The Sustainable Development Goals – how asset managers can help address the world’s major challenges

It has been four years since the United Nations launched its ambitious 17 Sustainable Development Goals (SDGs). Through them, governments, companies and civil society are aiming to address some of the world’s biggest environmental and societal challenges. These include rising inequality, climate change and unsustainable production & consumption.

The SDGs were designed to guide global policy and funding over 15 years. The goals are far-reaching and estimates of the cost of achieving them range from US$5 - 7 trillion a year. This can only be done through partnership between policymakers, regulators, academia, philanthropists and the corporate world.

Global asset managers, with over $80 trillion of assets under management, have and will continue to play a vital role in the endeavour. By allocating capital in alignment with the SDGs, they can deliver dual outcomes of positive social and environmental change, alongside attractive financial returns. We believe the popularity of such investments will only grow.

For one thing, global sentiment has shifted and many of us have started to realise the magnitude of the task ahead. According to the 2020 World Economic Forum Global Risks Report, the most pressing issues facing the planet are substantially different from a decade ago. In 2010, respondents – with the fallout from the Global Financial Crisis still fresh in their minds – were primarily concerned about economic risks. This year, however, environmental concerns dominated the list. Indeed, the top three risks were extreme weather, climate action failure and natural disasters.

Global emerging markets

One area of particular focus is global emerging markets, where the list of challenges is extensive. According to Brookings, incremental spending needs in low and lower-middle-income countries may amount to at least $1.4 trillion per year to meet the SDGs.

Take water and sanitation. Per capita water resources are declining, and 80-90% of waste water is discharged without treatment in developing countries. Then there is financial inclusion. The World Bank estimates 31% of the world’s adult population has no access to financial services within the traditional financial system.

Meanwhile, the needs for sustainable real estate and infrastructure in emerging markets are diverse and substantial. The Asian Development Bank projected that $26 trillion will be needed between 2016 and 2030 in its developing member countries to address shortfalls, particularly in power and transport.

Adequate health provision and social care are as vital ever. Out-of-pocket spending as a share of total healthcare expenditure is still high in many countries. In 2012, for example, the level was 63% in Bangladesh and 71% in Myanmar. And of course there is food and agriculture to consider. Arable land per capita is decreasing, and about 85% of the global fish stocks are fully fished, overfished or have collapsed.

Investment opportunities

One of the most effective ways asset managers can help address these issues is by allocating capital in areas of alignment with the SDGs. This includes opportunities in areas of high need and demand, such as sustainable manufacturing practices, improving the quality of education, financial inclusion and environmental initiatives to combat climate change.

The types of company operating here include Safaricom, a Kenyan mobile and financial services firm. Its strategy centres on improving the quality of life for people in Kenya through its cashless money transfer service M-PESA. Or Medikaloka Hermina, which is helping Indonesians achieve access to quality, essential healthcare services. The list of companies goes on.

Further, asset managers can also help by actively engaging with companies to encourage best practice, increase alignment with the SDGs and help management better disclose SDG activities.

One of the most effective ways asset managers can help address these issues is by allocating capital in areas of alignment with the SDGs.

Final thoughts…

As then-UN secretary Ban Ki-moon said: “The 17 Sustainable SDGs are our shared vision of humanity and a social contract between the world’s leaders and the people”. Given the devastating events of 2020, we believe it is more important than ever that we all work together to help meet the challenges facing the world. By investing in line with the SDGs, asset managers can do just that – while helping secure a financial future for their clients.

 

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Risk warning

Risk Warning

The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.