributiontoSDGI.Thetableonlyliststhesupplysideofthemarket,i.e.assetownersandmanagers,ratherthanthosewho
areinsearchforcapital(e.g.businessorganizations,infrastructureprojects,etc.),orotherpossiblestakeholders.Foreach,we
provideanindicationoftheoverallsizemeasuredinAssetsunderManagement,AuMorintermsoftotalassetsfoundonthe
balancesheet.Inaddition,contexttotheirexposuretoresponsibleinvestment,astartingpointforSDGI(seealsoFigure0-1)
andwhetherdevelopmentisanexplicitpartoftheirmissionishighlighted.16
Table1-1 OverviewofRelevantTypesofSDGinvestors
Source:Deskresearch/Annualreports/InterviewsandC-ChangeAnalysis;seeannexA3forfurtherestimates.
ThequalitativeassessmentspresentedinTable1-1arebasedonthenatureoftheinstitutionsthemselvesaswellasexpert
opinions.Whatisclearfromthisoverviewisthatpensionfundsandinsurancecompaniesarebyfarthelargestprivate
investors.TheDevelopmentFinanceInstitutions(DFIs)haveanexplicitmandatetoachievedevelopmentoutcomes.This
cannotbesaidformostothertypesofinvestorthatalthoughtheymayhaveaninterestindevelopmentasatheme,theyare
ultimately‘financefirst’institutions.ThatthesetypesofinvestorsareneverthelessopentoSDGsisclearwhenlookingattheir
levelofinvestmentinSDGI.Manypensionfunds(especiallythelargeronesinEuropeandinOceania)arequiteactive.Box1-3
providesadditionalinsightintotheroleofpensionfundsinSDGIaspioneersforlongtermperspectives.Insurancecompanies–
15Ahurdlerateistheminimalacceptablerateofreturnforaninvestorandthisexemplifiesthepredeterminedlevelofcompensationgiventhelevelofriskinvolved.16SeealsoPRI-Martindale,Sullivan,&Fabian(2016)
Size(Trill.US$) RemarksLargeInstitutionalInvestors
- PensionFunds 35Largestdistinctgroupofinvestors(basedonAuM)manyoftheseinstitutionshavebeenatforefrontoftheglobalRIintegrationdevelopments(seealsoboxbelow);financialreturnsplayakeyrole
- Insurancecompanies 14 SubstantialplayersandlikewiseactiveinRIbutonthewholewithlessvisibilitycomparedtopensionfunds;financialreturnsplayakeyrole
- SWF 7Sovereignwealthfundsareinownershipofnationalgovernmentalentities.Inhandsof;financialreturnsandstrategicconsiderations/nationalinterestplayimportantrolesintheinvestmentprocess
DevelopmentFinanceInstitutions
- NationalDFIs 0.06
Semi-publicinstitutionsthatsupplycapitaltotheprivatemarketinordertofinanceprojectsandenterprisesindevelopingcountries;developmentconcernsareattheheartoftheinvestmentprocessinadditiontofinancialreturns
- MDBs 1.1
Internationalorganisations,foundedtomakecapitalavailablefordevelopmentrelatedprojects(InterAmericanBank/EBRD/ADB/etc);heretoothemissionsareoftencloselyconnectedtodevelopmentandtheSDGs
Other
- Foundations 0.5Increasinglyendowmentsandfoundationsthatnotonlywanttodogoodwiththefinancialreturnsoftheirinvestmentsbutalsowantalsosteeronthesocietaldimensionsoftheirinvestments
- FamilyOffices 0.2 Therecentriseinimpactinvestingwastoalargeextenddrivenbyfoundationsandfamilyoffices.
22
possiblybecauseofdifferencesinregulatoryframeworks–arecurrentlylessactiveinSDGI.Importanttoconsiderhowever,is
thatthesefirmsdonotonlyplayaroleasinvestorsbutalsoinreducingriskandinincreasingtheresilienceofsystemsand
economies.
Box1-3 ADeepDiveonPensionFunds
PensionfundsareespeciallyrelevantinthediscussiononSDGIastheyhavebeenattheforefrontofmanyofthe
responsibleinvestmentdevelopments,e.g.mostofthefoundingsignatoriesofthePrinciplesofResponsibleInvesting
camefromthisgroup.Inaddition,thisgroupofinvestorsisoftenfoundinareasthathavedirectlinktoSDGs,namely
thosethatincludelargescaleinfrastructureprojectfinance.Pensionfundsareconcentratedinadvancedeconomies.The
tablesbelowprovideanoverviewofthegeographicaldistributionoftheassetstiedinwithpensionfundsaswellasthe
rankingofthe20largestpensionfundsintheworldtoday.Theselistsnotonlymirroroverallwealthinacountrybutare
alsothedifferentevolutionarytrajectoriesinlegislationand/orpensionregulations.
DistributionofPensionFundsbyGeographyandbyIndividualsize
Source:WillisTowerWatson(2016)
23
2 THESDGIMARKETOPPORTUNITY
Chapter1signalledthecriticalroleofinvestmentcapitalinachievingthe2030Agenda,andshowedhowthattheamountof
capitalcommittedtosomeformsofSDGIisontherise.Chapter3willtakeacloserlookatthevariousbarriersthatexistto
maximizescaleandeffectivenessofSDGI.Beforegoingintoanin-depthevaluationhowever,itisimportanttopausewiththe
actualSDGImarketopportunity.ThisChapterreviewsexistingresearchintothevaluethatcanbeunlockedbyinvestingwith
impactand/orwiththeSDGsinmind,theintrinsic‘investability’ofindividualdevelopmentoutcomesaswellasthe2030
Agendaasawhole,andfinallyinvestorperceptionsrelatedtotheaddedvalueoftheSDGframeworkandtheSDGIinvestment
opportunity.Whilethesethreeconceptsarehighlyrelated,eachoffersadifferentperspectiveonwhattheSDGImarket
opportunityentails:
‘Value’–atermthatwasdeliberatelyusedbytheBusiness&SustainabilityCommissionintheir2017report–capturesboth
thefinancialgainsthatcanbeachievedbyinvestingwithimpact,andthecoststhatcanbeavoidedbydoingso.Especially
longertermcosts,suchasthoserelatedtotheeffectsofclimatechange,playaroleincapturingthe‘truevalue’ofSDG
investmentsandbusinessopportunities.
Theterm‘investability’pauseswiththeintrinsicabilityofcapitalseekingimpactinitiativestogenerateimmediaterevenues
andoperateinamarket-basedcontext.Suchinitiativesmayincludeprojects,socialgoods,orenterprisesseekinginvestment
andcanvaryinscale.Itfollowsalogicmodelwhereby,certainsustainabledevelopmentgoalsortargetsareassumedto
predominantlyrequiregrantsorsubsidies,whileotherscanbeaddressed(inpart)throughmarketmechanismsandprivate
sectorinterventions.
Toaccelerateinvestment,assetholdersandmanagersneedtorecognizetherelevance,value,andinvestabilityoftheSDGsin
theirdecisions.ThelastsectionofthisChaptersummarizestheirperceptionsaboutSDGI,theaddedvalueoftheSDG
framework,aswellashowtheyperceivetheinvestabilityofeachofthegoals.
2.1 Unlockingthe‘TrueValueoftheSDGIorBusinessOpportunity’
TheactualsizeoftheSDGI“opportunity”isnoteasilyassessable.Thishasmultiplereasons,includingthatthenegativeeffects
ofinvestmentsareoftentimesnottransparent,letalonethevaluethatisdestroyedasaconsequence–intheshort,medium,
andlongerterm.Separately,asnotedbytheBusiness&SustainableDevelopmentCommission(B&SDC)intheir2017report,
areaswheresubsidiesarecurrentlypricedintoitemswouldneedtoberemoved,andinterventionswouldneedtooccur
acrossthe17SDGsandalargereconomicsystemtocapturethetruevalueoftheSDGIorbusinessopportunity(Business&
SustainableDevelopmentCommission,2017,pp.34-36).This,alsogiventhefactthat–aswasindicatedearlier–theSDGsare
highlylinkedandarelikelytoreinforceeachother,orconversely,maybenegativelycorrelated.Withthesereservationsin
mind,theBusiness&SustainableDevelopmentCommissionconcludesthatsustainablebusinesscanunlockatleastUS$12
trillioninnewmarketvalue.Intheirreport,theBusiness&SustainableDevelopmentCommission(B&SDC)lookedspecifically
atfoursectors,namelyFoodandAgriculture,Cities,EnergyandMaterialsandHealthandWell-Being.Someoftheseidentified
categoriescutthroughdifferentSDGs,suchasthefoodandagriculturesectorwhichisdirectlyrelatedtoenvironmentaland
varioussocialgoalsoftheSDGs.Figure2-1lists60ofthelargestidentifiedbusinessopportunitiesforthesefoursectors.
Importantly,estimationsarebasedontherealizedsavingsaswellasprojectedrevenueopportunities.
24
Figure2-1 TheSDGInducedMarketOpportunitiesascapturedbytheB&SDC
Acrosstheseinvestmentopportunities,theauthorsidentifiedaselectsetofinvestment‘themes’(Seewhichthetoptwo
themesaccountformorethanaquarteroftheprojectednewmarketvalue.SeeFigure2-2.
25
Figure2-2 LargestSDG&BusinessInvestmentThemesbySizein2030(inUSDbillions:2015values)
Importantly,B&SDCreport’ssizingofopportunitiesisbasedoncurrentprices.However,theselargelydonotreflectthecostof
arangeofexternalities,inparticularenergy-relatedemissions,andincludevarioussubsidisedandunpricedresources,
includingwater,fossilfuelsandfood.ThevalueoftheseresourcesubsidiesgloballyisestimatedtobeoverUS$1trillionayear.
Tounderstandtheimpactofremovingsubsidiesandproperlypricingresources,theresearchtookasubsetofthetop
opportunitiesandrepricedthreecomponentsforwhichreliabledataisavailable:carbon,waterandfood.This‘truepricing’
methodologyincreasestheoverallvalueofopportunitiesbyalmost40percent.The�effectsaremoststrikinginthefood
system,wherepricingofexternalitiesalmostdoublesthetotalvalueofopportunitiestoreducefoodwaste.Impactsonenergy
andmaterialsopportunitiesarealsosignificant:thesizeoftheopportunityinrenewablesrisesby46percent,drivenbycarbon
pricingandbyasimilaramountinenergyefficiencyinnon-energyintensiveindustries.Separately,authorsnotethattheextent
towhichvaluecanbederivedishighlydependentonlocalcontextsincludingthelevelofdevelopmentofregions.Figure2-3
visualizestheexpectedvaluethatcanbederivedacrossgeographies,halfofwhichisexpectedinthedevelopingworld.
Source:Business&SustainableDevelopmentCommission(2017,p.29)/“Basedonestimatedsavingsorprojectmarketsizingineacharea.RoundedtonearestUS$billion.”
26
Figure2-3 ShareofValueofSDGBusinessOpportunitiesbyRegion&System(Percent)
2.2 ‘Investability’ofthe2030Agenda&SDGs
Inourresearch,afewintervieweesremarkedthatnoteveryareawherevaluecanbeunlockedinthelongtermconvertsinto
immediateinvestmentopportunities.Theycommentedthatthelargenumbersthatareoftencitedinpublicationsonprivate
investmentopportunitiesofSDGsoftengiveawrongimpression:“Everybodyreadsthesegrandiosefigures,andthentheyare
heldupasmassiveopportunities.Butoncloseinspection,theyreallyarenot,becauseyoucannotpossiblyderiveamarket
rateofreturnonthemtoday.Thereisafundamentalmisconceptionabouttherolenormalprivateinvestorscanhaveinthis
debateandinadvancingtheSDGs.”
AlthoughanunequivocalanswertothequestionhowinvestableeachoftheSDGstrulyaretodaydoesnotexist,various
researcheffortswereconductedtoaddressthisquestion.Andwhiledifferentreportsreachslightlydifferentconclusions,
infrastructure,energy,andwaste–orthe‘circulareconomy’–relatedinvestmentopportunitiesareconsistentlysurfacedas
havingdisproportionatepotential.Forexample,UBS(2015)findsthattheunderlyingagendaandits15-yearlifespangiverise
toanumberofSDGinvestmentclusters(SeeFigure2-4).Thisassessmentishighlyalignedtomarketsegmentsthatemerged
fromtheB&SDCreport.
27
Figure2-4 TranslationofSDGsintoinvestmentopportunitiesLong-terminvestmenttheme AssociatedSDGs InvestmentopportunityWaterScarcity 2,6 WaterInfrastructure,TreatmentandmanagementagriculturalEnergyEfficiency 7,12,13 Buildingsystems,industrialprocesses,transportation
infrastructure,technology/softwareWastemanagementandrecycling 6,12 Wastemanagement(especiallyEMexposure)Cleanairandcarbonreduction 3,11,13 Renewableenergy,energyefficiency&storage,cleanAgriculturalyield 2,15 Agriculturalequipment,biotech,irrigationtechnology,
fertilizerproducersEmergingMarkethealthcare 3,10 HealthcareprovidersactiveinEMObesity 2,3 Consumer(food,health,wellness),healthcare(treatmentof
obesity&relateddiseases)Accesstoeducation 4,8,10,16 DirectparticipationorthroughintermediariesGenderlensinvesting 5,10,16 Listedorprivatecompanieswithcommitmenttogender
diversitySource:UBS(2015)
2.3 AReviewofInvestorPerceptions&theValueoftheSDGFramework
In2016,ShareActiontogetherwiththePRIandBaringFoundationreleasedthefindingsofasurveyamong52institutional
investorsrelatedtotheSDGs(Ivanova&Mountford,2016).Thereportstartedbynotingthatjustover60percentofthe
respondents(withanAUMof$5.9trillion)believedthatincludingtheSDGsintheirinvestmentdecisionsandpracticesdidnot
conflictwiththeirfiduciaryduty,apositiveprogressionfromhistoricalbarrierstoimpact–andhypothetically,SDG-investing.
DespitearelativelypositivepictureemergingfromtheShareActionsurvey
however,thereisaneedforsomecaution.TheSDGSarenotyetconsidered
criticalbyafairshareoftheinvestorssurveyed.Thisisconfirmedbyour
qualitativeresearch.Investorsnotethatimpactreportingisrarelyaskedby
investorsandstruggletoseetheSDGsandtheunderpinningframeworkas
ausefulinputtoinvestmentdecisions.TheywarnthattheSDGswerenot
developedasaninvestorframework,yetarefocusedonachieving
developmentoutcomes,flaggingthatsignificanteffortisdeemednecessarybeforetheframeworkcanserveasareliable,
material,anduniversalsetofstandardsfortheinvestorcommunity.Seealso(SDGIDataWorkingGroup(NL),2016).Related,
criticsnotedthehighnumberofgoals,sub-goals,andindicatorstheframeworkproposes,expressingfearthattheframework
wouldonlyaddtothe‘alphabetsoup’ofexistingstandards.Especiallythoseinvestorswithresponsibleinvestingportfoliosand
evaluationframeworksalreadyinplace,flaggedthecomplexityofintegratingyetanotherframeworkandstandards.
Despitetheseconcerns,themajorityofinterviewees,whenprobed,welcomedthe2030Agendaasavaluablecontributionto
thespace.TheyflaggedtheroletheSDGscanplayincreatingasenseofurgencysurroundingthetopicofsustainabilityin
capitalmarkets.OneinvestorremarkedthatbyreviewinginvestmentsagainsttheSDGs,boththeirpositiveandnegative
impactssurfaced,whichhelpedhisteamtoraiseawarenessofandconsiderationforthesustainabilityoftheirinvestments.
