Sustainable Finance and the Sustainable Development Goals

Sustainable Finance and the Sustainable Development Goals (SDGs)

 Arisa Kishigami and Dr Rory Sullivan

Chronos has worked with the First Sentier MUFG Sustainable Investment Institute on a research project and report - Time for Action? The Role of Sustainable Investing in Bridging the SDG Financing Gap – analysing the role that sustainable finance and responsible investment can play in supporting the SDGs.

The SDGs were adopted by the UN in 2015 in order to facilitate action on global developmental challenges and promote a sustainable future. The SDGs recognise the importance of taking effective action to protect the environment and respond to climate change, while also supporting social inclusion and sustainable economic development.

The SDGs are central to global efforts to address global developmental challenges and to promote a sustainable future. While there has been progress, no group of countries is on track to meet all 17 SDGs and that progress on some goals such as SDG1 (No Poverty) and SDG8 (Decent Work & Economic Growth) are said to be reversed in recent years. Sub-Saharan Africa, Oceania and Small Island Developing States experience the most challenges, and the largest achievement gap lies in lower-income and lower-middle income countries.

To date, progress on achieving the SDGs has been constrained by financing challenges. While at the time of launch the 2014 World Investment Report estimated that a total annual investment of between US$5 trillion and US$7 trillion was needed to achieve the SDGs, in 2022, the OECD estimated the financing gap was approximately US$3.9 trillion. In addition, there has been unequal distribution of capital investment in public services and infrastructure, with most investment occurring in high-income countries but with the greatest needs being in lower-income countries.

In addition to reviewing existing literature, the report is a practical tool for institutional investors who are considering how best to address the SDGs through their investment activities. These can be summarised into 3 key messages:

·       Clarifying the role of and relevance of SDG achievement for institutional investors:

Long-term investment success is dependent on factors such as access to a healthy and educated workforce, a healthy and resilient natural environment, high-quality infrastructure, and stable and resilient economic and political systems. That is, investors have a direct interest in the SDGs and in seeing the SDGs achieved.

·       Clarifying the challenges and policy measures needed to help investors fill the SDG financing gap:

Clear and coordinated policy support at the national and regional level is needed. Specifically, this includes de-risking investments into lower-income countries, strengthening the alignment of national and regional sustainable finance policies with the SDGs, integrating the SDGs into national stewardship codes, and promoting ownership of the SDGS in the financial industry.

·       A “Call for Action” which identifies the key actions investors can take:

·         Commitment: Explicitly committing to incorporating the SDGs into investment strategies

·         Direct investment: Through impact investing through private equity and green bonds, and sustainable infrastructure investment

·         Individual or collaborative engagement: with investee companies in line with the SDGs

·         Policy Engagement: to support policy making which help investors address the SDG delivery gap