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Industry Voices

Commentary: Driving capital to impact investing with an eye on 2030

Realizing sustainable development goals means undertaking a massive effort to deploy capital

In July, several aid groups came together to tackle what the United Nations called the biggest humanitarian crisis since the end of World War II: More than 20 million people in 10 African countries were at risk of famine.

Aid groups pulled together under the umbrella of the Global Emergency Response Coalition and went to work, backed by $1 million in matching donations from the PepsiCo Foundation and investment giant BlackRock (BLK) Inc. (BLK) Additional help came from large corporations such as Google and Twitter Inc.

One can easily see the role private capital plays in making a significant difference on the world stage. In the case of the African famine, a crisis was brought to light and large institutions mobilized to deploy capital. That essential help is heartening to see.

But the root causes of issues like hunger, global inequality and climate degradation still remain and require much greater and sustained capital allocation if we are going to bring an end to catastrophic famines and other avoidable disasters. Current resources, while hugely valuable, are insufficient to address these systemic challenges.

The world is facing a host of slow-motion crises that only long-term planning and continued resource allocation will fix. These problems, targeted in the United Nations' sustainable development goals, will require trillions in new capital per year. That sounds like a tall order.

But this number is not so intimidating when we take into account that many times that amount is invested each year, already working to deliver financial results. If investors broaden the targeted results of that capital to deliver impactful social or environmental progress alongside a financial return — the rapidly growing practice known as impact investing — then money of a scale capable of realizing the global goals will become available.

The case for impact investing, which has been practiced for decades and has really taken off in the past 10 years, has been made and proven. If all leading investment organizations began a concerted effort to dramatically increase their annual investment capital into impact investing, this could put the needed trillions to work each year focused on issues addressed by these ambitious and important global goals.

A change in thinking

When the United Nations developed the sustainable development goals in 2015, it did so with active private-sector input, and the recognition that it would be impossible to achieve the goals without private investment. In July 2017, U.N. Secretary General António Guterres reiterated this point when he addressed private-sector investors at the High Level Political Forum, a two-week gathering that met to examine progress on the global goals.

"We need to make sure that international financial institutions are able to leverage resources and multiply their capacity to fund the implementation of the SDGs," Mr. Guterres told the gathering of officials and stakeholders.

This suggests a significant change in global thinking. The United Nations traditionally has focused on the governments of its member nations and affiliated non-governmental organizations. But during the design and drafting of these goals, the U.N. acknowledged the tremendous untapped potential of the world's investment capital to contribute to positive global change.

The question is: Can it be effectively deployed at a scale that will match the scale of the need?

We hear support for the sustainable development goals from investors in our global network of banks, institutional investors, asset managers, and others. There is growing recognition that the SDGs provide a useful framework and common language with which to talk about investments that tackle global challenges. Investors are beginning to use this framework as an organizing tool with which to align their investments with the global goals. This is a great first step.

Alignment, though, is not enough. We need large sums of new capital being put to work to complement government aid and philanthropy. Unless we can change the way investors allocate capital, change "business as usual" to incorporate considerations of impact alongside financial return, capital resources will be insufficient for realizing these goals.

Barriers need to be overcome if we are to unlock this valuable source of capital. While impact investing is at an exciting inflection point with many people looking to become involved, some institutional investors are considering the next steps of tactical action, and are frustrated by the mismatch between SDG investment products on offer and their criteria for deploying capital.

Institutional investors command massive amounts of capital, but they also have very specific requirements for their financial products. We often hear from institutional investors and financial advisers that they are interested in the global goals, but that there is still a dearth of financial products that meet their criteria. The industry needs to work together to make it easier for institutional investors to put money into impact-focused financial products.

Expand communication

To that end, the Global Impact Investing Network — as a non-profit organization committed to increasing the scale and effectiveness of impact investing — will be working to expand the lines of communication between large-scale investors and product developers in order to help bridge the gap between motivated investors and projects that will have an impact on sustainable development. As part of our new institutional investor initiative, we will be calling for:

  • investors to be more explicit and transparent about their investment criteria and needs;
  • product developers to respond to those needs; and
  • more co-creation encouraging asset owners and asset managers to work more closely together to develop and test new products in order to design fit-for-purpose products addressing SDG areas.

As part of our continuing work helping to drive positive solutions to global challenges and break down barriers to investment, the GIIN will be convening asset owners and asset managers to work together to address the misalignment between the supply of capital and the products being marketed.

The sustainable development goals are hugely ambitious, and could be easy to write off as unachievable. The best way to ensure adequate capital is put toward making them a reality is to tap into the investment capital that is already at work, and there is no better synthesis of return-focused capital investing and issue-focused impact than impact investing.

There is still too much capital sitting on the sidelines, which the world needs to be put to work in order to safeguard the future of our children, our communities, and our planet.

Amit Bouri is co-founder and CEO of the New York-based Global Impact Investing Network. This article represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.