Separately,intervieweessuggestedthattheframeworkwilladdcredibility,addingthatcurrentstrategiesandmandates
formulatedundertheRIumbrellaattimessuggest(rightlyorwrongly)beingsubjectiveandarbitrary.ThefactthattheSDGs
weresignedoffbygloballeadersandwerederivedfromconcretesocietalneedscanprovideresolve.Furthermore,despite
previouslymentionedconcerns,theSDGsandtheassociatedframeworkareseentoofferalineofsightforestablishing
universaldevelopmentstandardsandperformancemeasures,enhancingmarkettransparencyandaccountability.Andfinally,
“Icanseehowideologicallyitishelpful,butat
theendoftheday,veryfewinvestorsaskabout
impactmetricstoday.Itismoreamatterofthe
sizeoftheinvestmentandthefinancialreturns
thatareinvolved,sotheframeworkisnice,but
definitelynotneededformetodobusiness.”-
Assetmanager
28
“Sustainabledevelopmentisaneconomicnecessity.
TheSDGsaddressrisksthatthreatenourabilityto
meetourliabilitiesaspensionfunds.Theyalso
presenttheopportunitytogeneratethereturnsthat
paythepensionsofthepeoplewhoseassetswe
wereentrusted.”-PensionFund,NorthAmerica
investorsemphasizedtheSDGframeworkasacredibleframeofreferenceacrossactors,emphasizingtheroleitcanplayin
increasingcollaborationandco-investmentbetweenparties,whetherpublic,privateornon-governmental.
Asitrelatestoareaswhereinvestorsseeopportunitiestoday,the
ShareActionsurveyofferssomeinsight.WhenaskedwhichSDGsthey
perceivedasbeingbestsituatedtohelpinmeetingtheirinvestment
objectives,asimilarpictureemergedtotheearliermadeassessment:
TopfourSDGsincludedinfrastructure(goal9),economicgrowth(goal
8),tacklingclimatechange(goal13)andsustainableenergy(goal7).17
Insummary,theSDGImarketopportunityisgaininginrecognition,yetacriticalchallengeremainstocapturethevaluethatis
expectedinthelong-termintoday’smarkets.WeshallreturntothisquestioninsubsequentChapters.Hereweincludethe
assessmentoftheB&SDCthatthepricingofexternalitiesintoday’smarketsappearstobeafundamentaldrivertoSDGI
success.
17IntheAnnexofthisreportanoverviewisreproducedoftheSGDswherebytheinstitutionalinvestorssurveyedindicatedtowhatextenttherewasagoodfitwiththeirinvestmentobjectives.
29
3 DRIVERS&BARRIERSTOSDGINVESTING
PreviouschaptersshowedthatSDGIhastakenoffinrecentyears,yetthatitssizeremainsmodest,andperhapsmore
importantly,thattheextenttowhichpositiveSDGand/ordevelopmentoutcomesislimited.ForSDGItoreachitsrequired
scale–asstipulatedbytheAddisAgenda,barriersthatinhibitthisgrowthneedtobeaddressedanddriverstoSDGIreinforced.
Numerousstudieswereconductedregardingtheprevalentbarrierstointegratingsustainabilityrelatedfactorsinone’s
investmentdecisions.Whiletherelevanceofeachbarrierwillvary,researchshowsthattheirnaturetendstobesimilaracross
investorsegments,assetstrategies,andgeographies.18
Afrequentlyusedcategorizationofsuchbarriers(SeeFigure3-1)distinguishesbetweenmultiple‘marketelements’thosethat
relateto(A)thesupplyofinvestmentcapital,totheextenttowhich(B)demandexists,totheeffectivenessandefficiencyof
(C)intermediaries/intermediation,and(D)cross-cuttingorinfrastructuralbarrierscapturingmarket-levelfactorsthatplaya
dominantroleacrosseachofthepreviouslymentionedbarriers.
Figure3-1 Four‘MarketElements’19toSDGInvesting
Supplysignifiestowhatextentcapitalisavailableforinvestmentopportunities,specifically,theextenttowhichcapitalis
availabletopositivelycontributetotheSDGs.Thissupplyofcapitalwillbelookingforprojects,goods,services,orenterprises
toinvestin.Theextenttowhichdemandexistsforcapitalfrominvestmentopportunitiesthatgeneratepositivesocietal
returnsisthereforedescribedasthedemandsideofthemarket.Toensurethatcapitalcanflowtowardsinvestment
opportunitiesthatmatchtheircriteria,intermediation–i.e.,efficientandeffectivechannelsandentitiesthatconnectthedots
andalignsupplyanddemand–isneeded.Thismightbethroughdirectlinkingoftwo(introducingcapitalownertocapital
seeker)butmightalsobeinanindirectwayofchangesinregulationmakingiteasierforthetwotofindeachother.Andfinally,
afourthmarketelementisaddedwhichcapturesinfrastructuralfactorsthatplayarolethatcutacrosspreviouslyidentified
marketelements,yetarecriticaltoestablishstrongfinancialsystemsandscaleSDGI.
18E.g.,InLCDsmostofthefinancingneedforachievingtheSDGswillcomeviatherouteofofficialdevelopmentassistanceratherthantheprivatesector.(Hurley&Voituriez,2016)19Theterm‘marketelement’wasusedbytheUKNationalAdvisoryBoardtotheG8SocialImpactInvestingTaskforce.Thisreportrecognized3marketelements,supply,intermediary,anddemand,whichwascomplementedbyafourthelementinthisreport.(UKNationalAdvisoryBoardSIIT,2014)
SUPPLY INTERMEDIATION DEMAND
CROSS-CUTTING/INFRASTRUCTURE
FlowofCapital
DevelopmentOutcomes&SDGimpact
30
Intheir2016publication,IvanovaandMountfordaskedtheirsampleofinstitutionalinvestorstoscoreelevenhypothesized
barrierstoSDGI.20Amongthosesurveyedalackofrelevantdataisatthetopofthelistwithmorethan60percentcitingthisas
asignificantbarrier.Thesecondbarrierinvolvedthewide-rangingnatureoftheSDGs,whichpresumablymakesthe
incorporationoftheSDGsmorechallenging.21SeeFigure3-2foranoverview.Listedbarriersweremappedagainstrelevant
marketelementsforreference.
Figure3-2 BarrierstoSDGInvestingAmongInstitutionalInvestors(2016)
Legend:(S)Supply,(D)Demand,(I)Intermediation,(O)Overarching,infrastructuralsideofthemarket
Source:Ivanova&Mountford(2016)/C-Changeadaptation
Apartfromthiswork,othernoteworthyresearcheffortsonthebarrierstoSDGIincludetwosurveysamongself-defined
impactinvestors,i.e.a2016ImpactInvestorSurvey,2015byUNCTAD22,aswellasregionalsurveyssuchasBridgesVentures’
2014reviewofhurdlestoimpactinvestinginAfrica.Manifestedbarriersweresimilarinnatureacrossregions.
Researcheffortstodate,combinedwithourqualitativeinterviewshaveresultedintwentybarrierstoinvestment,organized
bymarketelement.Thisoverview,capturedinTable3-1,servesasaguidingframeworkfortheremainderofthisreport.
Additionaldetailwitheachofthebarriersaswellasillustrativeinvestorquotesareaddedthroughout.
20Thesurveywasconductedamong64signatoriesofthePRI(assetownersandassetmanagers)21Notethatthiswasalsomentionedasanadvantagebysomeinterviewees.Furtheranalysisofthisthememighthelpinuncoveringwhytheseopposingoutcomesoccur.Inallprobability,thedegreetowhichaninvestorisalreadyactiveinfieldsrelatedtotheSDGswillhaveasignificantimpact–alsothedegreeofknowledgeabouttheSDGsandhowtheycanbeappliedwillbeplayanimportantroleinthis.22ImpactInvestingSurvey(GIIN,2016);ActionPlanforPrivateInvestmentintheSDGs(UNCTAD,2015)
(S)
(O)
(D)
(S)
(I)
(S)
(S)
(S)
(D)
(D)
(S)
31
Table3-1 FrequentlyMentionedBarrierstoInvestwithImpact
OVERARCHING,CROSS-CUTTINGBARRIERS
O1–LackofawarenesswiththeSDGsand/orwiththeneed(andurgencyof)SDGinvestingO2–Lackofacommonlanguageforinvestingwithimpact,includingalackofanimpacttaxonomyO3–Lackofmarketstandards,includinginsufficientuptakeofexternalitiesindecision-makingO4–Lackofmarketdataoninvestments’financial/impact/riskperformanceO5–Regulatorybarrierstoinvestwithimpact,includingfiduciaryduty,prevalentrisk/investmentmodelsO6–Insufficientcapabilitiesamonginvestmentprofessionals,incl.alackofprojectstructuringexpertiseO7–Limitedlearning,innovation,andexperimentation
SUPPLYSIDEBARRIERS
S1–LimitedcapitalthatisevaluatedfortheirnegativeandpositiveimpactcontributionsS2–LackofavailableriskcapitaltocrowdininvestmentS3–Misalignedrisk/investmentmodelsthatunderpininvestmentdecisionsS4–Lackofincentivesforassetmanagersand/orownerstoinvestwithimpactS5–Lackofappropriateinvestmentinstrumentsand/orproducts,includingachievingliquidity
INTERMEDIATIONBARRIERS
I1–Lackofasharedagenda,collaboration,andintegratedfinancinganddeliveryacrossactorsI2–Lackofeffectiveintermediaries/inabilitytoalignsourcesandusesofcapitalI3–Lackofsystemsandplatformstofacilitateandbrokerdeal-making,includingexchanges
DEMANDSIDEBARRIERS
D1–Limitedinherentinvestabilityofimpactareas/individualSDGsD2–Insufficientabilitytoabsorbcapitalgivenscale/levelofmaturityofbusinessesD3–Disproportionatecountryand/ormarketlevelrisk,includingprevalententrybarriersD4–Lackofconsumer/enduserinsighttofacilitaterapidscalingandimpactsuccessD5–Limitedavailablescaling‘power’andsupporttofacilitatematurationofSDGImarkets
Source:Interviews,DeskResearch,C-ChangeAnalysis
32
3.1 Overarching,Cross-CuttingBarriers
Establishingstrongandsustainablefinancialsystemsrequiresallmarketelementsandactorstocometogether.Marketvalues,
insight,regulationsplayasignificantroleinaccelerating–orconversely,inhibiting–effectivenessandscale.Thiscross-cutting
setofbarriershighlightsuchcross-cuttingbarriersforbuildingthrivingSDGImarkets.
(O1)LackofawarenesswiththeSDGsand/orwiththeneed(andurgencyof)SDGinvesting:
MultiplesurveyscitehighawarenessoftheSDGsandcomparedtotheMDGs,
theSDGsreceivedconsiderablymorepresscoverage(SeeBox3-1).
Notwithstanding,intervieweessignaledlimitedawarenesswiththeSDG
framework,letalonewiththeinvestmentpossibilitiesthatareassociatedwith
them.Thisistrueamonginstitutionalinvestors,yetevenmoresoamongretail
investorsorthegeneralpublic.Notsurprisingly,thisawarenessgapisevenmore
apparentoutsideofdevelopedmarkets.Related,theurgencyofbuilding
sustainablefinancialsystemandtoadvanceSDGIisonlybeginningtobe
recognized,while‘SDGI’aremainsniche.
Box3-1 SDGUptakeToday:HowPopularAretheSDGs?MeasuringtheacceptanceoftheSDGagendabythegeneralpublicasataskwroughtwithdifficulties.Giventheintrinsic
importanceoftheSDGagendaandtheneedforthebuy-inofamultitudeofstakeholders,determiningtowhatextentthe
SDGshavelandedinthepublicdomainisofimportance.IntheirpreliminaryanalysisbyMcArthur&Zhang(2015)onthe
publicdiscussionoftheMDGs,theauthorsnotedthatthe“SDGswillrequiremoreintensifiedpublicandacademicdebates
thantheMDGs,sincetheyentailmorecomplexity.”Althoughitwasstillearlydaystheiranalysisindicatedthatthe
introductionoftheSDGswasaccompaniedbyaricherdiscoursecomparedtotheSDGs.Inthefigurebelowanupdatedpart
ofthisanalysisispresentedwhichclearlyshowsthattheuptakeoftheSDGsinthepublicdebate(usingthismicro
observation)hasalreadysurpassedtheMDGs.
Numberofarticles/blogsintheNYTimesonMDGsandSDGs(2002-2016)
Source:nytimes.com/C-ChangeAnalysis;Articlescontaining“MillenniumDevelopmentGoals”or“SustainableDevelopmentGoals”
“ManyEuropeaninvestorstalkaboutthe
SDGs,butoutsideoftheregion,peopledon’t
really.”–Institutionalinvestor
“Thereisaninstitutionalfearofbeingtoo
progressiveandanotherfearthatwearenot
doingenough.”–Institutionalinvestor
33
(O2)Lackofacommonlanguageortaxonomyforinvestingwithimpact:
Thenotionofimpactinvestinglacksacoherent,broadlyshareddefinitionwhichhasledtotheemergenceofplethoraof
approacheseachwiththeirowntaxonomy,meaningsanddefinition.(Eurosif,2014,p.23)Havingacommonlanguage–a
factorwhichmanyintervieweesciteasaplusoftheSDGAgenda–doesn’tmeanthatpeoplewilleitherstartusingtheSDGsor
aligntotheframework.Indeed,oneinterviewedassetmanagerremarked:“SDGsarenotpartofourreportingframework.We
areverypragmaticaboutourreporting.[OurLPs]aremoreinterestedingoodstories.Iguesstheyfeelthattheimpactsideis
ingoodhands.”
(O3)Lackofmarketstandards,includinginsufficientuptakeofexternalitiesindecision-making:
AprioritybarriertoSDGIthatwaspreviouslyidentifiedisalackofmarketstandards.Thisincludestheestablishmentof
‘consistent,positiveSDG/ESGfilters’(Kharas&McArthur,2016,p.12)Thepastdecadeshaveseensignificantgrowthin
disclosureofcorporateperformanceonsustainability.Now92percentoftheworld’s250largestcompaniesreporton
sustainability,whileamyriadoffirmsadvancingESGanalysisor‘truecost’solutionshaveemerged(e.g.,EIRS,MSCI,
RobecoSam,Sustainalytics).However,reliable,comparable,anduniversalstandardshavenotemergedasyet(Taskforce,
2013).Asoneintervieweenoted,thelackofacomparable,universalinvestmentstandardsisachallengehowever,asetof
developmentgoalsthatarebroadandnature,andtoocomplextoconcretelyevaluateinvestmentdecisions,createstheriskof
arisein“SDG(I)-washing’.TowhichwasaddedthatthisriskshouldbetopofmindforthoseseekingtoadvancetheSDG
agendathroughinvestment.23Onewaythatwassuggestedaswaytocounterthisistomakepartiesaccountablefortheclaims
theymakeandseetoitthatsomeformoftracking,monitoringandreportingonresultsandimpactsoftheSDGorientated
investmentsareinplace.Inthenextchapter,werevisitthestatusofvariousreportinginitiativesandtheextenttowhichthese
incorporatereferencestotheSDGs.Finally,andrelated,limitedintegrationofenvironmentalandpeoplerelatedexternalities
limittheuptakeofthesefactorsbyinvestors.
(O4)Lackofmarketdataoninvestments’financial/impact/riskperformance:
Reliable,comparablemarketdataisnotaccessibleasthedataisnotavailable.Thestatisticsthatweresharedaboveillustrate
this.Consequently,astudyshowsthatasmanyas82%ofCEOsareunhappywiththeinformationthatisavailabletothemto
comparetheirperformanceversustheirpeers.Secondly,evenwhensuchdataexists,itisnotavailabletothevastmajorityof
investorsandmostimportantlythegeneralpublicorretailinvestors(Business&SustainableDevelopmentCommission,2017,
p.71).Althougheveryinvestmentpresentationhighlightstheclausethatpastresultsarenoguaranteeforfutureresults,these
pastresultsareoftenacrucialingredientfortheinvestmentdecisiononhowtomoveforward.Pastperformancewillhelp
investorsmakebetterjudgementsabouttherisk/returnprofileofaparticularinvestment.Likewise,forSDGIthereisaneed
forhistoricaldatatomakedecisionsaboutthepossibleimpactaswellastherisk-returnprofileoftheirinvestments.
