The Sustainable Development Goals (SDGs) are a network of goals set up by the United Nations to address the pressing universal challenges of our time. These goals are “a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.”1 However, a look at the current state of the funding mechanisms shows a stark contrast between the price tag to achieve these goals by 2030, and the actual financial resources that are available. In this regard, the United Nations Conference on Trade and Development (UNCTAD) estimated that achieving the SDGs will take between 5 trillion to 7 trillion US Dollar with an investment gap in developing countries of about 2.5 trillion US Dollar. This significant sum cannot merely be funded by development assistance and public capital.
Who is going to cover these gaps and how? All over the world, self-identified impact investors have led the way and tried to figure out innovative ways to finance this deficit from private capital. Thedays of “funding” out of a moral imperative are over; instead “impact investments” are investments made with the intentions to generate positive, measurable social and environmental impact alongside a financial return. The impact investing market has a considerable amount of assets under management. According to the 2018 Annual Impact Investors Survey, conducted by the Global Impact Investor Network, these assets under management amounted to a total value of about 228 billion US Dollar.
Recently, the global industry association for private equity in emerging markets, more commonly known as the Emerging Market Private Equity Association (EMPEA), set out to understand how to contribute towards the achievement of the SDGs through the lens of private equity. The result was a report released by the EMPEA titled “Private Equity’s Role in Delivering the SDGs: Current Approaches and Best Practices.”
Some of the key points that were identified in the report are:
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When investors are active in under-served emerging markets, they have the potential to drive meaningful impact at an unprecedented scale and speed.
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In reality, commitment to the achievement of the SDG agenda is hardly a selection criterion for an investment decision.
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There is an opportunity for the private equity industry to collaborate and build consensus with the ultimate goal of developing a common approach to ensure the necessary investment in the SDGs.
However, in this regard it must be noted that some private equity investing firms have already started setting up funds that are solely focused on impact investing. A good example is the RISE FUND of TPG Capital. Earlier this year the RISE fund acquired a 47.5 million US Dollar share of the Cellulant Corporation, a digital payments provider in Africa.
Lastly, there are some practical steps that traditional investors, for example private equity firms, must keep in mind when they are serious about impact investing.
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Private equity firms should take the necessary time to develop the so called “impact narrative” in their investments to avoid any form of “impact washing”.
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Impact should become embedded into the business models. In this regard, traditional investors should be as “intentional” about measuring and tracking the impact as they are about tracking the financial trajectory of a business.
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The current ESG frameworks have to adapt and align with the aforementioned two points regarding the “impact narrative” and “intentionality”.
It will be interesting to observe the future convergence of private capital and the development objectives!
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1 http://www.undp.org/content/undp/en/home/blog/2017/7/13/What-kind-of-bl…- .html
DISCLAIMER:
The views expressed in this article are the author's own and do not necessarily reflect the SDG Philanthropy Platform. The SDG Philanthropy Platform is a global initiative that connects philanthropy with knowledge and networks that can deepen collaboration, leverage resources and sustain impact, driving SDG delivery within national development planning. It is led by the United Nations Development Programme (UNDP) and Rockefeller Philanthropy Advisors (RPA), and supported by the Conrad N. Hilton Foundation, Ford Foundation, Oak Foundation, Brach Family Charitable Foundation, and many others.