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Investors Can Plug SDG Funding Gaps Opened by Crises – M&G

The Covid-19 pandemic and the rising cost of energy have slowed progress on SDGs 7 and 10. 

New research has highlighted an increased need for private investment to fuel clean energy transition and reduce social inequalities, due to the negative impacts of global crises. 

UK-based asset manager M&G Investments’ third annual report on the UN Sustainable Development Goals (SDGs) noted that progress towards SDG 7 (affordable and clean energy) and SDG 10 (reduced inequalities) in particular has decreased over the past 12 months, marking them as areas of opportunity for investors. 

“There is currently a big strain limiting public funding towards SDGs, which should serve as a call to action for private investors to plug the gaps,” Susanne Grabinger, Investment Director of Sustainable and Impact Equities at M&G Investments, said during a webinar launching the report.  

She largely attributed the slowdown in progress on meeting SDGs to the impact of ongoing global crises. “The Covid-19 pandemic prompted lockdowns internationally and massively impacted the economy. There’s also the rising cost of energy, which has in turn exacerbated the cost-of-living crisis.” 

Some governments are taking steps to incentivise investment in domestic renewable energy capacity to bolster energy security, but are also reverting to fossil fuels in the short term, which undermines efforts to achieve SDG 7 by 2030, the report said. 

Although renewables like solar and wind are now cheaper than fossil fuels, more investment is needed to develop the necessary energy infrastructure so clean energy can be efficiently stored and consumed, it added. In 2021, just 17.7% of total global energy consumption was renewably generated, a marginal increase from 16.1% in 2020, according to independent research company Enerdata. 

Investors should target renewable energy opportunities in emerging markets and developing economies (EMDEs), Grabinger added. Although renewable energy per capita has increased by 57.6% globally since 2015, the UN has noted that the current pace of growth means it will take the least developed countries 40 years to catch up with developed and developing countries. 

“It’s a balancing act, as more energy infrastructure is needed in [EMDEs], but we need to continue upscaling renewables in richer countries, too,” Grabinger said. 

Socioeconomic inequalities have been exacerbated by Covid-19, the M&G report said, pointing to UN research outlining how the poorest have seen less growth in their income compared to national averages throughout the pandemic.  

However, SDG 10 is one of the global targets for which it’s “less clear how investors can contribute to solutions”, the M&G Investments report acknowledged. It noted that investing in companies in low- and middle-income countries that are supporting local communities – for example, providing access to healthcare or the internet – will contribute to the goal.  

Due to fiscal policy constraints caused by the pandemic, governments are expected to spend a total of US$59 trillion on security, such as providing relief to vulnerable populations at home, a recent report by the Force for Good initiative noted. 

The over total cost of achieving the SDGs has increased by 15-25% to US$134-176 trillion by 2030 due to inflation, it added, with the gap in funding rising to US$102-135 trillion.  

Globally, the finance sector delivered just US$2.5 trillion in SDG-aligned financing in 2021, the report said. While this is an increase from US$2.1 trillion the previous year, it’s far short of the level of investment needed, the initiative said.  

“Broad picture”  

Accurately tracking global progress towards achieving all 169 targets that fall under the SDGs is currently “too great a challenge”, according to Ben Constable Maxwell, M&G’s Head of Sustainable and Impact Investment.  

For the report, M&G selected one quantitative indicator for each of the 17 SDGs to “get a broad picture” of whether, and to what extent, progress is being made annually, he said. “While not perfectly representative of all the underlying targets, these are indicators we know can be measured year by year.” 

The indicator for SDG 10 is the global distribution of wealth, with the firm tracking the number of adults with assets of more than US$1 million. For SDG 9 (industry, innovation and infrastructure), M&G Investments is tracking the percentage of the global population that has access to the internet. 

Based on these indicators, M&G has given each SDG a score on a scale from one to ten. If it has a score of five or more, then it is on track towards delivering that goal. SDG 7’s score decreased from six to five over the assessment period, whereas SDG 10 dropped from three to two. 

According to M&G’s 17 chosen indicators, the world is currently only on track to achieve seven of the SDGs by 2030, with 15 of the goals seeing no improvement compared over the past 12 months. 

Asset owners have previously pointed out the challenges of finding consistent and meaningful ways to measure the contribution of their investments to the SDGs, according to research by EDM Council. They cited limited access to relevant data and the fact that the SDGs were designed to be “guiding concepts” as opposed to investment factors. 

“Investors have the responsibility and opportunity to drive capital towards those areas that most desperately need it,” said Constable Maxwell. 

“There is a significant tailwind behind investing in the SDGs, as they target the world’s most pressing challenges.”   

Last month, UN Secretary-General António Guterres and Csaba Kőrösi, President of the 77th General Assembly, called for more finance and investment from the public and private sectors to contribute to the delivery of the SDGs.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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