23Theterm“SDG-washing”alludestothenotionofwhitewashingandthemorerecentincarnationof“greenwashing”-apracticewherebyacompanyactstobemoresustainableor“green”thantheyare;
34
(O5)Regulatorybarrierstoinvestwithimpact,incl.Fiduciaryduty&prevalentriskmodels:
“Moresustainableregulationswouldreducesystemic,financialrisk”(Business&SustainableDevelopmentCommission,2017,
p.79).Yet,currentinternationalrulesandregulationsforfinancialinstitutions,onthewholearenotdesignedtooptimizefor
sustainabilityfactorsorexternalities,or–inrealityorfollowinginvestorperceptions,constraining24.Forexample,"BaselIII"–
i.e.,aregulatoryframeworkdevelopedbytheBaselCommitteeonBankingSupervisionforthebankingsector,orSolvencyII,
whichoutlinestheparametersbywhichinsurancecompaniesinEuropearetobeassessed,constraininvestors’exposureto
emergingmarketsandsetliquidityrequirements.GiventhatSDGinvestments–andparticularlysustainableandimpact
investments–oftenrequirelongerinvestmenthorizonsandextendacrossborders,suchagreementscanbehighly
constraining.Similarly,regulationthatbinds(large)financialinstitutionstoaparticularwayofoperating,involvesthenotionof
thefiduciarydutyofinvestors.Thisislegislationthatlimitsinvestorsinthewaytheyinvest,forinstancebyindicationthatonly
financialreturncanplayaroleintheinvestmentdecision.Forexample,USfoundationsforalongtimewererestrictedinusing
theircapitalforinvestmentproducts.
(O6)Insufficientcapabilitiesamonginvestmentprofessionals:
SDGImarketscanonlybecomemainstream,ifallactorsacrosstheinvestmentvalue
chainhavethecapabilitiestheyneedtoplaytheirrole.Forexample,assetownersand
managers,arecapableofintegratingsustainabilityrelatedfactorsintheirdue
diligence.Similarly,asnotedearlier,giventhatthe2030Agendarequiresfar-reaching
collaborationbetweensectorsaswellasfinancingstructuresthatcrowdininvestorswithdifferentrisk-return-impactprofiles,
investmentprofessionalsneedawholenewskillsettosucceed.Alackofknowledgeonthemodusoperandiofthistype
financingisitselfabarriertoablendingofcapitalsources,andsecuritization–twoingredientstoSDGIsuccess.Clark,Emerson,
andThornleyrefertothisintheir2014publication,TheImpactInvestor:LessonsinLeadership&StrategyforCollaborative
Capitalism,astheneedfora‘multilingualorblendedskillset’.
(O7)Limitedlearning,innovation,andexperimentation:
OneofkeychallengesinSDGIisthatthereismuchnewgroundthatneedstobecovered.Significantresourcesareneededto
experimentwithnewsolutions,newbusinessmodels,andpreviouslynon-existingmarkets(Koh,2012).Afrequently
mentionedbarriertolearningandinnovationisalackofinsighttosuchmodels,whiletechnologiesthatenabletheexchange
ofknowledgeandcollaborationopportunitiesareexpectedtoprovideresolve.Separately,investmentinthedevelopmentand
scalingofsuchsolutionsiscritical,andalthoughincreasinglyhappening,e.g.,asdonewiththelaunchoftheVaccineAlliance,
GAVI,neededmore.
3.2 SupplySideBarriers
ThesearebarriersassociatedwiththelimitflowtowardsandprovisionofcapitalforSDGinvesting,aswellasincreasingthe
‘materiality’orrelevanceofsustainabilityfactors.Barriersareespeciallyrelevantforassetownersandassetmanagers.
24AreviewofregulatorybarriersinTheNetherlandsshowedthatthemajorityoftheperceivedregulatorybarriersamonginstitutionalinvestorswereinfactnotimposed,yetrelatedtointernalinvestormandates((C-ChangeandDutchSDGChartersignatories,2016)
“Scalingimpactand/orSDGinvestment
takestime,andweneedtotakethe
teamtobuildthesemarkets.”–Asset
manager
35
(S1)Limitedcapitalthatisevaluatedfortheirnegativeandpositiveimpactcontributions:
TheSDGImarketisgrowingyetminorcomparedtheentiretyofthecapitalmarkets.Furthermore,whenthenumbersare
contrastedwiththevariousestimatesoftheannualsumsthatcouldbeabsorbedbytheSDGagendaitsscaleismarginal.
Especiallywithasignificantintergenerationalwealthtransferemerging,gettingtoapointwhereallportfoliosare,andcanbe,
evaluatedfortheirnegativeassocialandenvironmentalreturnsiskey.AswillbediscussedfurtherinthenextChapter,greater
integrationofenvironmentalandsocialfactorsincreditratings,ortherolloutofsustainabilityleaguetablestoinvestors
(B&SDC,2017)mayofferresolve.
(S2)Misalignedrisk/investmentmodelsthatunderpininvestmentdecisions:
Related,typicalriskmodelsamonginvestorshavestrictrestrictionsrelatedtothe
liquidity,size,andemergingmarketexposureoftheirinvestments.Whileoften
forgoodreason,constrainingriskmodelsareasignificantbarriertoensuring
capitalflowstowardssustainability.ManySDGIopportunitiesaresmallinsize,or
havelongcapitaloutlaysandthereturns.Althoughcompetitive,theytakea
longerperiodtocometofruition(e.g.infrastructureprojects).Thismeansthatalotofcapitalthatisbeingsteeredbythe
aforementionedmodelswilllesslikelybecomeinvolvedinSDGI(alsotiesinwiththeregulatoryissuesnotedbelowinO5)
(S3)Lackofavailableriskcapitaltocrowdininvestment:
Assignaledbymanyleadingreportsandagendasonfinancingthe2030Agenda,
havingaccesstoriskcapitalisaprimarydriverforcrowdinginor‘catalyzing’
investmentcapital(Kharas,2016;B&SC,2017).Thiscapitaliscriticalforearlystage
financing,tocoveroffrisksthatstandinthewayofSDGIsuchaspoliticalorcurrency
risks.Beyondtheavailabilityofcapital,abarrierthatemergedinareviewamong
institutionalinvestorsinTheNetherlandsshowedthatmanystruggledtoidentifyrelevantfacilitiesofthenational
government,whileconversely,thesefacilitiesstruggledtoachieveuptake.Suchdisconnectsarefurtherunpackedinthe
section“I”,Intermediation.
(S4)Lackofincentivesforassetmanagersand/orownerstoinvestwithimpact:
InsofarthatSDGIisanewformofinvestingitrequiresaneffortonthepartofthe
assetmanagersandownerstogoaboutdifferentlyintheirinvestmentstrategyand
practices.Iftherearenoincentivesorarediscouragedtoconsideratypicaldealsor
adjusttheirmethods,thisformsabarriertothesupplyofcapitalforSDGI.Thisbarrier
becameapparentinsideinstitutionsbutalsobetweenassetownersandasset
managers,wherebothwouldneedtoadjustand/orpushforanewwayofworkingto
includesustainabilityfactorsand/ortheSDGsintheirinvestmentstrategyandassociatedreportingrequirements.Similarly,
duringa2017CGDEVpanel,PhilippeLeHouérou,CEOattheInternationalFinanceCorporation(IFC),confirmedthat–evenfor
investorswithanexplicitmandatetoachievedevelopmentoutcomesthroughtheirinvestments,tensionsexistbetweenthis
mandateandprevailingincentivesystemsinsidetheorganization.(Morris,2017)
“Wecouldstartusing[theSDGs]but
aren’tatthemoment–Iguessthat
alsohastodowithwhereyourmoney
originatesfrom.Wedon’thaveany
governmentmoneybutforthosewho
doitseemslikearequirement.”
–AssetManager
“Weneeda‘one-stop-blending-shop’
thatwillallowustoallocateourcapital
leveragingavailablerisk-capitalwhere
itisavailable.Westruggletodothat
today”–Assetowner
“Whenpushcomestoshove,wewilldrag
thoseSDGopportunitiesthroughexactly
thesameprocessasanyotherinvestment.
Ifyoulookharder,webelievethereisno
needtodoanyconcessions.”
–Institutionalinvestor
36
S5)Lackofappropriateinvestmentinstrumentsand/orproducts,includingachievingliquidity:
Barrier(S3)alreadynotedthatthecapitalmarketsharbordifferenttypesofinvestors,eachwiththeirownrisk-return-impact
guidelines.Oneelementthatiscloselyassociatedwiththis,hastodowiththedesiredlevelofliquidity,i.e.,howfastan
investorcansellhis/herstakeinacompanyorprojecttootherinvestors.Thespeedwithwhichaninvestorcansellitsstake
willinfluencetheperceivedriskandhencedesiredreturn.Toillustratethis,whileinlistedequity,liquidityishighwhile,
liquidityininfrastructuralisnormallyverylow,meaningthattheinvestorhasonlylimitedoptionstoselltheirstakeata
competitiveprice.Onewayinwhichtoremedythisisbyintroducingsecuritization,whichwewillreviewfurtherinthenext
Chapter.
3.3 Intermediationbarriers
AkeychallengeinSDGI,regardlessofitssize,istoconnectcapitaltoinvestmentopportunities.Thiscanincludeprojects,
products,goods,andenterprises.Manyinvestorsstruggletoconnectwiththerightpartiesthatareseekingcapital,while
interestingly–manyofthoseseekingcapitalindicatestrugglingtofindinvestors.Thebarrierslistedinthissectionare
associatedwiththischallenge.
(I1)Lackofasharedagenda,poolingofresources&collaboration:
The2030Agendaoffersaglobalstrategyforachievingasustainable
future.Yet,despiteamushroomingofinitiatives,coalitions,and
platforms,gettingtoconcreteactionSDGIactionagendas–atalocal,
regional,andgloballevel,andacrossoutcomeareasisproving
complex.Findingwaystogettosharedactionagendasandtopool
resourcesmoreefficientlyandeffectivelyismentionedbymultiple
intervieweesasacriticalingredienttoSDGIsuccess.
(I2)Lackofeffectiveintermediaries/inabilitytoalignsourcesandusesofcapital:
Manyassetownersmakeuseofconsultantstohelpthemselectinvestmentmanagerstomanagetheirassets.Forthegrowth
ofSDGIitisthereforeofimportancethattheseadvisorstotheassetownersareawareandareinclinedtopresentSDGIrelated
options.Arealityhoweveristhatveryfewintermediariescanoffersuchservicesand/orhavethepipelinetobeableto
connectthedemandforcapitaltothoseseekingtoinvest.Arelatedbarrieristhatfewintermediariestodayhaveexperience
buildingportfoliosthatconsiderSDGrelatedfactorsrightalongsidetheirfinancialconsiderations,andthatwhentheydo,the
marginsormanagementfeeswhichtheyarecanchargedonotcovertheircosts.Arelatedbarrier–orsomewouldargue,
opportunity–involvestheabsenceofregionalordomesticdevelopmentfinanceinstitutions,financialinstitutions,and
corporationsinfacilitatingSDGI.Aconcertedefforttotrulyleveragelocalfunds,deliverycapacity,insight,andexpertise,is
consideredkeytobuildingthrivingSDGImarkets.
(I3)Lackofsystemsandplatformstofacilitateandbrokerdeal-making,includingExchanges:
AsalreadynotedthefactthatmanySDGIopportunitiesareoftenilliquidformsabarrierforSDGIinitself.Similarly,andas
notedabove,manyinterestedinvestors–alsoataretaillevel–struggletofindSDGIopportunities.Onlineplatformsand/ora
portalwheresuppliersofcapitalcanfindsufficient,highqualityinvestmentopportunitiesareemerging,asexhibitedbythe
“TheSDGsaremoreofaphilosophicalframework
thatmakesitpossibletobuildbridgesbetween
sectors.Asanevaluationframework,onecanargue
thatitisjustanotherframeworkthatisaddingtothe
fragmentationandcomplexityofthespace,and
definitelynottheanswertoallquestionsatthis
point.”–Institutionalinvestor
37
numerousSocialStockExchangesthathaveemergedglobal.Yet–mostinvestorsargued,currentintermediaryplatformsare
nottheresufficiently.Meanwhile,theopportunitytoco-investwithlargeinvestorsand/orcorporationsisnotself-evident(See
alsoI1)whichlimitsmarketgrowth.Related,somehavearguedtheincentivesystemsofDFIsdonotencouragesharingof
pipelineopportunities,insightsthattheyarguewouldunlockconsiderabledealflow.
3.4 Demandsidebarriers
TheabsorptivecapacityofSDGImarketsmanyhavearguedisnotefficient,especiallynotatthescale,size,andwiththerisk-
returnprofilethatisrequiredforinstitutionalinvestorstocomein.Findinganddeterminingnewpathstoincreasingthe
absorptivecapacityoftheSDGImarketismentionedbymanyasaprerequisitetoSDGIsuccess.
(D1)Limitedinherentinvestabilityofimpactareas/individualSDGs:
InthepreviousChapter,theinherentinvestabilityofthe2030AgendaandtheSDGswasreviewed.Notallofthegoalsare
easilytranslatedintobusinesscasesletalonecompellingandcompetitiveinvestmentcases.Whiletoahighextenta‘fixed
variable’,concertedeffortstomaximizethe‘risk-return-impact’frontierinallsettingsandallSDGswillbeimportanttoleave
noSDGbehindandrealizealldimensionsoftheSDGAgenda.Enablingbroad-basedknowledgesharingandinnovation(barrier
O7)ishighlylinkedtothisbarrier.
(D2)Insufficientscale/levelofmaturityofbusinesses:
AnoftenmentionedbarriertomainstreamingimpactandSDGinvesting,involves
ashortageofbusinessesthatoperateatscale.Thisbarrierwasreinforcedbyour
interviewees.MultipleSDGIorientatedinvestorsindicatestrugglingtodevelopa
strongpipelineoffundableprojects.Thischallengeappearsparticularlyacute
amonginstitutionalinvestorsthatrequiremarket-ratereturnsontheirinvestments,andtypicallyhavemulti-millionthreshold
investmentlevels–i.e.,minimumabsoluteinvestmentlevels,alongsidemaximumownershiplevelsinagivenbusiness–
immediatelyrulingoutmanymedium-sizedcorporations.Giventhistension,increasingly,attentionhasshiftedbacktolarge
nationalormultinationalcorporationsandtheirroleinmaximizingthescaleandeffectivenessofSDGI.Examplesareeffortsto
improvethebusinesscaseforsustainability(Business&SustainableDevelopmentCommission,2017),aswellaseffortsto
integrateSDGpositiveinitiativesandsocialventuresintocorporatedeliveryplatformsandsupplychains.Sucheffortshelpto
acceleratetheirpathtoscaleandlowerriskperceptionsassociatedtosuchventures.
(D3)Disproportionatecountryand/ormarketlevelrisk,includingprevalententrybarriers:
Asnotedearlier,halfoftheSDGvaluethatcanbeunlockedaccordingtothe
Business&SustainabilityCommissionresidesindevelopingmarkets.Investments
inthesemarketsareusuallyconfrontedwithahigherinstitutionalriskcompared
toinvestmentsinhighincomecountries.Riskperceptionsaredeterminedbya
rangeoffactors,includingvariationsinqualityandstabilityoftheinstitutions,
prevalenteconomicpolicies(incl.monetaryrequirements),allofwhichcanhaveasignificantinfluenceontheultimatereturn
oninvestment.Effectivelycoveringoffsuchmacroandmeso-levelriskfactorsisacriticalingredienttoSDGIsuccess.Not
surprisingly,theroleofgovernments,IFIs,andDFIscanplayindoingsoisfrequentlymentioned.
“Moneyisawash,butalwaysthesame
storythattheprojectsaren'tthere.”
–Institutionalinvestor
“Inprivatemarkets,itisfinancefirst.
Notimpactfirst.Everyimpact
investmentinprivatemarketsisfinance
firstandaccountingforimpactsecond.”
