The report recognizes progress towards ESG investing but stresses this progress is not enough: SDG investment is “still trillions of dollars short of the capital needed”.
The COVID-19 pandemic has widened the capital gap between emerging and developing markets and “made the imperative to act even stronger”.
Respondents identified several factors that could increase SDG investment, including evidence of higher returns, regulatory changes, favorable tax treatment, increased demand from retail investors, and better data for measuring impact.
A survey of the world’s top 300 investment firms finds that investment is not going where it is needed to achieve the SDGs: only 20% of firms are aware of the SDGs and only 13% of their USD50 trillion of investment is linked to the SDGs. The survey explores how to close the emerging market sustainable investment gap to achieve strong returns and significant, positive impacts.
Between July and August 2020, Standard Chartered surveyed the world’s top investment firms, with combined total assets under management (AUM) of more than USD50 trillion. The results show that:
- Almost two-thirds of respondents’ AUM are currently invested in Europe and North America;
- Asia makes up 22% of AUM;
- Only 10% is invested in the Middle East, Africa, and South America combined; and
- Currently, 68% of respondents’ investments are related to SDG 6 (clean water and sanitation), SDG 7 (affordable and clean energy), and SDG 9 (industry, innovation and infrastructure).
The company shared the findings in an interactive report titled, ‘The $50 Trillion Question,’ which argues that sustainable investment is gathering pace, as 81% of firms have moved beyond screening to a more integrated, focused approach to environmental, social, and governance (ESG) investment. However, this progress is not enough: SDG investment is “still trillions of dollars short of the capital needed to meet their 2030 target.” Further, the “vast proportion” of ESG strategies do not relate directly to meeting the SDGs; the report argues that conscious consideration on how impact can be delivered to meet the SDGs is critical for ESG investment to deliver on the 2030 Agenda.
The main barriers to emerging-market investment are reported to be: market volatility, bribery and corruption risk, government and interference in business, heightened political risk, and expected returns not justifying the increased use. On barriers to benchmarking investments against the SDGs, 55% of respondents said the SDGs are not relevant to mainstream investment, and 47% said that SDG investment is too difficult to measure. In addition, 66% said they do not make investments that contribute to the SDGs. At the same time, 50% responded that they plan to start measuring investments against the SDGs.
On tools and incentives, 63% of respondents said more SDG investment would be spurred by favorable tax treatment of SDG-linked investments, as well as more evidence that investing in SDGs will not lead to underperformance.
The report argues that the COVID-19 pandemic “has made the imperative to act even stronger.” The report suggests that the SDGs can become a strategic framework for simultaneously achieving returns and impact. According to 74% of investors surveyed, a green recovery that focuses on cutting carbon dioxide (CO2) emissions as part of a “build back better” approach is now a global priority. In addition, 61% said the COVID-19 crisis has encouraged their firm to direct investment towards a green recovery.
The report also features a section on how Standard Chartered is helping to close the SDG capital gap. In 2019, Standard Chartered launched the world’s first Sustainable Deposition, in which every dollar deposited is referenced against sustainable assets that support SDG delivery. Standard Chartered first highlighted the multi-trillion-dollar opportunity for private-sector investors to help achieve the SDGs in emerging markets in a report, ‘Opportunity 2020: The Standard Chartered SDG Investment Map.’ [Publication: The $50 Trillion Question] [Business Wire press release]