SDG500: the fund kickstarting sustainable investment
Jan. 19, 2020
• The SDGs could represent an business opportunity of $12 trillion.
• Individual entities targeting individual SDGs has so far not produced the level of financing required.
• The SDG500 is a broader blended finance approach aiming at wider impact.
Fireworks lit up the sky on 1 January to mark the start of the United Nations’ “decade for action” toward the 17 Sustainable Development Goals (SDGs). For people living in poverty around the globe – even the working poor – these goals are key to addressing intergenerational poverty and closing the inequality gaps between and within countries.
Last September, world leaders adopted a political declaration on “Gearing Up for a Decade of Action and Delivery for Sustainable Development,” but the reality is such actions need financing.
But signs are all around that there's a business case for financing the implementation of the SDGs. And a significant focus of the World Economic Forum's Annual Meeting in Davos this year is building fairer economies .
Have you read? Sovereign investment funds could be the answer to the SDGs
Simply put, achieving the SDGs is the most significant business opportunity right now. Some estimates value this opportunity at $12 trillion – and private sector actors are beginning to notice. For example, UN Secretary-General Antonio Guterres launched the Global Investors for Sustainable Development Alliance in October 2019, a coalition of 30 business leaders mobilizing resources for long-term sustainable investments.
Empirical research has shown that the opportunity is real – as the benefits will be. The International Trade Centre says increasing annual investments in small- and medium-sized enterprises by $1 trillion, for example, would yield disproportionate dividends in terms of progress towards the Sustainable Development Goals. These investments also have the potential to make healthy returns for investors and deliver profit with a purpose .
But individual entities targeting individual SDGs have failed to catalyze sufficient levels of private capital, and in fact much of the capital raised is being directed towards relatively low-risk investments.
Data confirms we must take a closer look at impact investment vehicles that incorporate blended finance approaches and have the potential to bridge this SDG financing gap. In many cases, using only blended finance vehicles has not achieved the necessary scale – they may be too small or too siloed to attract large institutional investors like pension funds or sovereign wealth funds. Besides, recent research has critiqued some blended-finance mechanisms as leveraging only $0.37 in private capital for every $1 of public money spent.
That is simply not good enough.
Our path to scale is clear. The last of the 17 Sustainable Development Goals calls for a variety of new partnerships as a means to reach the other goals. To achieve this goal, SDG500 will launch on 22 January in Davos – as a first-of-its-kind blended-finance impact-investment opportunity – mobilizing $500 million toward achieving the SDGs in emerging markets across six individual funds.
Each of the six funds follow a blended finance approach in partnership with a specific UN agency, development finance institution or international NGO. This impressive multistakeholder partnership marks the first time that several international organizations – including the International Fund for Agricultural Development , the United Nations Capital Development Fund , Smart Africa , the Stop TB Partnership , and the Inter-American Development Bank , alongside the International Trade Centre – have come together with international NGOs such as CARE and impact asset manager Bamboo Capital Partners in such a groundbreaking structure.
Every dollar invested by foundations and development finance institutions in the first loss triggers an additional $2.50 invested by the private sector in the senior tranches. This 1:2.5 ratio, at the scale of half a billion dollars, provides sovereign wealth funds, pension funds and family offices with the size and protection they need – as well as the guarantee that meaningful, measurable progress on the SDGs lies at the heart of the investment focus of the six funds.
The European Union, the governments of Luxembourg, Togo, Ivory Coast, Switzerland and the Alliance for a Green Revolution in Africa have committed funding to the SDG500 platform.
The platform will target businesses in the agriculture, finance, energy, education and healthcare sectors in Africa, Asia and Latin America. Importantly, the fund has a gender focus and will invest in businesses that empower and provide jobs for women – including through the participation of ITC’s innovative SheTrades platform, which aims to connect 3 million women entrepreneurs to market by 2021.
But don’t expect SDG500 to disappear in a puff of smoke after it launches. The platform anticipates reaching its target fund size of $500 million by June 2020. And it will begin deploying debt and equity into businesses already identified in an investment pipeline as early as February 2020.
Financing Sustainable Development The world’s economies are already absorbing the costs of climate change and a “business as usual” approach that is obsolete. Both scientific evidence and the dislocation of people are highlighting the urgent need to create a sustainable, inclusive and climate-resilient future. This will require no less than a transformation of our current economic model into one that generates long-term value by balancing natural, social, human and financial conditions. Cooperation between different stakeholders will be vital to developing the innovative strategies, partnerships and markets that will drive this transformation and allow us to raise the trillions of dollars in investments that are needed. To tackle these challenges, Financing Sustainable Development is one of the four focus areas at the World Economic Forum's 2019 Sustainable Development Impact summit . A range of sessions will spotlight the innovative financial models, pioneering solutions and scalable best practices that can mobilize capital for the the world's sustainable development goals. It will focus on the conditions that both public and private institutions should create to enable large-scale financing of sustainable development. It will also explore the role that governments, corporations, investors, philanthropists and consumers could play to deliver new ways of financing sustainable development. Show
The investment pipeline is strong, and the platform does not anticipate any problems with deal flow. The benefit of working with a wide variety of partners across different sectors is that resources can be pooled to create a robust pipeline with many viable investment cases that will achieve the investment platform's objectives.
At the 2019 Sustainable Development Summit, Mr. Guterres said, “We must step up our efforts. Now.” The launch of SDG500 at the start of this crucial decade is an immediate and tangible response to this plea.