–Institutionalinvestor
38
(D4)Lackofconsumer/enduserinsighttofacilitaterapidscalingandimpactsuccess:
Consumersareinvestors.Consumersarebuyersofgoodsandservices.Consumersarealsooftentimestheproducersofthese
items.Theyaretherealeconomyinwhichvaluesneedtoshifttoachieveanewnormal.Oneofthekeybottlenecksisthe
speedandintensitybywhichtheend-userorconsumerwillpickuponwhatisoffered.Insomecases,dependingonthetype
ofmarketandgeographythismaybefast.Yet,inmostitwillstandinthewaytoenablearapidscaling.IntheirreportFrom
BlueprinttoScale,theAcumenFundandMonitorGroup(Koh,2012)speakoftheneedtobuild(andinvestin)markets,not
products.ThissentimentisreinforcedintheCGDEVpanelwhichwasheldinFebruary2017byanumberofdevelopment
experts(Morris,2017).Deepeningone’sunderstandingoftheneeds,behaviors,andperceptionsofthoselivingatthe‘Baseof
thePyramid’iscriticalinachievingtheinclusivegrowththatthe2030Agendacallsfor.
(D5)Limitedavailablescaling‘power’andsupporttofacilitatematurationofSDGImarkets:
ToeffectivelyscalesocialenterprisesandotherSDGpositiveinterventionsrequireasystematicapproach,time,andresources.
Effectiveacceleratorswithprovenmodelsfordrivingscaleareoftenlacking,andgreaterinsightisneededtouncoverwhatit
takestoeffectivelyscalehigh-impactsolutions,includingforexampletheuseofthosedeliveryplatformsandsupplychainsof
corporationsthatalreadyoperateatscale(SeealsobarrierD2).
ThenextChapterfocusesontheinstrumentsavailabletothepublicsectortomitigatetheabovementionedbarriersand
therebymaximizeSDGinvesting.
39
4 PUBLICSECTORINSTRUMENTSFORMAXIMIZINGSDGI
AsnotedinChapter3,therearevariousbarrierstoincreasingSDGIsuccess.Inthischapter,leadingpublicsectormechanisms
foracceleratingandenablingSDGinvestmentarereviewed.TheChapterseekstoprovideareferencedocumentfor
governmentsastheydeterminetheirstrategiesformaximizingSDGIintheirdomainsoffocus.Interviewinsightsaswellas
inventoriesfromarangeofpublicationsinformedthesetables.
BuildingonJacksonandAssociates(2012)distinctionbetweentheapplicationofinfluenceanddirectparticipation,theauthors
recognizefivedifferentrolesthatgovernmententitiescanplay(seeFigure4-1).Whilenotsystematicallymappedagainsteach
ofthemechanismsthatarelistedinourreviewofpossiblemechanisms,weaddedthisdistinctiontoflagtherangeofroles
thatgovernmentscan–andareincreasinglyaskedto–play.
Figure4-1FiveLikelyRolesofGovernmentInstitutions&Actors
Source:C-ChangeAnalysis,2017
Insubsequentsectionsanoverviewofrelevantpublicsectormechanismsareofferedtoaddresssupply,demand,
intermediation,andinfrastructurerelatedbarriers.TheframeworkofferedbyE.T.JacksonandAssociatesLtd.(2012)intheir
reviewofpublicpolicymechanismsforincreasingimpactinvestingwaslooselyappliedtocategorizethevariousinstruments.
See
Source:C-ChangeAnalysis,2017
B:BUYER&CAPITALPROVIDERFinancedevelopmentneeds,incl.procurement,blending
R:REGULATORProvidealevelplayingfield,
andensuringmarketintegrity
P:POLICYMAKEREncourage/AdvanceSDGIthroughpolicies
D:DELIVERYDeliversocialgoods
throughpublicinstitutitions
O:ORCHESTRATORAdvanceagendas&roadmaps
40
Figure4-2.NotablesourcesforthecompilationofpublicsectormechanismincludeBridgesVentures,AVCA(2014);(SDGI
Signatories/C-Change(2016);DFI,OxfamInternational(2015);Hurley&Voituriez(2016);Thornley,Wood,Grace,&Sullivant
(2011);UNEPInquiry(2016);UNDP(2016);UNCTAD(2015).Foreachmechanism,thelikelyrolegovernmententitieswilltake,
illustrativeexamples,thelevelofresourcesandexpertisethatisestimatedtoberequiredforadoption,andanindicationof
the‘timetoimpact’wereadded.Throughoutproven,particularlyinnovative,and/orboldmechanismsforacceleratingSDGI
thatsurfacedfromourresearchwereadded.
41
Figure4-2 VisualizationofAvailablePublicSectorMechanismbyMarketElement
Source:E.T.JacksonandAssociates(2012)fortheRockefellerFoundation;AdaptedbyC-Changeforthisresearch
Afewconsiderationsneedtobekeptinmindwiththeupcomingsections:
• Theapplicabilityandeffectivenessofthelistedinstrumentsdependsonthecontextinwhichtheyareappliedandare
strategicallyappliedandadoptedaspartofanintegratedportfolioofinterventions;
• Whetheraninstrumentisappropriatedependsontheextenttowhichacertainbarrierexistsinthegeographyordomain
offocus,theirlevelofsophisticationandthecapitalthatisavailabletoengage;
• Theoverviewispurelymeantasanindicativeoverviewofmechanismsandshouldnotbeseenasacomprehensivetoolkit
forpublicsectorintervention;
• Recognizingthatinstrumentsoftenhelptoaddressmultiplebarriersatanygiventime,referenceisgiventomultiple
barriersthatcutacrossthesupply/demand/intermediationspectrum;
• Inrecognitionofthefactthatinstrumentsrequirevaryinglevelofcapitaland/orimplementationcapacity,thesecondhalf
oftheassessmentisaddedtogivereadersafirstsenseoftheirabilitytoadoptaninstrumentwithsuccess.Scoreswere
assignedbasedonexpertinterviewsanddeskresearch;
• Recognizingthatthetimehorizonbywhichtheeffectofpolicyinstrumentscanbeobserved,aninstruments’relative‘time
toimpact’isestimatedusingexpertinterviewsanddeskresearch;
Importantly,whenaskedabouttheoptimallevelofinvolvementof(semi-)publicinstitutionsintervieweesperspectivesvaried
andwereattimesappearedtoaligntointerviewees’politicalleanings.Alsoperspectivesontherightbalancebetweentheuse
of‘sticks’(taxation,compliance,etc.)and‘carrots’(provisionofriskcapital,awarenessraising,etc.)differed.Somesuggested
thatideally(semi-)publicinstitutionshouldhelpinmanagingmacroandmeso-levelrisks(e.g.countryrisk)butleavethe
projectrisktotheprivateinvestors.OthersarguedthatIFI’sandDFI’sshouldrefocustheiractivitiesas“SomeDFIsareactingas
normalinvestorsandaredisruptingthemarket.”
SUPPLY INTERMEDIATION DEMAND
GovernmentInfluence GovernmentParticipation
Co-Investment&RiskMitigation
InvestmentRules&Requirements
Pricing,Procurement&Regulation
Intermediation&Securitization
DeliveringLarge-ScalePrograms
EnablingCorporateStructures
CROSS-CUTTING/INFRASTRUCTURE
SDG(I)Campaigning,Orchestration&Collaboration
Measurement&Reporting
CapacityBuilding
42
4.1 MechanismsforAddressingOverarching,Cross-cuttingBarrierstoSDGI
Inourinterviews,expertsandinvestorsflaggedtheresponsibilitygovernmentinstitutionsasmarketbuilders,shepherdsandorchestratorsofthewider2030agenda.
Mechanismsthatwerementionedandthatarecross-cuttinginnatureinvolvedwaysinwhichgovernmentscouldraiseawarenesssurroundingtheSDG(I);contributeto
theestablishmentofan‘enablingdataenvironment’;andensuremarkettransparencyandaccountability.Worthnotingisthatespeciallyasitrelatestoensuringmarket
accountability,coveringoffthenegativeeffectsofdoingbusiness(e.g.,impactssuchaswaste,humanslavery,CO2emissions)wereoftenmentionedafirstresponsibility
forthepublicsector.Table4-1describesthesemechanismsfurther,whileBox4-1untilBox4-4describeanumberofinterventionsthatwerementionedasbeing
particularlyeffectiveorinnovative.
Table4-1 PrevalentPublicSectorMechanisms:OVERARCHING
Type Barrier(s) Instruments&IllustrativeExample CapacityRequirement
CapitalRequirement
TimeHorizon
OVERARCHING/CROSS-CUTTING
SDG(I)Campaigning,Orchestration&Collaboration
All–especiallyO1&I1
AwarenessRaising&ANew‘SocialContract’:WhilemultiplestudieshaveappearedsignallingglobalcitizeninterestintheSDGs(PricewaterhouseCoopers,2015;SDGActionCampaignMyWorldSurvey,2016),realityremainsthatfewcitizensarefamiliarwiththeAgenda–letalone,wouldconnecttheirroleasconsumers,professionals,andinvestorstothesustainabilityagenda.Awarenessraisingcampaignsrelatedtotheneedforanew‘socialcontract’(Unilever(2016);B&SC(2017)andtheexistenceandimportanceofthe2030Agenda,suchasthosebyGlobalCitizenandProjectEveryone,aswellas(sub-)nationalcampaignsonthetopicformanimportantbackboneto‘activating’economicactivity.Whilegenerallycitizen-led,governmentresourcescanhelpcatalysesuchaction.ExamplesincludeSDG‘Charter’initiativesacrossEurope,includinginBelgium,TheNetherlands,andItaly.
Med Low Long
All
AgendaSetting&RoadmapInitiatives:Manyexpertsandintervieweescalledfortheneedtoovercomepersistentsilosbetweenactorsandsourcesofcapital,andtheimportanceofconcertedeffortstobuildmarketsandremoveroadblockstoSDGI.AUNEPInquiryfoundover70suchnationalefforts.Brookingscalledforthecreationofnationalsustainablefinancialroadmaps,includingtheestablishmentoftimetablesforimplementingSDGIconsistentlyacrossmarkets.AnexampleSDGIinitiativeinvolvedthelaunchofanationalSDGIagendainTheNetherlandsthatbrought18leadingbanks,insurancefirms,andpensionfunds-collectivelyrepresentingE2,800+inAssetsunderManagement(AuM)-togetheraroundasharedagendaforthefinancialsector,government,andCentralBankalike.AglobaleffortthatisworthnotingisarecentGreenInvestPlatformthatwaslaunchedaspartoftheGermanG20PresidencyinJanuary2017withthegoaltoengagedevelopingcountriesinthemainstreamingandmobilisationofgreenfinance.
Med High Med
43
[O4,O7] Buildingthe‘SDGIBusinessCase”:Whileaglobalmarketforsustainabilityrelatedoutcomesisrapidlyemerging,theunderpinning‘risk-return-impact’datathatisneededtobuildawatertightbusinesscaseisoftennotavailable.Toachieveanecosystemwheresuchdataisconsistentlyavailable,deepandrigorousanalyticalresearchisrequired–anareaofworkinwhichgovernmentfundingandexpertisecanplayaninstrumentalrole.AnillustrativeinitiativeistheBusiness&SustainableDevelopmentCommission,whichpublishedaseminalreportinJanuary2017inwhichitquantifiedtheSDGIopportunityasbeingabletounlockatleastUS$12Trillioninnewmarketvalue.ThisglobalinitiativeincludedcoalitionsarangeofNorthernEuropeangovernments,corporates,andlargefoundations.Regionaland/ornationalchaptersofsucheffortswouldhelpadvancetheevidencebaseforinvestmentsintheSDGs.
Med Med Med
O7 InnovationCenters:AsflaggedinUNEPInquiry’sreport,takingadvantageofnewtechnologies,andexperimentationwithnewproducts,services,andbusinessmodelsiscriticaltoshiftingfinancialsystems.ExampleinitiativesthatcometomindarePrizes(e.g.,XPrize)orotherchallengeswherenewsolutionsaresurfacedandbroughttofruition.Linkingsuchtechnologycentersandinitiativestoexistingareasofcompetitiveadvantagewillbeimportant.
Med High Med
Measurement&Reporting
[O2,O4] Taxonomies&Indicators:TheSDGframeworkoffersaconcretesetofindicatorsthatentitiesacrosssectorscanreferenceandconsiderintheirstrategies,actions,andreportingpractices.Fortheprivatesectortobeabletoadoptsuchmetricshowever,conversionandalignmenttoanalreadyexistingecosystemofindicatorsandstandardsistablestakes.NoteworthytaxonomiesincludethosedevelopedbyGRIaswellastheImpactReporting&InvestmentStandards(IRIS)offeredbytheGlobalImpactInvestingNetwork(GIIN),butalsoexistingdevelopmenttaxonomiesliketheIFC’sDevelopmentOutcomeTrackingSystem(DOTS).Tofacilitatethisprocessofintegration,theWorldBusinessCouncilforSustainableDevelopment(WBCSD)incollaborationwiththeGlobalReportingInitiative(GRI)andUNGlobalCompactdevelopedan“SDGCompass”arepositoryofmetrics,taxonomies,andsystemsthatcompaniesandinvestorscanuse.GovernmentscanplayaroleinadvancingtheemergencefortrackingprogressagainsttheSDGsbyfundingsuchefforts,butalsoinaligningitsowninvestmentsandexpenditurestotheselanguagesystems.
Med High Long
[O2,O3,O4] ReportingStandards&Protocols:ReportingonenvironmentalandsocialperformanceisneededtomonitorprogressintheSDGarea.Theintroductionofreportingstandardsintroducesthenecessaryfocusandharmonizationimprovingthecomparabilityofoutcomes.TheCarbonDisclosureProject(CDP)backedbyinvestors(holding$95trilllioninAssets)hasbeenmotivating(largest500listedcompanies)companiesandmunicipalitiestodisclosetheirenvironmentalimpacts(esp.onwaterandcarbon);TheIntegratedReporting(IR)FrameworkoftheInternationalIntegratedReportingCouncil(IIRC),aprivateinitiativethatsupportsintegratedthinking,decision-makingandactionsthatfocussesonthecreationofvaluebeyondthemereshort-termbyprovidinginsighttotheresourcesandrelationships(’thecapitals’)usedandgeneratedbyanorganization.ISOSocialResponsibilityStandards(incl.ISO26000,ISO20400isaprivateanindependent,non-governmentalinternationalstandardsettingorganization.Early2016,ISOpublishedareportoutliningahighnumberofISOstandardsthatcanbeappliedtotrackcontributionstotheSDGs,specificallymentioningimpactareassuchassustainablecommunitiesandmeasurementofgreenhousegases;Meanwhile,theSustainabilityAccountingStandardsBoard(SASB),includingStandardsfor79industriesin11sectors,hasdevelopedanddisseminatesustainabilityaccountingstandardsthathelppubliccorporationsdisclosematerial,decision-usefulinformationtoinvestors.
High Low Mid
44
[O1,O3,O4,O7]
Ratings,Indices&Benchmarks:Ratingsandbenchmarksformimportantenablersofimpact-baseddecisionmaking.Manybenchmarkshaveemergedoverthelastdecades.AnotableexampleistheCorporateHumanRightsBenchmarkwhichisbackedbyvariousinstitutionalinvestorsandranksthetop100globallylistedcompanieson100criteriaontheirhumanrightspolicy,processandperformance.In2016,thebenchmarkranked100globalcorporatesintheagriculturalproducts,apparel,andextractiveindustrieson100humanrightscriteria.Theinitiativeisco-fundedbymultiplegovernments.WhilenotexplicitlyusingtheSDGsasaframework,thebenchmarkclearlyhitsonasub-setofthesustainabledevelopmentgoals.AnotherexampleinvolvesMSCI’sSustainableImpactDataSets(incl.ACWISustainableImpactIndex,SustainableImpactMetrics,andSustainableImpactSnapshot)areusedbyinstitutionalinvestorstomeasuretheiralignmentwiththeSDGs.MSCIESGResearchgroupedthe17SDGsintofiveactionablethemes:basicneeds,empowerment,climatechange,naturalcapitalandgovernance.Theindexidentifiescompaniesthatderiveatleast50%oftheirrevenuesfromproductsandservicesthataddressenvironmentalandsocialchallengesasdefinedbythethemesoutlinedabove.TheindexexcludescompaniesthatfailtomeetminimumESGstandardsandweightssecuritiesbytheshareofrevenuederivedfromrelevantproductsorservices.Finally,theBCSD(2017)recommendsthecreationoftransparent,consistentleaguetablestoshiftmarketdynamics.
