Are emerging markets getting the private-sector investment they need for the SDGs to be achieved by 2030?

Investors have a critical role to play in achieving the 2030 UN Sustainable Development Goals (SDGs) but, at the current rate, the goals will be missed with progress being hampered by bias in favour of investments in developed markets.

The SDG investment gapThe Sustainable Development Goals (SDGs) address the biggest global challenges faced by humanity, including poverty, inequality and climate change. In addition to public sector commitments, the goals offer an opportunity for the private sector to generate strong investment returns while aiding long-term sustainable development.Our Opportunity2030 report, published at the start of 2020, revealed a USD10 trillion private sector investment opportunity in contributing to three of the SDGs in 15 emerging markets. It concentrated on the most investable infrastructure-focused SDGs: SDG 6 (Clean Water and Sanitation), SDG 7 (Affordable and Clean Energy) and SDG 9 (Industry, Innovation and Infrastructure).Now, in asking the $50 Trillion Question, we find that investment isn’t flowing into emerging markets at the speed needed to meet the SDGs by 2030. Global investors overwhelmingly focus their assets under management (AUM) on developed markets. A radical shift in favour of emerging markets and SDG-linked investments would be required, if humanity’s biggest project is to succeed.

_{¹As revealed in Opportunity2030, the private sector opportunity in SDG 6 is relatively minor compared to SDGs 7 and 9, which is why this study will concentrate on the greater opportunities found in the latter two.}

The SDGs: a question of commitmentThere are less than 10 years to achieve the SDGs, but investors estimate that only 13 per cent of their AUM is directed towards SDG-linked investments.While almost all investors (97 per cent) plan to increase these investments between now and 2030, just 14 per cent are currently using the SDGs as a framework for their investments. One fifth of the asset managers we spoke to are not even aware of the SDGs.

How do we unlock SDG investment?

^{_{Increasingly, investors are not willing to settle for returns alone: they also want their investments to have a positive impact – a measurable improvement to the lives of the populations they touch and the planet we share. There is an appetite in the market for sustainable products and emerging market investors are keen to make a difference in their home markets. But how you measure that ‘difference’ and what impact truly means are often harder than you might think to pin down.

To translate this interest into action, education and perception are important. While interest is high, apprehension is high too. Investors are concerned that emerging market investments are high-risk, and that perception needs to be counterbalanced with reward – both financial returns and measurable impact.

Improving education on SDG-linked investments and how we as financial institutions quantify impact will be key to increasing sustainable investment and unlocking the finance needed to achieve the SDGs.}}

Didier von Daeniken
^{Global Head, Private Banking}

_{^{To make a real difference, we need to catalyse, standardise and democratise sustainable finance.

The UN puts the SDG-funding gap at USD2.5 trillion a year, which means we need to mobilise far more sustainable finance, and really catalyse everyone’s efforts in this space. Standardisation is another key priority, as lack of information and transparency on impact is one of the biggest obstacles to raising more sustainable finance. Standardisation can help nascent markets grow and also protect against the risk of ‘green or SDG washing’. This is evident in the success of the principles and common definitions that have been agreed for the green and sustainable bond markets.

Finally, we need to democratise the benefits of sustainable finance to ensure capital flows to the markets most in need of it. For example, funding is not currently flowing to the markets that are at greatest risk from climate change, but actually have the biggest opportunity to leapfrog to low-carbon technology. That’s why we’re proud that 91 per cent of Standard Chartered’s USD3.9 billion of verified Sustainable Financing is in emerging markets.}}