At a time of rising temperatures and shrinking forests, when more than 800 million people are undernourished and nearly a third of the global population lacks safe drinking water,1 the world’s environmental and social challenges can seem insurmountable. And yet, the desire of private investors to help find and create solutions keeps growing.
Since 2007, The Global Impact Investing Network (GIIN) estimates that more than 1,340 organizations now manage $502 billion in impact investing assets worldwide.2
But what will it take to translate desire into tangible, lasting solutions for problems so large? The world has trillions of dollars to invest in infrastructure and environmental change. The question is, can it get organized? It’s a question the United Nations Sustainable Development Goals (SDGs) seek to answer—and in doing so provide both individual and institutional investors the opportunity to put their money where it has the greatest impact.
While you can’t invest directly in SDGs, the goals create a roadmap for putting the vast power of capitalism to work on 17 goals that range from ending world hunger to increasing access to clean and renewable energy. That means funding industries that are working to develop products and solutions to meet the goals outlined by the SDGs. And it means financial firms developing innovative investment opportunities large enough to address global needs, yet flexible enough to attract institutional or individual investors at whatever level of risk and reward is most comfortable for them.
Solutions as large as the challenges
“The SDGs are a game changer because they have been designed with private investors in mind," says Jackie VanderBrug, head of Sustainable & Impact Investment Strategy for the Chief Investment Office. “Now, individuals can direct their investment dollars to join the movement to harness trillions of dollars in capital toward creating a more sustainable future for us all.”
“These 17 broad, interrelated sustainability goals are supported by clearly defined measurement requirements and success metrics," according to a report, “IMPACTONOMICS: The Emergence of Sustainable Development Goals," by the Chief Investment Office, Merrill and Bank of America Private Bank.
Investors seeking more competitive returns may find them in industries, technologies and companies developing new products aligned with SDGs. The Business and Sustainable Development Commission identified a potential $12 trillion per year in market opportunities across just four areas—food and agriculture, cities, energy and materials, and health and well-being.3
"The Business and Sustainable Development Commission identified a potential $12 trillion per year in market opportunities."
Opportunities could include investing in companies developing new technologies to reduce energy use in buildings, sensors enabling doctors to monitor patients remotely to address medical conditions before they become a problem, or technologies that help reduce food waste by getting produce to market faster. In one investor survey, 88% said they would be willing to select investments that align with SDGs, “as long as they could achieve market-level investment outcomes over the long run.”4
Such opportunities are sure to expand in the months and years ahead. According the U.N., achieving all 17 will require between $5 and $7 trillion a year5—a level that traditional sources such as government funding or nonprofit grants won’t be able to meet. Yet, considering the global equities market reached $85 trillion in 20186, private investment, combined with the SDG blueprint, could put success within reach. Says VanderBrug, “People very much believe in the power of capitalism to make a difference."
Businesses working for a better world
Achieving the United Nations Sustainable Development Goals will require active participation by private companies. For its part, Bank of America is committed to developing innovative financing for SDGs such as affordable housing, clean water and sanitation, education, health care and renewable energy. For example, the bank recently announced a $300 billion environmental business goal, achievable by 2030, to help accelerate the transition to a low-carbon economy. The bank’s Environmental Business Initiative also supports several nonprofits working to develop solutions to various SDGs. These include Water.org’s microfinance solution, WaterCredit, which helps provide small loans to individuals for clean water and sanitation, and the GivePower Foundation, which used innovative solar technology to power a desalinization plant in Kenya, providing water for more than 30,000 people.
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Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.