High Mid Short
[O4,O7] SustainableDevelopmentNeedsData:Globally,concertedeffortsareongoingtomapglobalsustainabledevelopmentneeds,bothtoenableachannellingoffundstowardshardpressedareas,butalsotobeabletotrackourprogressagainsttheGoals.TheSDGIndex&DashboardsoftheSustainableDevelopmentSolutionsNetwork(SDSN)&BertelsmannStiftungprovideareportcardfortrackingSDGprogressandensuringaccountabilityacrosstheworld.Thereportshowshowpublicleaderscandeliverontheirpromiseanditurgescountriesnottolosethemomentumforimportantreforms;ThePeople'sReportCardbytheSocialProgressImperative(SPI)utilisestheassessmentandanalyticstoolsoftheSocialProgressIndex.ThereportcardscapturebenchmarkdatathatshowsprogressagainsttheSDGsanditshows(sub-)nationalperformanceagainstbaselinetrendsandchanges.
High Mid Short
[O4,O7] SustainableDevelopmentSpendingData:TheIATIStandards,(incl.~4700datasets)oftheInternationalAidandTransparencyInitiative(IATI)whichisformedby491institutionsbasedin40+countriesaimstohelpImprovethetransparencyofaid,development,andhumanitarianresourcesinordertoincreasetheireffectivenessintacklingpoverty.IATIisavoluntary,multi-stakeholderinitiative.IATIstandardsofferaformatandframework(whichnoincorporatestheSDGs)forpublishingdataondevelopmentcooperationactivities,forusebyallorganizationsindevelopment,includinggovernmentdonors,privatesectororganizations,andnationalandinternationalNGOs;TheTotalOfficialSupportforSustainableDevelopment(TOSSD),incl.RevampofOECD-DACReportingDirectivesoftheOECDfacilitatesthemonitoringoffinancialresources(volumeandtype)thatarespenttosupporttheSDGsacrosssectors.TOSSDcomplementsODAbyincreasingtransparencyandmonitoringimportanttrendsindevelopmentsuchasimpactinvesting,blendedor'catalytic'finance,andtheuseofriskmitigationinstruments.Itultimatelyseekstotriggergreaterprivatesectorinvestmentindevelopment.TheeffortislinkedtoabroadereffortbytheOECDtoexpanditsexistingonlinedevelopmentdatabase-containing20years+ofdevelopmentassistancedata-toincludeprivatesectordevelopmentcontributions.TheAddisAbabaActionAgenda(AAAA)reaffirmedtheOECDDACproposalbycallingforthedevelopmentandoperationalizationofTOSSDinatransparentandinclusivemanner.Themeasureseekstohelpstrengtheneffortstomobilizeadditionalfinancialresourcesfordevelopingcountriestheprivatesector(SDG17.3).
High Mid Short
45
[O1,O6,O7,I1]
RelevantDataPlatforms:TheestablishmentofthefinancialtechnologytosupportacceleratedalignmentoffinancialsystemswiththeSDG/ESGagendaisoftheutmostimportance,yetalsohighlycomplex.RelevantentitiesotherthanlargetechnologyfirmsthatcanplayaroleincludestheGlobalPartnershipforSustainableDevelopmentData(incl.theUNData4SDGsToolbox)waslaunchedwiththemissiontostrengthenglobaldataecosystemstoaddresstheworld’ssustainabledevelopmentefforts.ThePartnershipinvolvesaglobalnetworkofgovernments,internationalorganizations,companies,civilsocietygroups,andstatisticsanddatacommunitiesacrosssectorsandregionsthatcollaborateonadvancingthebestdata,analyticalskills,andideastosolvedataproblemsrelatedtotheSDGswithdisseminationthroughits'Data4SDGsToolbox'.Separately,theUNGlobalPulseisaninitiativeforon-the-grounddatacollectionwiththeexplicitaimtoacceleratediscovery,developmentandscaledadoptionofbigdatainnovationforsustainabledevelopment.TheSustainableStockExchanges(SSE)Initiative(setupbyprivateandinternationalpublicinstitutions,incl.UNCTAD,UNGC,UNPRI,UNEP-FI)exploreshowexchanges,incollaborationwithinvestors,regulators,andcompanies,canenhancecorporatetransparency–andultimatelyperformance–onESG(environmental,socialandcorporategovernance)issuesandencouragesustainableinvestment.
High High Med
[O1,O6,O7] RelevantDataCoalitions:TheFinancialStabilityBoard(FSB)’sTaskforceonClimateRelatedFinancialDisclosurespushesforgreaterenvironmentaldisclosures;MeasureWhatMatters(MWM),setupbyvariousNGOsandResearchinstitutesaimstocontributetodataharmonizationaswellassupportsocialprogressmeasurementanddataaggregationfortheembeddingoftheSDGsbyresearchandconveningdialoguesbetweennationalstatisticalagencies,theprivatesector,civilsociety,(inter)nationalpublicbodies,academiatointegratesustainabilityGoalsintodecisionmaking.Similarly,theSocialImpactInvestingInitiative/ImpactMeasurementExpertGroupworkstowardsaglobalsocialimpactinvesting(SII)reportingframeworkthatwillprovidesocialimpactinvestingevidence,andultimatelyprovidesthetransparencythatisneededtomainstreamSII;whiletheUNPRISDGTaskforcehelpstounderstandtheinvestmentimplicationsofenvironmental,socialandgovernance(ESG)factorsandtosupportitsinternationalnetworkofinvestorsignatoriesinincorporatingthesefactorsintotheirinvestmentandownershipdecisions.PartofthisTaskforce’smandateistocometoreviewtheroletheSDGscanplayinshiftingreportingpractices"fromprocesstooutcomes'.
Low High Long
46
Box4-1:CaseStudy:ADutchSDGInvestingAgenda Box4-2:CaseStudy:GlobalReportingInitiative&theSDGCompass
RecognizingtheneedforgreatercollaborationbetweentheDutchgovernment,
CentralBank,andfinancialsector,acollectiveof18pensionfunds,insurancefirms,
andretailbanksworkedtogethertoidentifyprioritiesforincreasingSDGIincontext
ofDutch‘investmentvaluechains’andareasofcompetitiveadvantage.TheAgenda
waspresentedtotheDutchMinisterforDevelopmentandExecutiveDirectorofthe
CentralBankattheendof2016.
SignatoriesoftheAgendarecognizedfourdominantareasofpriorityforadvancing
SDGIinTheNetherlands:(1)Aneedforaforward-looking‘blending’agenda
betweengovernmentandthesector;(2)Anopportunitytocrowdinretail
investmentcapitaltowardstheSDGs;(3)Theimportanceofanenablingdata
environmenttosupportSDGI;and(4)Aremovalofactualandperceivedregulatory
barrierstoSDGIinconjunctionwiththeCentralBank.
Aglobalfirst,theDutchSDGIAgendawaslaudedasofferingasharedpointof
referenceandstartingpointforconversationinTheNetherlands.Signatoriesflagged
thecapacitythatwascreatedtounpackbarriersandsolutionsbetweensectors,and
the‘honestconversation’thatfollowedasbeingofparticularvalue.�
LearnMore?
www.sdgi-nl.org
TheGlobalReportingInitiativeorGRIseekstohelporganizationswiththeir
reportingonanyESG-relatedissuesand/orcorporateimpactactivities.GRIinvites
companiesthatusetheframeworktosubmittheirdocumentationonline.In2016,
itlaunchedan‘SDGCompass’incollaborationwithUNGlobalCompactandthe
WBCSD,providingguidanceonwaysinwhichbusinessescaninternalizetheSDGsin
corporatestrategiesandreports.Whilenotdesignedforinvestors,theCompassis
expectedtofacilitatetouptakeofSDGsinthecapitalmarkets.
Sinceitslaunchin1997,GRIhasseenalargeincreasedinthenumberof
organizationsusingitsmethodologyforreporting,particularlyinEurope.Closeto
6000companiessubmittedtheirreportin2015.
TohelpfurtherESGandSDGinvesting,GRIhascommittedtocontinuetoengageit
communitystakeholders,andcollectivelyfurtheranevolutionfrom‘processto
outcomes’intheirreportingpractices.Ithasidentifiedcollaborationwith
governmententitiesthatareresponsiblefordeterminingandfurtheringinsightto
privatesectorcontributionstodevelopment/theSDGsasapriority.
LearnMore?
www.globalreporting.org/www.sdgcompass.org
47
Box4-3:CaseStudy:FinancialStabilityBoard’sTaskForceforClimateDisclosure Box4-4:CaseStudy:ChinaGreenCreditGuidelines
Buildingonnearly20yearsofclimatedisclosureandgrowingmainstream
recognitionoftheimportanceofimprovedtransparency,theTaskForcecombines
theauthorityofaleadinginternationalfinancialpolicyinstitutionwitha
compositionofprivatesectorexpertswithamandatetodevelop“voluntary,
consistentclimate-relatedfinancialriskdisclosuresforusebycompaniesin
providinginformationtoinvestors,lenders,insurers,andotherstakeholders.”
LaunchedinDecember2015,theTaskForcemovedquicklytoproduceafirst
reportthatmadeclearthat“enhanceddisclosuresonclimate-relatedrisksthatare
usedbyinvestors,creditors,andunderwriterscanimprovemarketpricingand
transparencyandtherebyreducethepotentialoflarge,abruptcorrectionsinasset
valuesthatcandestabilizefinancialmarkets.”TheTaskForceoutlinedasetof
fundamentalprinciplesforeffectivedisclosure–thatitisrelevant,specific,
complete,clear,balanced,consistentovertime,comparable,reliableandtimely.
Over200responsesweresubmitted,highlightingarangeoftechnical(e.g.
comparability),policy(e.g.inconsistencyofstandards)andbehavioral(e.g.short-
termism)barrierstodisclosure.TheTaskForcewilldeliveritsPhase2reporttothe
FSBandforpublicconsultationlate2016.Recommendationsarevoluntary,but
couldhaveprofoundimplicationsforfinancialandotherregulations.
LearnMore?
www.fsb.org
Inthefaceofurgentenvironmentalchallenges,policyandregulatoryweaknesses
intherealeconomyandlongertermeconomicopportunities,Chinahasseenthe
potentialforembeddingenvironmentalconsiderationsinitsfinancialmarket
development.Initialdevelopmentsfocusedonimprovingtheenvironmental
impactofbanklendingthroughtheGreenCreditGuidelinesoftheChinaBanking
RegulatoryCommission.
In2014ThePeople’sBankofChinaestablishedaGreenFinanceTaskForceco-
convenedwiththeInquiry,todeveloprecommendationsforacomprehensive
programofreformstoenhancemarketinformation,strengthenlegalframeworks,
strengthenfiscalincentivesandinstitutionaldesign.
Someoftheseproposalsarenowbeingfurtherdevelopedunderanexpanded
GreenFinanceCommittee.
China'scentralbank,thePeople’sBankofChina(PBoC),hasco-convenedwiththe
InquiryaGreenFinanceTaskForceinvolvingdozensofofficialsandmarketactors
todrawupproposalsforagreenfinancialsystem.TheInquiryhasalsoworked
withtheInternationalInstituteforSustainableDevelopmentandtheDevelopment
ResearchCentreoftheStateCouncilinresearchworkshopsandastudytourto
bringChineseandinternationalexpertstogether.
LearnMore?
web.unep.org/inquiry
48
4.2 MechanismsforAddressingSupply-relatedBarrierstoSDGI
Asnoted,tomaximizetheflowofcapitaltowardsSDGinvestmentopportunities,assetownersaboveanythingelseneedtoconsiderthesocialand/orenvironmental
impactoftheirinvestmentsrelevanttotheirinvestmentdecisions:(1)Acceptthesefactorsas‘material’factorsintheirdecision-making.Theestablishmentofanenabling
dataenvironment-asoutlinedinthefirstparagraphofthisChapter-wheresuchimpactsaresurfacedisimportant;(2)Aligninvestormandatesandincentivesystems;(3)
EndeavourtoalignSDGproductsandinvestmentopportunitieswithinvestors’risk-financialreturnexpectations,aswellasconstraintsrelatedtotheliquidity,size,and
emergingmarketexposureoftheirinvestments.Publicsectorinterventionsthatwereflaggedmostinourresearchrelatedtowaysinwhichgovernmententitiescanco-
invest,supportcapacitybuildingeffortsamonginvestmentprofessionals,andwaysinwhichgovernmentscouldinfluenceinvestmentdecisionsthroughregulationsor
‘investmentrules’.Box4-5toBox4-6offerillustrations.
Table4-2 PrevalentPublicSectorMechanisms:SUPPLY
Type Barrier(s) Instruments&IllustrativeExample CapacityRequirement
CapitalRequirement
TimeHorizon
SUPPLYDEVELOPMENT
Co-Investment&RiskMitigation
[O6,S1,S2,S4,S5]
De-riskingorBlendingInstruments:Totriggerco-investment,governmentshaveawiderangeofinstrumentsavailabletothemsuchasprovisionofloanguarantees,takingfirstlosspositions,orfundingfeasibilitystudiesofinvestmentopportunitiesthathaveyettoachievescale.Examplesofsuchstructuresareplentiful–e.g.,theEU’sJessicAprogram,whichusesapublic-privatepartnershipfundingmodeltosupportlarge,integrated,sustainableurbandevelopmentprojects.Similarly,inTurkeyinterest-freeloanswereofferedforrenewableenergyproductionandforprojects.IllustrativefacilitiesandinvestmentvehicleswherethisapproachwasappliedaremappedbytheWorldEconomicForum’sBlendingToolkit.Importantly,theBusiness&SustainabilityCommissionannouncedadvancementofaforward-lookingblendingagendaasoneofitsprioritiesinits2017publicationBetterBusiness,BetterWorld.
High High Med
[O3,S1,S4]
VerticallyIntegratedFinancingFacilities&FundofFunds:SignificantriskcapitalbutalsoscaledopportunitiestoinvestwithimpactareneededtomainstreamSDGI.Byrollingoutdedicatedmechanismswhichallowmultiplestakeholders(government,civilsociety,individualsandtheprivatesector)toprovidefundingforpre-specifiedpurposes,includinginlessinvestableSDGs–canhelptounlocksuchcapitalandoffergovernmentswaystotriggerSDGImarketgrowth.NotableexamplesaretheDanish’governmentandpensionclimatefund,andtheDutchClimateInvestor1initiative.
High High Long
[O5,I2,S2,D2]
Pay-for-SuccessStructures:Inrecentyears,significantexperimentationwithso-calledpayforsuccessstructureshastakenplace.Socialimpact(SIBs)–whereusuallygovernmentspayoutonlyifinterventionshavebeenproventobeimpactful.Inaddition,DevelopmentImpactBonds(DIBs)wererolledoutacrossthe
High Med Med
49
world.Governmentshaveplayedhavestoodupas‘payers’,fundersofSIB/DIBexperimentation,sometimesevenasdeliveryorganizations.AccordingtoSocialFinance,aUK-basedorganization,60impactbondsareupandrunningtoday,collectivelyraising$216Mnincapital.ForanoverviewofactiveSIBs/DIBs:http://www.socialfinance.org.uk/database/;FormoreonPayforSuccess:http://www.payforsuccess.org
[O3,S4,D3]
InsuranceProducts:Tocoveroffemergingmarket,political,orcurrencyrisk,arangeofrisk-managementtoolsandinsuranceproductscanbeofvalue.Governments–inparticulargiventheiroftentimessuperiorinsightintotheextenttowhichsuchrisksexist.Asanillustration,theOverseasPrivateInvestmentCorporation(OPIC)intheUnitedStatesprovidescoverageofupto$250millionforprotectionagainstsomeofthecommonrisksassociatedwithdoingbusinessinemergingmarkets.
High High Short
CapacityBuilding
[S1,S2,S4,S5]
Capital&Operationalassistancegrants:Thisinstrumentwouldinvolveamixofco-investmentandcapacitybuilding.AnexampleistheUSSmallBusinessAdministration’snewmarketsVenturecapitalFundprogram,whichcatalyzedthecreationofsixprivatelyoperatedequityfundsforinvestinginsmallcompaniesinlow-incomecommunitiesusingdirectfundingandoperationalassistance.
