How institutional investors can engage with the new Impact Economy, and use the Sustainable Development Goals to create financial products that drive financial returns through creating social and environmental value.
By the 17 Asset Management Research Unit. Published April, 2019
By embracing intentionality, institutional investors can channel capital towards impact-focused opportunities. The Sustainable Development Goals (SDGs) can serve as a framework for doing so, providing a language for measuring impact across 17 comprehensive and collectively exhaustive impact Goals. By evaluating SDG achievement gaps, the Goals bring to light an unprecedented opportunity to act on and invest in solving the world's most pressing challenges. And yet, there is still minimal involvement from institutional investors, leading to a large funding gap for the SDGs and a missed opportunity to reconcile financial interest with long term global needs. A lack of effective financial intermediaries that can align capital to the SDGs, institutional investors' nascent understanding of the SDGs as a standalone impact framework, and unanswered questions about standardizing risk, return, and impact tradeoffs have all limited the involvement of large asset owners.
In this report we identify a small and growing community of institutions - insurance companies, pension funds and sovereign wealth funds, among others who have taken a first step in this direction. These early-movers and sample investment strategies can help pave the way for a framework that guides asset owners' engagement with the SDGs. We also pinpoint several specific strategies that institutional investors can leverage to productively invest in the SDGs. Ultimately, the SDGs have provided a historic opportunity; a moonshot for asset owners, managers and advisers to lead the capital markets towards a new impact economy, a system in which both financial and social returns are complementary and help to ensure a sustainable and prosperous future.