Time for a New Normal in Global Capital Markets: Advancing Investment in the Sustainable Development Goals (SDGs)

Last week, national governments, business, and civil society leaders came together at the United Nations’ High-level Political Forum (HLPF) in New York. With C-Change, we were asked to address attendees to the SDG Business Forum following our report SDG Investing: Advancing A New Normal in Global Capital Markets. The report, jointly commissioned by United Nations Department of Economic and Social Affairs (UN-DESA), reviews prevalent barriers to investing in social and environmental impact and begins to describe the toolkit that the public sector can tap into, to trigger change.

At C-Change we envision a world where businesses and investors lead the way in solving the biggest problems of our time. Where a 'new normal' in global capital markets is achieved and these markets are wired to deliver on both profit and purpose. Our mission is not only trigger greater action within the sector, but also equip all business and investors with the tools they need to provide a strategic and meaningful contribution to the SDGs.

We did this in The Netherlands, where last year together with the Dutch financial sector, we presented a national SDG investing (SDGI) agenda to the Dutch Minister for Development Ploumen and the Executive Director of the Dutch Central Bank. We are doing this at a global level, through our convening, research, and innovative partnership technology, IMPACT PRO(Filer), a LinkedIn like SDG community portal - already used by the Dutch government to profile national SDG contributions. Our hope for this report is that it will help create a sense of urgency for the investor community to change its game and for governments to take full advantage of the ‘sticks and carrots’ it has at its disposal to advance SDGI.

The SDGI Need & Opportunity

In their excellent report, the Business & Sustainable Development Commission rightly concluded that the SDGs represent a significant $12 trillion dollar business opportunity, $13 trillion if externalities are included.

Yet, as Lise Kingo (Executive Director at UN Global Compact) flagged during the SDG Business Forum, we are far from reaching the scale and impact needed to achieve the Global Goals: A sea change is needed. Even the pioneers in this space, many of whom were present at the Forum, cannot lean back. We need to continuously hold ourselves and the markets in which we operate to a higher bar.

Earlier this year, the Financing for Development Office and the Division for Sustainable Development at UN-DESA, commissioned our team to provide an honest perspective on the role of sustainability – or lack thereof! - in markets today. The report provides a review of mainstream investor perspectives as well as concrete actions the global, regional, and local governments can take to advance what we've come to call 'SDG investment’: All investments and portfolios where societal factors form a 'material' factor in investment decisions.

A New Term: Really?
We can already imagine the reactions among the investment community. A new term. Really? Two comments to this important concern, which we agree cannot be underestimated. Enough time is spent already trying to agree on shared definitions. First and foremost, SDGI is not trying to redefine the market. In reality, it is not more than a lumping together of the investment strategies offered by Bridges Ventures (2016) below, and which have been recognized by many.

We believe that the added value of this umbrella term is that it forces a parallel, yet distinct conversation about the two major shifts that are needed in markets today:

(1) A shift towards a world where all investments are reviewed for their societal impact, versus only 26% or ~ $23 trillion of global Assets under Management (AuM) today; and

(2) A shift whereby an ecosystem emerges where investors are triggered and equipped to maximize the positive contributions of each investment dollar while staying within their required risk and return expectations. (Strikingly, impact investing constituted only an estimated 250Bn in 2015, less than 1% of SDGI)

 

Figure 1: SDG Investing: Recognized Investment Strategies, Lumped Together



Figure 2: A 2-Pronged Market Conversion Challenge
 

Key insights from the report are by no means all new and recognize the research and contributions of many experts and practitioners in the field. It concludes:


1 – Despite Momentum, Barriers to SDGI Prevail - Despite momentum, significant practical barriers exist that cut across the demand, supply, intermediation, and infrastructural sides of markets. I would add to this a barrier related to what constitutes ‘value’ and the importance of shifting away from 'shortermism'. I'll cite an insurance firm investment officer who in my conversation with him noted that the word 'impact' is still a dirty word for many investors. Something that ultimately needs to change to build markets that are future proof.

“If I use the word “impact” with other investors, I am dead” – Investment Officer

2 – The SDGs: A Powerful Silo’buster, Yet Not An Investment Framework (Yet) – The SDGs offers a powerful framework for building momentum, bringing sectors together, and putting sustainability on the radar screen of the investor community. It is not (yet) ready to be the evaluation frame of record, yet has the potential to offer a shared language and framework in future. The work of GRI, PRI, UNEP, but also by initiatives like Aviva's benchmarking initiative may offer resolve here. See www.sdgi-nl.org for an early overview of standards and SDG reporting approaches (2016).

3 – Governments Have a Powerful ‘Toolkit’ at Their Disposal – The public sector play a powerful role, not just as a policy maker, or regulator, but also as but also as co-investor or buyer, or orchestrator of cross-sectoral action agendas. The report offers a number of high-impact, or innovative solutions for unlocking value. In doing so, watching both the front door where positive change is achieved, and the backdoor - where harm is done is critical, as is ensuring stable, resilient financial systems are in place. At the risk of stating the obvious, the role of local government across developed, emerging, and developing nations is key. The report provides an extensive overview of mechanisms and innovative solutions.

4 - And finally –Interim Milestones Are Needed – Bringing in place clear interim SDGI milestones, perhaps even extending Nationally Determined Contributions to cover all SDGs, can help signal a long-term commitment to sustainability and the SDGs, an important lever in minimizing the perceived risks associated to embracing the SDGs and maximizing the perceived value of doing so. Since publication, progress has been made already by groups like the Inter-Agency Taskforce on Financing for Development (www.developmentfinance.un.org)

In closing, the SDGs are everybody's business. We are grateful to the investors we spoke with for their frank reactions, are highly committed to contribute to this agenda, and are hopeful that our research, convening, and IMPACT PRO technology can help to deepen our JOINT investment and delivery capacity. 

Time for a new normal.

 

About the Authors:
Carolien de Bruin is the founder and CEO of C-Change (
www.c-change.io). She formerly led Deloitte’s global impact investing activities from New York, and served as interim COO at the Bertha Centre for Social Innovation & Entrepreneurship in South Africa.

Dr. Maarten Biermans is head of ESG policy and dialogue at Rabobank and co-author of the report and affiliated to Tilburg University. Mr. Biermans is a specialist in impact investing and ESG integration in private equity and an advisor to C-Change.