High High Long
[O1,O2,O6,I1]
IntegrationintoCharteredFinancialAnalysts(CFA)Modules:Anoftenmentionedbarriertoshiftinginvestordecision-makingisalackofknowledgeofsustainabilityamongfinancialanalysts.Somehavesuggestedfurtherintegrationintomandatoryinvestorcurriculaisrequired.ExploratoryeffortshavebeentakenintheUnitedStatesandEurope.
Low Low Short
[O1,O2,O6]
Education&Training:Academicinstitutionsand/ortraininginstitutionscanplayameaningfulroleintriggeringgreateradoptionofsustainability-focusedinvestmentpractices.ProgramsthathavereceivedpublicsupportincludeExecutiveImpactInvestingcoursesbytheBerthaCentreforSocialInnovation&EntrepreneurshipattheUniversityofCapeTownwhichreceivedEUfunding,andtheAspenNetworkforDevelopmentEntrepreneurship(ANDE’s)trainingforinvestmentprofessionalswhichreceivedDFIfunding.
Medium Low Med
InvestmentRules&Requirements
[S1,S2,S3]
RedefiningFiduciaryDuty:Inmanycountries,institutionalinvestorshavearequirementtomaximizefinancialreturnsintheirinvestmentdecisions.Forexample,intheUnitedStates,theEmployeeRetirementIncomeSecurityActof1974(ERISA)isafederallawthatsetsminimumstandardsformostvoluntarilyestablishedpensionandhealthplansinprivateindustrytoprovideprotectionforindividualsintheseplans.Shiftingsuchlawstoallowforlong-termrisksand/orsustainabilityconsiderationsintheirdecisionsisanimportantfactorinunlockingpensioncapital.IntheUS,anextensivelobbytochangeERISAresultedinaredefinitionofthelegislationtomanagebothforprofitandsustainability.
Medium Medium Long
[O4,O5,S2] EnablingRetailInvesting:Inmanydevelopedmarkets,forcrowdfundingplatformstobecomeanintegratedpartofSDG-relatedinvestments–particularlyrelevantintheearlierstagesofenterprisefinancing-requiresregulatoryadaptation.Similarly,SDGIfocusedretailproductsareoftenmarkedas‘complex’andthereforehighlyburdensometorollouttosmallerinvestors.AnexampleisEurope’sMarketsinFinancialInstrumentsDirective(MiFID)whichcurrentlyisconsideredrestrictiveasindicatedbyaconsortiumofDutchfinancialinstitutions(2016).Proactivelyaddressingsuchbarriersataregional–andasneeded,national-levelhasthepotentialtoincreasetheshareofactorsthatinvestwithimpact.
Med Low Short
50
Box4-5:CaseStudy:LaosHydroelectricityfromblendedfinance Box4-6:CaseStudy:ClimateRiskPoolingMechanism:AfricanRiskCapacity
Today,theNamTheun2(NT2)hydroelectricdamisgeneratingelectricityinLaos,
oneofAsia’spoorestcountries,andgeneratingnationalincomeaswell.Ontrackto
generateUS$2billioninrevenuesover25years,the1,070-MWplantcould
contributesignificantlytodevelopmentandpovertyreductioninLaos.TheUS$1.3
billiondamwasjointlyfinancedbyahostofmultilateraldevelopmentbanks,
bilateralfundingagenciesandcommercialbanksfromaroundtheworld.Inall,27
partieswereinvolved,includingtheWorldBank,AsianDevelopmentBankand
FrenchDevelopmentAgencyAFDtoBNPParibasandFortisBank.Whileaportionof
theelectricitygeneratedstaysathome,thebulkisexportedtoThailandundera25-
yearfixed-pricepowerpurchaseagreement,meaningabigincomeboostfor
Laos.190Thatrevenueislargelyreinvestedinprogrammestotacklepoverty,boost
healthandeducation,andimproveenvironmentalmanagementdomestically.The
NamTheun2PowerCompany,whoseownersincludeElectricitédeFrance,theLaos
government,theItalian-ThaiDevelopmentPublicCoLtd.andThaipowerproducer
EGCO,havealsosoughttomitigateenvironmentalandsocialimpacts,investing
heavilyinlocalconservationeffortsaswellasnewhousingandinfrastructureonthe
NakaiPlateau.
LearnMore?
www.report.businesscommission.org,p.79
Note:Casestudyisadirectcopyoftheoriginalcasestudy
Beyonditsroleasalong-terminvestor,insuranceisalsobeingharnessedtodeliver
disasterriskreductionandresiliencetoclimateshocks.TheAfricanRiskCapacity
(ARC)wasestablishedasaSpecializedAgencyoftheAfricanUnion(AU)tohelp
MemberStatesimprovetheircapacitiestobetterplan,prepareandrespondto
extremeweathereventsandnaturaldisasters,thereforeprotectingthefood
securityoftheirvulnerablepopulations.
ManyfarmersinSub-SaharanAfrica,where40pcoftheeconomyistiedupin
agriculture,cannotaffordmoretraditionalformsofinsurancetocoverlossesif
cropsfail.HalfthepopulationoftheV20lacksaccesstoexternalpooling
mechanismstomanagedisasterrisks.
WeatherhedgesarealreadyofferedbyAxa,SwissRe,andthestate-backedAfrican
RiskCapacitywhichwascreatedaparametricinsurancepooltocoverweather-
relatedcrises.FinanceministersfromtheVulnerable20(V20)groupofdeveloping
countrieshavenowagreedtocreateaClimateRiskPoolingmechanismdrawingon
insurancesectorexpertise,pullingpublicsectorandprivatesectorinterventions
togethertoincreasetheresilienceofitsfarmersandpeople.
LearnMore?
web.unep.org/inquiry
Note:Casestudyisadirectcopyoftheoriginalcasestudy
51
4.3 MechanismsforAddressingIntermediation-relatedBarrierstoSDGI
Alackofintermediariesthatcanconnectgoodsorservicesrequiringcapitaltotherightinvestorsisafrequentlymentionedbarrier.Whilesomeintervieweesnotedthat
governmentsshouldtakeabackseatinaddressingthisbarrier,afewmechanismswereflaggedaspossiblevalue.Specifically,supportingthecreationofintermediariesor
productsthatconnectsupplyanddemand,usinggovernmentprocurementprocessesandpricingstrategiestochanneltheflowofcapitaltowardsSDGIs,and‘straightup’
regulationswerefrequentlymentionedwaysinwhichpublicsectorscanplayarole.
Table4-3 PrevalentPublicSectorMechanisms:INTERMEDIATION
Type Barrier(s) Instruments&IllustrativeExample CapacityRequirement
CapitalRequirement
TimeHorizon
INTERMEDIATION/DIRECTINGCAPITAL
Intermediation&Securitization
[I1,I2,I3] InvestorNetworks:Globally,arangeofnetworkshaveemergedthatcollaborativelyidentify,review,and/ordeploycapitaltowardsimpactfulinvestmentopportunities.Whiletheseinitiativesareinfrequentlypublic-sectorled,DFIsorothergovernmententitiesoftenprovidefinancialsupportfortheestablishmentandprogrammingofsuchnetworks.NetworksrangehaveemergedacrossthespectrumofSDGinvestmentstrategiesandacrosssub-segmentsoftheinvestorlandscape(e.g.,Familyoffices,angelnetworks,institutionalinvestornetworks,orimpactinvestingnetworksliketheGlobalImpactInvestingNetwork(GIIN).
Med Med Med
[I1,I2,I3] OnlineMarketplaces&DealPlatforms:Anoften-mentionedbarriertounlockgreaterSDGIinvolvesalackofaccesstodeals.Creationofplatformsthatinforminvestorsaboutinvestmentopportunities,stimulatebusinesslinkages,orcreatepro-poorbusinessopportunitiesareoftenmentionedasbeingofvalue.ExamplesaretheSocialStockExchangesthatareemergingglobally,theMissionInvestorsExchange,andConvergence(www.convergence.finance),aCanadianplatform.Governmentscanplayaroleinfeedinginvestmentopportunitiesintosuchplatformsandinfundingand/orsubsidizingthecreationofsuchplatforms.BothSSEandConvergenceareco-fundedbyanumberofDevelopmentFinanceInstitutions(DFIs).
High Med Med
[I1,I2,I3] CrowdfundingPlatforms:Crowdfundingplatformsusetheinternet’scapacitytoreducetransactioncostsasawaytoenablelargenumbersofpeopletoinvestsmallamountsofmoney(primarilythroughdebt,butincreasinglythroughequityaswell).ThewebsiteKiva,forexample,hasmatched1.6millionlendersto2.2millionborrowerssinceitslaunchin2005,withatotalofUS$949millionlentviathesite.(Business&SustainableDevelopmentCommission,2017,p.80)
Med Med Short
[I1,I2,I3) WholesaleFinancing&InvestmentEntities:AnoftenmentionedbarriertoamainstreamingofSDGIinvolvesalackofsecuritizationorprojectstructuringexpertise.Somehavesuggestedtheestablishmentofinvestmententitiesthatcanplaythisrole.BigSocietyCapital(BSC)-anindependentsocialinvestmentinstitutionor‘socialinvestmentwholesaler’intheUnitedKingdom–isanoteworthyexample.BSCwasthe
High High Med
52
world'sfirstsocialinvestmentinstitutionofitskind,establishedbytheUK’sCabinetOfficeandlaunchedasanindependentorganizationwitha£600minvestmentfundinApril2012.TheinvestmentfundcomesfromdormantbankaccountsviaanindependentReclaimFundandfourleadingUKhighstreetbanks.BSCdoesnotdirectlyinvestinfrontlineorganizations,butinSocialInvestmentFinanceIntermediaries(SIFIs)whichinturninvestinandsupportsocialenterprises.Ascanbeseenwiththecasestudyinthissection,ideasforthelaunchofan‘SDGbank’haveemerged,callingbothforgreaterinvolvementoflocalDFIsandregionalbanks,greaterblending,andabringingtogetherofstateoftheartfinancialstructuringexpertise.
[S4,D1,D2,I2]
Securitization(1/3):PaymentforSuccessStructures:Inrecentyears,significantexperimentationwithso-calledpayforsuccessstructureshastakenplace.Socialimpact(SIBs)–whereusuallygovernmentspayoutonlyifinterventionshavebeenproventobeimpactful–aswellasDevelopmentImpactBonds(DIBs)wererolledoutacrosstheworld.AccordingtoSocialFinance,aUK-basedorganization,60impactbondsareupandrunningtoday,collectivelyraising$216Mnincapital.ArepositoryofSIBsthatareactiveorunderdevelopmentisavailableatwww.socialfinance.org.uk/database/.
Med High Med
[O2,O3,S5)
Securitization(2/3)Greenand/orCorporateSustainabilityBonds:Launchedalmost10yearsagobyleadingdevelopmentfinanceorganizations(suchastheEIB,theIFCandtheWorldBank)workingwithpioneeringinvestmentbanks,thegreenbondmarkethasexpandedrapidlyonthebackofmarket-basedprinciplesandstandards,stronginvestordemandandtheintroductionofregulatoryframeworksincountriessuchasChinaandIndia.Totalissuanceofbondswithproceedsexplicitlyring-fencedforgreeninvestmentreachedUS$42.9billionin2015–withafurtherUS$34.6billionissuedinthefirsthalfof2016.Experimentswithotheroutcomes,e.g.,Starbucks’inclusivesupplychainbond,orthelaunchofawaterbondareseen.Governmentsplayanimportantroleinensuringappropriatestandardsaresettofacilitateprudentdevelopmentofthesemarkets.
Med Med Short
[D1] Securitization(3/3):DevelopmentFocusedSecurities:Thisincludesmechanismsaspartofwhichaidexpendituresarefrontloaded(e.g.,AAA-ratedbondsareissuedincapitalmarketswhicharebackedbylong-termdonorgovernmentpledges,yetareusedtofinanceaidordevelopmentprogrammesandoutcomes),orwheremarketablefinancialinstrumentsaresecuredagainstfuturerevenuestreams.
High Med Med
Pricing&Procurement
[O3,I1,I3,D1] Procurement&PricingSocialcosts:Governmentscanmakeandshapemarketsthroughtheirprocurementactivities.TheyaremajorpurchasersofSDG-relatedgoodsandservices.BlackempowermentregulationsasappliedinSouthAfrica–thoughnotunequivocallyconsideredaneffectivemechanismforchange–areanillustrationofthismethod.Incorporatingsustainabledevelopmentmetricsintovalue-for-moneyassessmentsofpublicprocurementcanbeapowerfulsignalofgovernmentcommitmenttosustainabledevelopmentandamajoropportunitytojump-startnewmarketsforsustainableproduction.Intheclimaterealm,countriesareusingdifferentapproachestotheproblemofhowtoencouragefirmstoreducecarbonemissions.Theseincludecarbonpricing,cap-and-trade,feed-intariffs,andotherregulatoryinstruments.Whileprogressmaybeslow,theissuesarewellunderstood.Consequently,manymultilateraldevelopmentbanks,forexample,haveimplicitcarbonpricesthattheyusefordeterminingleast-costinvestments.Harmonizingthese,makingthemtransparent,andreviewingprocessesofconsultationinsettingthepriceswillhelpfurthertheuptakeofSDGfactorsindecisions.DirectcopyfromKharas&McArthur(2016)
Med High Med
53
CapacityBuilding
[O6,O7,D5,S2]
TechnicalAssistance&AdvisoryServices:Asnotedearlier,manyinvestmentprofessionalslacktheexpertiseneededtosetuptherightfundsorstructurestoinvestwithimpact.TechnicalAssistancetofirsttimefundmanagersorassetmanagers–asisdonebyaselectsetofDFIsanddevelopmentministriescanhelptostrengthenintermediationinthemarket.
Low High Med
Regulation
[D1,D3,D5] InternationalagreementsonSDGinvestments:RegionalSDGinvestmentcompactscanhelpspurprivateinvestmentin,forexample,cross-borderinfrastructureprojectsandbuildregionalclustersoffirms. Med Low Med
[O3,S4,D1]
Regulationspromotingbroadeconomicinclusion:Thebroad-basedblackeconomicempowermentActinSouthAfrica(seeabove)whichmandatesthatallgovernmentprocurementcontractsgivepreferentialtreatmenttoblack-ownedbusinesses
Low Low Med
[O1,O3,I1,S4,D1,D4,D5]
Politicalprioritizationandcommitmenttospecifictargets:Tobuildamarketrequiresconfidencethatthetargetissolidandwillremainovertime; Low Low Long
[S4,I1,D1]
Taxcreditsandexemptions:RealigningrewardsinfinancialmarketstofavourinvestmentinSDGs;ThegreenFundsschemeintheNetherlands,whichprovideataxcreditforinvestorsincertifiedinvestmentfundstargetingenvironmentalprojects;The5-10yeartaxbreakinIndonesiaisanexampleofsuchstructures,asistheLowIncomeHousingTaxCredit(LIHTC)intheUnitedStates.SeealsotheEx’Taxexamplebelow.
Med Med Med
Source:Thistableisbringingtogethertheinsightsfrominterviewsandvariouspublications,includingThornley,Wood,Grace,&Sullivant(2011)andUNCTAD(2014)
54
Box4-7:CaseStudy:Convergence:‘BlendingGlobalFinance’ Box4-8:CaseStudy:SDGIWholesaleBankIdea
Convergence–aCanadiannon-profitorganizationwassetupin2016tooffera
platformthatwouldbringtogetherpublicandprivateinvestorsforblendedfinance
dealsinfrontierandemergingmarkets.Theideaisthatbyleveragingphilanthropic
capitalandpublicfunding,theprivatesectorwillbeabletojoinandinvest
alongside.Thepotentialofleveragingisthoughttopotentiallyincreaseoverall
investmenttenfold.Theplatformallowsinvestorstosearchfordealsand/orparties
thattheywouldliketoteamupwith.Inthisway,thenetworksofSDGinvestorsis
broadenedandtheselectionandscreeningprocessofcrediblepotentialpartners
simplified.Inaddition,ithelpsinstructuringblendedfinancedealsandhelpswith
theoverallinvestmentprocess.ApartfromservingasamatchmakerConvergence
alsowantstocontributetodesignandrealizationofinnovativefinancialproducts
thathelpinintroducinganewsetofinvestorstoinvestmentsthattheywouldtouch
undernormalconditionsbecausetheyaredeemedtooriskyofcomplexforthe
investor.ThefundersofConvergenceincludetheCanadiangovernment,theCiti
Foundation,andFordFoundation.Theplatformhasthepotentialtobecomea
leadingpipelineandmarketplaceforblending,anincreasinglypopularmechanism
foracceleratingSDGI.Challengesthatlieaheadistheplatformstotrulyactasa
matchmakerandconnectorbetweenactorsandsourcesofcapital.
LearnMore?
www.convergence.finance
Thescale-upofprivatefinancewillonlyoccurifSDGinvestmentscanachieve
commercial,risk-adjustedreturns.Todate,thelackofsuch“bankable”
projects/opportunitiesatscalehasbeenamajorimpedimenttogreater
investment.Againstthisbackground,theideaforanSDGintermediaryhasbeen
proposedasapotentialmechanismforscalingSDGI.Forexample,aversion
oftheAlignedIntermediary(www.alignedintermediaryorg),aninvestmentadvisory
firmfocusedonmobilizinglarge-scaleinstitutionalcapitalcost-effectivelyfor
climatechangesolutions,couldbeappliedtoabroaderSDGcontext,i.e.,tothe
establishmentofanSDGintermediarythatwouldaddressbothinstitutionaland
operationalbarriersbydevelopingandexpandingbankableopportunitiesthat
addresstheSDGs.Whileoperatingwithincommercialnorms,thenewentitywould
looktoidentify,structure,anddevelopprojectsandinvestmentopportunitiesthat
wouldotherwisenothappen.Theorganizationwouldlookto(a)workundera
robustgovernancestructurethatensuresthedevelopmentimpactofprojects;
(b)attracttoptalentemployingacommerciallyself-sustainingbusinessmodel;(b)
leveragemaximumprivateinvestmentintocriticalSDGprojectsandissueareas;(d)
serveasatrustedintermediarytobothpublicandprivatesectorclients,andacross
internationalandlocalprojects;(d)developblue-printtransactionsand
standardizedpracticeswhichcanbereplicatedacrossgeographies/issueareas
avoidingtheinefficienciesof“re-inventingthewheel”.
LearnMore?
Furtherannouncementswillbemadeinduetime.
55
Box4-9:CaseStudy:SDGBlockchainLab&‘SDGCoins’ Box4-10:CaseStudy:StarbucksInclusiveSupplyChainBond
Blockchainormutuallydistributedledgersystemsarecreatingnewwaysofkeeping
recordssecurelyandacrossmultiplelocations.Allusers“hold”the�
ledgerinadistributedfashion,transformingtheroleoftrustedthirdparties.
Already,thetechnologyisbeingusedforapplicationsasdiverseaslandownership
registries,individualidentityrecords,andcustodyofnaturalassetslikefishor
forestryproducts.Thegreatdifferentiatorinthesesolutionsistheintegrationof
multipleoutcomesofeconomic,socialandalignmentofvaluescombinedwith
impactmeasurementinasingleinterventioninstrument;somethingonlypossible
throughthepowerofblockchain.Thissitsfirmlyintheexcitingcrossover
betweenSocialandFintechinnovationsthatisilluminatingallaspectsofourlives.
InJanuary2016,anSDGBlockchainLabwaslaunchedbyuniversitiesfromacrossthe
world,includingtheUniversityofNorthampton,JohnHopkinsUniversityand
TsinghuaUniversity.TheinitialCCEGBlockchainLabprojectscombinetheUnited
NationsSustainableDevelopmentGoals(SDG),withFintechsolutionsforRegional
andCityImpact,CareGiversandReligiousBeliefs.Thecollectiveisworkingtowards
launchingan‘SDGCoin’.Thecoinwouldbedesignedtooffergreaterliquidity
surroundingthebroaderSDGIagenda.Whilethesolutionisnotupandrunningyet,
findingwaystoassignnon-financialvaluestoinitiativesandinvestmentwouldhelp
tounlockgreateramountsofprivatesectorcapital.
LearnMore?
LinkHERE
Starbucksisaglobalretailerandroasterofcoffee.Ithasover20,000storesin
operation.Aspartofitspublicengagementstrategythecompanyraised$500m
withitsfirstcorporatesustainabilitybondin2016.Thiscapitalwillbeinvestedina
wayastobenefittheenvironmentalsustainabilityandsupplychainoutreach
programs.Theoverallaimoftheseprogramsistotargetandactivelyimprovedthe
environmentalbutalsothesocialcircumstancesoftherawmaterialssourcingfor
Starbucks.Thecapitalisthusnotonlyusedtointroducecertificationschemeswhich
guaranteeenvironmentallyandethicallysoundproductionpracticesbutalso
enablesthedistributionofshortandlongtermfarmfinancingloans.Thiswasfirst
corporatesustainabilitybondintheUS.Thebondwas“significantly
oversubscribed”signallingalargeappetiteforthistypeoffinancialproduct.
(Chasan,2016)Forthevalidationoftheimpactcomponentofthebond,theESG
researchcompanySustainalyticswasbroughtonboard.Theywillprovide
independentmonitoringandverificationofthe(expected)socialandenvironmental
impactsgeneratedviathecapitalraisedthroughthissustainabilitybond.
(Starbucks,2016)
LearnMore?
News.starbucks.com/news/starbucks-issues-the-first-u.s.-corporate-sustainability-bond
56
Box4-11:CaseStudy:Ex’Tax,ShiftingTaxationfromLabourtoNaturalResources
TheEx’taxProjectisanindependentthinktankfocussesontheroleoftaxinthe
transformationtoinclusiveandcirculareconomies.Thelateststudy,incooperation
withDeloitte,EY,KPMGMeijburg,PwC,CambridgeEconometricsandTrucost,
demonstratesthatataxshiftfromlabourtonaturalresourceusealignsfiscal
systemswiththeSDGs.Thestudypresentsafiscalstrategyforinclusiveandcircular
economiesintheEUanddemonstratesthatswitchingtaxesfromlabourtopollution
andresourceusecouldincreaseGDPlevelsby2%,create6.6millionmorejobsand
cutcarbonemissionsby8.2%by2020.Thetotalvalueaddedofthescenarioforthe
EU-27intermsoffinancialcapital,socialcapitalandnaturalcapitalisestimatedat
over€1,100billionoverfiveyears.(www.neweranewplan.com)
WiththeWorldBusinessCouncilforSustainableDevelopment(WBCSD),CDP,
Interfaceandotherbusinesses,TheEx’taxProjectisdevelopingatoolthatallows
detailedanalysisoftheimpactofataxshiftonsectorandbusinesslevel.Lower
labourtaxesboostbusinessmodelsthatapplyhumancapacitiesandtalents,while
taxationofpollutionandconsumptionstimulatessustainableresourceuseand
innovation.Ashiftinfinancialincentivesenablesgrowthbasedonhumancapital
ratherthantheextractionofnaturalresources.
LearnMore?
Linkwww.ex-tax.com
57
4.4 MechanismsforAddressingDemand-relatedBarrierstoSDGI
AlackofinvestableopportunitiesisafrequentlymentionedbarriertomainstreamingSDGI.Especiallyinstitutionalinvestorshaveflaggedthisastheirdominantconcern.
Theintrinsicinvestabilityofindividualinvestmentclustersneedstobeconsideredinunderstandingthisbarrier.Alackofsocialenterprisesthatoperateatscaleandare
abletomeetthresholdinvestmentlevelsisanareawhereintervieweesdoseearoleforgovernments.Specifically,theyflagTechnicalAssistance(TA),incubator,and
acceleratorprogramsasbeingvaluablemechanismtosupporttheemergenceofmarketsforsocialgood.Importantly,increasingattentionisgiventoapoolingof
accelerationresources(see
Separately,recognizingthatcountryleveland/orcurrencyriskssignificantaffectriskperceptions(andthereforereturnrequirements)someflagthevalueoffacilities
and/orinsuranceschemesaspartofwhichgovernmententitiesorDFIscoveroffsuchrisks,therebyenablingacrowdinginofcapitalthatwouldotherwisebeoutofreach.
Prevalentmechanismstoaddresstheserisksaredescribedinprevioussections.Andfinally,someintervieweesflagtherolegovernmentscanplayintriggeringdemandfor
certainproductsorservices.Thesemechanismsareoutlinedabovewith‘Procurement&Pricing’.
Table4-4 PrevalentPublicSectorMechanisms:DEMAND
Type Barrier(s) Instruments&IllustrativeExample CapacityRequirement
CapitalRequirement
TimeHorizon
DEMANDDEVELOPMENT
EnablingCorporateStructures
[O2,O3,O5,D1]
Newcorporateforms,e.g.,BenefitCorporations:Enablingcorporateformsthatrecognizesthedualpurposeofcompaniesmaximizingforprofitandpurposeisfrequentlymentionedasaprerequisiteformarketmaturation.Bylegallyrecognizingsuchentities,concernsrelatedtoinvestors’fiduciaryduty(seeSUPPLY)willbemoreeasilyaddressed,whilealsofromanintermediationperspective,investorswillbemoreabletoidentifythosecompaniesthatsharetheirvaluesandsocialmandates.Italsohelpstoincreasemarketstandardsandinsight.Governmentsplayacriticalroleinrecognizingandrollingoutsuchcorporateforms.Whiletheexactshapeofsuchformwilldifferpercountry,“Benefitcorporations”–aninitiativebyaUSorganizationcalledBLab–haveemergedglobally,whileforexampleintheUK“CommunityInterest”companiesarenowrecognizedintheUK.
Med Low Long
DeliveringLargeScaleLocal
[I2,D2] ProjectDevelopment:Governmentscanalsoplayaroleasdeliveryorganizationsofproductsandservices.Thisistrueindeliveringhealthservices,oreducation.Programscanalsorelateto(semi-)governmententitiesdeliveringlargeinfrastructuralprograms.Bybecominganactivepartnerintherolloutandestablishmentofsustainableprojects,theabsorptivecapacityofthemarketcanbesignificantlyincreased.
High Med Med
58
Programs
[D1,D2] Origination&Preparation:Preparingandoriginating“bankableandsustainable”products,projects,andservicescanhelpincreasetheweightedaveragecostofcapital,promoteaccesstosustainableproductslocally,andincreasetheoverallsustainabilityofmarkets.(Kharas&McArthur,2016)
Med Med Short
[D2] Education&JobCreationPrograms:Althoughthismechanismincludesawiderangeofpotentialinstrumentsforincreasingthequalityandeffectivenessofone’sworkforce,wedidwanttoomitsuchprogramsinourlistofincreasingtheabsorptivecapacityofmarketsandoveralldemandforcapital.ExamplesincludetheILO’sBetterWorkProgramme(Business&SustainableDevelopmentCommission,2017,p.87)
Med Med Med
CapacityBuilding
[O7,I1,D1] Research&(Pre-)FeasibilitySupport:Fundingand/orinvestmenttargetedatstimulatinginnovation,research,anddevelopment,oratconductingfeasibilitystudies.Particularlyprevalentinrenewableenergy,infrastructuralinvestment,yetflaggedasapriorityacrossearlierdefinedinvestmentareas.IllustrativeexamplesincludeaNationalHigh-techR&D(863)PrograminChina,focusedonhigh-priorityeconomicsectorsforprivatecapital,includingintheareasofenvironmentalprotectionandrenewableenergy.
High High Med
[O6,O7,D2] Incubators&Accelerators:Hundredsofacceleratorsaroundtheworldtryingtogrowearly-stageventuresintogrowingbusinesseswiththepotentialtoscale,andhelpingthesecompaniestobecome‘investorready’.Acceleratorshavesomedistinctcharacteristics:Theytendtobelimitedinduration;workwithcohortsofearly-stageentrepreneurs;andaimtofacilitateconnectionswithpotentialinvestors.Whilerigorousresearchontheeffectivenessofaccelerationmethodshasnotkeptpacewiththeproliferationoftheseprograms,investors,developmentagencies,andgovernmentshavesignaledexcitementwiththeprospectsofthesemodelstospurinnovation,solvesocialproblems,andincreaseemploymentopportunitiesinemergingeconomies.Ongoingresearchintotheeffectivenessofacceleratorsgloballyisavailableatwww.andeglobal.org/accelerators
Low Med Short
Source:Thistableisbringingtogethertheinsightsfrominterviewsandvariouspublications,includingThornley,Wood,Grace,&Sullivant(2011)andUNCTAD(2014)
a.
59
Box4-12:CaseStudy:BenefitCorporations:ManagingforProfitandPurpose Box4-13:CaseStudy:VillageCapital:AcceleratingSocialEnterpriseGrowthNonprofitorganizationBLabhasverifiedandcertifiedover2000+companiesor
“benefit(B)corporations”–inoverfiftymarkets–thatmeetthehigheststandards
ofsocialandenvironmentalperformance,publictransparency,andlegal
accountability.Anattractivepartofthemodelisthatcompaniescandoaself-
assessment–or‘takethetest’toseewheretheystandinrelationtotheimpact
thattheiroperationshaveonsociety.Interestingly,today,notonlySMEshave
gonethroughtheassessment,anumberofmultinationalcorporationshavebegun
toevaluatetheiroperationsagainsttheBstandards.Theestablishmentofa
corporateformthatholdsitsshareholdersandmanagementaccountablefortheir
impactandfinancialsuccess,hasaddedlegitimacytoanewwayofdoingbusiness,
andhashelpedtotriggeraconversationaroundtheroleofcapitalmarketsand
corporationsinsociety.OtherthanhavingbuiltaglobalcommunityofcertifiedB
Corporations,BLabalsohelpstensofthousandsofbusinesses,investors,and
institutionstomanagetheirimpactusingtheBImpactAssessmentandBAnalytics
tomanagetheirimpactwithasmuchrigorastheirprofits.
Acrosstheworld,regulatorshavebeguntoformallyrecognizenewcorporate
forms.Thishashelpedtoincreasethelegitimacy,createtransparencyaroundthe
intentionsofagivenbusiness,andaccelerateadoptionandscalingefforts.
LearnMore?
www.bcorporation.net
VillageCapitalisaseed-stageacceleratorthatrunsprogramsforentrepreneursin
impact-orientedsectors.Theorganizationfinds,trains,andinvestsinsocial
entrepreneursusingpeer-selection,amethodthatoffersaninclusivealternative
toconventionalduediligence.
Sinceitslaunch,VilCapInvestmentsishasmade67investmentsandreachedover
600socialventuresacrosssixcontinents.VilCapportfoliocompanieshavea90%
survivalrate,raisedover$80millioninadditionalcapital,generatedover$19
millioninrevenue,andservedovertwomillionbeneficiaries,creating7,500+jobs.
VillageCapitalhaspublishedareviewofitsmodelandactivitiesonlinein
collaborationwithEmoryUniversityandtheAspenNetworkforDevelopment
Entrepreneurs(AND).Furtherevidenceisneededtodeterminetheoptimaldesign
ofacceleratormodels(SeealsoBox6-14:IFCStartupCatalyst.
ThevastmajorityofVilCap’spartnersandfundersincludefoundationsandcivil
societyorganizations,regional,national,andmunicipalgovernments.Large
corporationshavebeguntoplayanactiveroleinacceleratinghigh-impactSMEs
throughtheircorporateventuringactivities,whilegovernmentsallovertheworld
havebeguntolaunchlocalstartupenvironmentsandaccelerators.Impact
accelerators,especiallyifrolledoutinpartnershipcanbeparticularlyeffective.
LearnMore?
www.vilcap.com
http://www.andeglobal.org/?page=Accelerators
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Box4-14:CaseStudy:IFCStartupCatalyst Box4-15:CaseStudy:SustainableProductionThroughSupplyChainFinanceTheIFC’sStartupCatalyst(ISC)isdesignedtoaddressecosystemgapsinemerging
markets.Itseeksto(a)respondtotheissueofunderdevelopedecosystems(since
mostgapsareevidentatearly-andmid-stagefinancingrounds),and(b)help
emergingmarketeconomiespositiontheirentrepreneurialbaseforgrowthby
enablingassociatedecosystems.ISC–givenitsfocusonscalingandincreasingthe
effectivenessofacceleratorsglobally,hasaparticularfocusontechnology
investments,andultimatelytakesa‘lifecycle’approachtoitsfinancingactivities,
facilitatingconnectionstosubsequentsourcesofcapital.SinceitslaunchinAugust
2016,ithas$7.2millionofapprovedcapital,$30millionenvelopecommitted,and
anadditional$11million(foracombined$18.2million)anticipatedbyQ4FY17.It
hascompletedpreliminaryassessmentsof100+seedstagefundingmechanisms
sinceitslaunched,andindicateshavingastrongpipelineforfurtherdeals,
including~15entities(translatingto~$30millioninvestments)onradar.TheISC
teamengagedwithmultiplegroupswithinIFC(e.g.DonorPartnerRelations,Digital
FinancialServices,SMEVentures,PrivateSectorWindow/BlendedFinance,etc.)
andacrosstheWorldBankGroup(e.g.Innovation&Entrepreneurshipteamwithin
T&CGP,F&MGP,etc.)todeliveronISCobjectives.Theprogrammegivesnational
governmentstheopportunitytocollaboratewithaglobalcommunityofventure
capitalspecialists,andcontributingtotheestablishmentofaventureecosystem.
LearnMore?
www.ifc.org(search:StartupCatalyst)
TheRockefellerFoundation(RF),inpartnershipwiththeInitiativeforSmallholder
Finance(ISF),intendstocreateasustainablesupplychainfinancingfacilitythat
willalignincentivesforsuppliersaroundtheenvironmental,labor,andsafety
standardsthatareincreasinglybeingrequiredbymultinationalbuyers.The
initiativetakesadvantageofthedeliverycapacityofMNCsupplychains,targeting
specificneedsthatsurroundthesesupplychains.
Thekeycharacteristicofthefinancingmodelisapricingschemethatistieredto
alignwithasustainabilitystandard,suchasthoseusedbytheBetterCotton
Initiative,FairTrade,ortheHiggIndex.TheconceptisakintoLevi’spartnership
withIFC,inwhichthecostoffactoringfinancingistieredaccordingtothe
sustainabilityratingsofsuppliers.
TheRockefellerFoundationisinterestedinhowthisconceptcouldbeextended
deeperintothesupplychain,beyondfirst-tiersuppliers,andideallyinsupportof
smallerenterprises.Themodelwillinitiallybepilotedinthecottonandapparel
valuechain,whereanumberofleadingapparelbrandsarestrugglingtomeet
commitmentstoambitioussustainablecottonsourcingtargets.Overtime,the
modelcouldbeexpandedorreplicatedinotherglobalcommodities—including
cropsthatsmallholderfarmersfocuson,suchaspalmoil,rubber,dairy,fruits,
soya—andpotentiallyothersupplychains,likeelectronics.
LearnMore?
www.rockefellerfoundation.org
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Asnotedearlier,governmentsareconsideredcriticalshepherds,orchestrators,andacceleratorsofSDGI
action,andarelookedattoplayanactiveroleindeterminingeffectiveroadmapstowardssustainablefinancial
systemsandSDGI.
Mechanismsthatareflaggedasbeingofparticularimportance,involvegeneralawarenessraising;proactive
de-riskingorblendingstrategiesbythepublicsector;ensuringregulatoryalignmentwiththeSDGs,in
particularasitrelatestoprivatesectorinfrastructureinvestment;andtherolegovernmentshaveinensuring
marketaccountabilityandappropriatepricingofexternalitiesintogoodsandservices.
Boldideasforgovernmentinterventionincludedaglobalpushtosurfacethe‘truecost’ofexternalitiesusing
bigdatatechnologies(supply/cross-cutting);theestablishmentofan‘SDGwholesalebank’thatwould
provideriskcapitalaswellasamixofassetmanagementandproductstructuringcapabilities(intermediation);
andtheoriginationandroll-outof‘investibleandsustainable’projectssurroundingspecificoutcomesatscale
(demand).
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CONCLUSIONSANDRECOMMENDATIONS
“Weliveintumultuoustimes.Now,morethanever,embracingasharedagendathatwillleadtowardsa
sustainablefutureforallshouldbeapriority–forcitizens,institutions,andtheeconomicsystemwearepart
of”.Thisishowoneofourintervieweesunderlinedtheneedforandurgencyofaforward-lookingSDG
investingagenda.Yet,achievinganewnormalincapitalmarketsbyshiftingtowardssustainabilityoriented
financialsystemsrequiresexactlythat:Asystemsapproach,whereeverynodeandeveryleverthatisavailable
inthetoolkitofpublicsectorinstitutionsshould,ataminimum,beconsidered.
ThebusinesscaseforconsideringsustainabilityandtheSustainableDevelopmentGoals(SDGs)isbecoming
increasinglyclear.InJanuary2017,theBusiness&SustainableDevelopmentCommission(2017)concluded
thatsustainablebusinessandinvestmentcanunleashatleasttwelvetrilliondollarsinnewmarketvaluewhile
alsorepairingtoday’seconomicsystem.Agrowingnumberofinvestorsandcorporationsrecognizeamarket
opportunityforSDGinvesting.
TheaddedvalueoftheSDGFrameworkinmaximizinginvestmentinsocialand/orenvironmentaloutcomes
remainstobeproven.Whenprobed,intervieweesremarkedthatthe2030Agenda,aboveanythingelse,will
helpcreateasenseofurgencyaroundsustainability.Theyaddthattheframeworkformapowerfulleverfor
improvingcommunication,coordination,andcollaborationacrosssectors,geographies,andimpactdomains,
andultimategenerategreatertransparencyandaccountability.
BarrierstoSDGIsuccesswerelargeinnumber,andrangedfromalackofawarenessorashortageofrisk
capital,totheneedforamore‘connected’marketplace,capabilitygaps,andalackofinsightintotheinherent
negativeandpositivecontributionsassociatedtoinvestments.
NoteverybarrierormechanismfortriggeringgreaterSDGIrequiresgovernmentinvolvement.Asanumberof
intervieweeshighlighted,concertedindustrylevelorcivilsocietyactioncanoftentimesworkjustas–ifnot
more–effectively.Afewkeysuccessfactorsforpublicsectorinterventionsemergedfromourresearch:
• Carefulcurationofthe2030AgendaandadoptionoftheSDGsasaframeworkofchoice.Theywarn
againstatoorigidapplicationoftheframeworkwhichcouldlimitmarketgrowth,andtheriskof‘SDG
washing’oranSDGIbubbleifpositivecontributionstotheSDGsfailtobevalidated;
• GiventheglobalnatureoftheSDGs,governmentsplayacriticalroleinconnectingthedotsandadvancing
sharedagendasthatareadjustedtolocalcontextsbutextendbeyond(sub-)nationalborders.Thisis
particularlytrueforprioritiesrelatedtotheestablishmentofanenablingdataandregulatory
environment,whereexpertsflagthatrapidprogressiontowardsasinglemeasurefordevelopmentimpact
wouldgreatlyhelpthemainstreamingofSDGs(Morris,2017);
63
• Puttingexistingclustersofcompetitiveadvantageorexisting‘valuechains’ofstrength(e.g.,agriculture,
water,healthcare)attheheartofpublicsectorSDGIagendaswillhelpunlockgreatermarketvalueand
impact25;
• Theroleofpublicsectorentitiesinde-riskingSDGinvestmentopportunitiesandtherebycatalysing
greaterSDGIisfrequentlymentionedasbeingcritical.Todosoeffectively,integratingapproachesand
filtersthatensuremaximumleverageiscomplex,butacriticalingredienttoone’s‘blendingsuccess’
(Morris,2017);
• Related,takingaportfolioapproachtoSDGinvestingisconsideredcriticalnotonlyforprivatesector
investors,butalsoforIFIsandDFIsthatseektoadvancetheSDGsand/ordevelopmentoutcomes.This
allowsinvestorstomaketrade-offsacrossalargernumberofinvestmentsandmoreeffectivelyoptimize
their‘risk-return-impactfrontiers’;
• Settingcleartimetablesforactionismentionedbyafewexpertsandpolicymakersasbeingcriticalto
ensuresufficientprogressagainstthe2030Agendaismade.Possibleglobalandnationalmilestonesthat
areproposedwouldfallin2019and2023(Kharas&McArthur,2016)
AsfortheUnitedNations,manyflagitsroleinraisingtheAgenda’sprofileAgendaandinensuringappropriate
governancemechanisms,andinterimmilestones,areinplaceinsupportofSDGs.Theycommendits
conveningpowerandthecontributionstheUNcanmakeinforgingnewnorms,andtriggeringactionata(sub-
)national,regional,andgloballevel.
25Forexample,theDutchgovernmentiscurrentlyreviewingSDGIclustersagainstits‘topsectors’–areasinwhichnetworksofcompanies,investors,andotheractorsarealreadycollaborating(EY&C-Change,2017)
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APPENDIX1|INTERVIEWLIST
Thisresearchisgeneratedbasedonsecondaryresearchaswellasinterviewswith20investorsandexpertswhoalreadyoperateintheSDGinvestingmarketand/orhavesignificantexpertiseinthefield.Interviewswereconductedtobeabletoaddinvestorvoicestoourresearchanddidnotseekstatisticalsignificance.Toachievegreaterrepresentationacrossinvestorsegments,geographies,andimpactareasfurtherresearchisneeded.
Organization Name Position RegionofOrigin
1 AnthosAssetManagement
MargotQuagebeur ImpactInvestingManager Europe
2 BerthaCentreforSocialInnovation
AunniePatton InnovativeFinanceLead Africa
3 Children’sInvestmentFundFoundation(CIFF)
CharlesBleehen Fminvestmentmanager Europe
4 DeutscheBank MichielAdriaanse DirectorAlternatives/SustainableInvestment
Europe
5 DOENFoundation JasperSnoek
Director(CFO) Europe
6 ElevarEquity
SandeepFarias Founder&ManagingDirector Asia7 AmiePatel Director8 IFCAssetManagement SelenaBaxa Principal NorthAmerica9 CaludioVolonte PrincipalResultsMeasurement10
IADBAlejandroÁlvarez FormerRepresentative SouthAmerica
11 TracyBetts OfficeofStrategicPlanning&DevelopmentEffectiveness
12 Nordea EmirBorovac ResponsibleInvestmentAnalyst
Europe
13 PGGM PietKlop
SeniorAdvisor Europe
14 ResponsAbilityInvestments
MirijamFarnum HeadKeyClients Europe
15 SaronaFund NarinaMnatsakanian
HeadofInvestorRelations Europe
16 VakayiCapital ChaitezviMusoni
Partner/CEO Asia
Wearegratefultothefollowingexpertsandadvisorsforcontributingtothisresearch:
Organization Name Position RegionofOrigin
17 BrookingsInstitute
JohnMcArthur Authorandexpert N-America
18 ImpactInvestingAustralia
RosemaryAddis Chair&Founder Oceania
19 SIFEM JuliaBalandina-Jaquier
Expert Europe
20 TidelineAdvisors
BenThornley ManagingPartner NorthAmerica
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APPENDIX2|LEADINGTOPICALKNOWLEDGEHUBS
Whilenotcomprehensiveinnature,theauthorsofthisreportbenefitedgreatlyfromtheaggregated
perspectivesandcontentofthefollowingentitiesandinstitutions:
• Business&SustainableDevelopmentCommission(BSDC)–http://businesscommission.org–The
CommissionwaslaunchedwithleadershipfromwithintheUNandbycompanieslikeAlibaba,Merck,
Safaricom,Temasek,andUnilever.Its2016publicationBetterBusiness,BetterWorldsignifieda
considerablecontributiontotheSDGIagenda.
• CentreforGlobalDevelopment(CGDEV)–www.cgdev.org-Leadingglobalinstitutionasitrelatestothe
developingfinanceagenda.Publishesreportsandorganizeseventsfrequently.
• BrookingsInstitute–www.brookings.edu,andtheCenterforGlobalDevelopment(CGD)–
www.cgdev.org-Expertsattheseinstitutionshavepublishedmultiplereferencepublicationsrelatedto
theSustainableDevelopmentagenda,whichcanbeusefulforgovernmententitiesdeterminingtheir
publicsectorroadmapsformaximizingSDGI.
• UNGlobalCompact(UNGC)–www.unglobalcompact.org-UNGChasbeenhelpingcompanies,investors
andstockexchangestointegrateESGissuesintotheirbusinesspractices,includingthroughthelaunchof
theGlobalCompact100indexofresponsiblecompanies.��
• UNEnvironmentProgram(UNEP)FinanceInitiative&Inquiry–www.unep.org/inquiry-UNEPFIhas
partneredwiththeprivatesectorsince1992.ItsrecentInquiryintotheDesignofa‘SustainableFinancial
System’providesawealthofinsightsandconcreteexamplesofsustainabledevelopmentinitiativesand
governmentinterventions.�
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APPENDIX3|DETAILEDREVIEWOFTHESDGIMARKET
Thedataforthisestimationoriginatesfromvariouspubliclyavailablesources,mostnotabletheannualreports
oftheSIFs,i.e.Eurosif(2016),USSIF(2016),JSIF(2016),RIA(2015),RIAA(2016a)and(2016b)aswellasASRiA
(2014).Thedatafromthissourceswerecomplementedbydatafromon(BCG,2016)ontheestimationofthe
sizeoftotalAuMacrosstheglobe.AfirstinthisanalysisinthisinclusionofJapan.Thebreakdownofthe
JapaneseSDGI/RImarketisbasedonthesurveyofJSIF(2015).Fortheexchangerates,dataonannualrates
fromFRED/theFederalreserveofStLouiswereused.Pleasenotethattheinfluenceofchangesinthe
exchangeratescanhavesignificantinfluenceontheestimationofSDGIinitiativeswhenviewedinUS$.
Origin Recent(localcurrency) FXUS-$ Recent(US$)
Canada RIA 1,011 1.03 981US USSIF 8,720 1.00 8,720EU Eurosif 11,045 0.90 12,256Asia ASRiA 45 1.00 45Australia RIAA 633 1.33 476NewZealand RIAA 79 1.4 55Japan JSIF 57,000 108.7 525Estimationofsizeofprivateinvestorscanbesummarizedasfollows:ThesizeofpensionfundsectorwasderivedfromWillisTowerWatson(2016),TheestimationoftheinsurancecompaniesisbasedonAschkenasy(2014),theSWFInstitute(2016)isthesourceofthesizeofSWFsandUBSandCambdenWealth(2016)andDHR(2012)formthebasisoftheestimationsforfamilyofficesandEndowments.Pleasenotethatthelaterisareallyroughestimateascleardataiscurrentlymissing.ThedataonDFIs(left)originatefromtheannualreportoftheEDFIandOPIC.FortheMDBs(right)dataoriginatesfromannualreports–FXratesoriginatefromIMFandFederalReserveofStLouis.
Totalportfolio (xmillionUS$)BIO 622 BMI-SBI 22 CDC 5,998 COFIDES 865 DEG(KFW) 7,191 FINNFUND 602 FMO 9,256 IFU 572 NORFUND 1,573 OeEB 973 PROPARCO(AFD) 5,623 SIFEM 555 SIMEST 2,097 SOFID 11 SWEDFUND 376 EDFI(EU)
36,336
OPIC(USA) 21,500 Total 57,836
67
Year LocalCurrency FX TotalAssets
(xmillionUS$)
IFC 2016 US$90,434 1.00 90,434
ADB 2016 US$132,500 1.00 132,500
IDB 2016 US$122,616 1.00 122,616
AFDB 2015 UA25,347 1.40 35,528
EBRD 2015 €55,026 1.10 60,529
IsDB 2015 ID16,097 1.39 22,307
EIB 2015 €570,617 1.10 627,679
Total 1,091,592
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