The CEOs of Allianz, Bank of America, Citigroup, ICBC, Pimco and UBS are among 30 heads of big companies, especially financial firms, that have pledged to work together over the next two years to tackle the blockages that stop trillions of dollars of private investment flowing to poor countries.
The group, dubbed the Global Investors in Sustainable Development Alliance, is part of the UN’s strategy for financing the Sustainable Development Goals. It was announced in April by António Guterres, the UN secretary-general. The launch was originally scheduled to coincide with the UN General Assembly in September but Guterres delayed it so he would have more time to spend with the CEOs.
“We face widening inequality, increased devastation from conflicts and disasters and a rapidly warming Earth,” said Guterres, launching the GISD in New York on Wednesday October 16. “These leaders have seized our sense of urgency, recognising that our pace must be at a run, not a crawl. They are committing to cooperate across borders, across financial sectors and even with their competitors, because it is both ethical and good business sense to invest in sustainable development for all people on a healthy planet.”
The UN’s Department of Economic and Social Affairs (DESA) and the Swedish International Development Cooperation Agency (Sida) developed the group, based on the design of a Swedish investor group. It is also backed by the UN Conference on Trade and Development.
“Even though we are starting with 30 members the goal is to grow it quickly,” said Scott Mather, who heads Pimco’s global sustainable investing work (pictured). “Already the firms have about $16tr of assets. These are people we think can get at some of the market problems. What will make this different is it is involving a lot of C-suite people, not investor relations departments or sustainability departments, to kickstart a new level of initiative from the private sector.”
The UN says $2.6tr is needed a year, just in developing countries, mainly for health, education, climate action and infrastructure. Its research indicates there is no shortage of private money that could be invested in sustainable development. “However, a combination of factors, including the policy environment, incentive structures and institutional conditions, tend to discourage the kind of long term commitment that is needed,” the UN said.
Mather said he did not believe investors could invest in sustainable development if they wanted, but were holding back because they did not want to make the effort.
“Especially from the largest institutional investors, we hear that there are great business opportunities in emerging markets, but they can’t be accessed very easily,” said Mather. “Sometimes you need an enabling regime in the country, or currency convertibility is a barrier. Sometimes there’s a data problem or you need better disclosure.”
The GISD aims to find solutions to these policy and institutional obstacles. It will have working groups on: increasing the supply of long term investment for sustainable development; realising SDG opportunities in developing countries; and enhancing the impact of private investment.
“The prospects are pretty huge,” said Steve Waygood, chief responsible investment officer at Aviva Investors, another member. “As it is the US, it doesn’t do regulation. What it does is convening and production of norms. The potential for the institutions around the table to think through what new forms of best practice could be, and then to lead by example, definitely exists. With the constellation of companies round the table there is a plausible prospect.”
Oliver Bäte, CEO of Allianz, and Leila Fourie, CEO of the Johannesburg Stock Exchange, are co-chairs.
“The beauty of it is it doesn’t have to be a consensus agreement,” said Waygood. “It can be the best ideas from the best brains in the world on sustainable finance.” But the group would not just come up with new ideas - it would peer-review them, to identify the best ones.
Waygood said what inspired him was "hearing such senior people talking about what they are doing in sustainability and recognising that collectively it's not enough."
The $1tr estimate from the International Energy Agency for the annual investment needed to shift the economy to zero carbon was, Waygood said, equivalent to four times the total cost, in today's money, of the US post-war Marshall Plan for Europe and the Apollo moon landing programme - every year.
"In private markets there is easily enough capital," Waygood said. "What we need to do is align incentives" so that investment flows to the right ends.
The UN should have a goal, he argued, for every member state to have its own sustainable finance action plan, similar to those in China, the EU, UK and other countries.
Central to this should be freeing citizens so that they could drive sustainable investment themselves. "Hundreds of millions of people are disenfranchised by conventional markets," Waygood said. "They are left behind - they can't participate in [the green economy's] growth."
Some are too poor and financially excluded; others have savings but little control over how these are invested.
At the moment, very few financial institutions ask clients at the point of sale if they have any concerns about environmental, social and governance issues or climate change, as well as about their risk-return preferences, and advise them accordingly. Firms like Aviva have been advocating that this is included in Europe's Mifid 2 regulations. Under the EU Sustainable Finance Action Plan, this will be required "almost certainly towards the end of next year," Waygood said.
He believes that, if savers are asked in this way, "The vast majority of people will care, and a significant number will take action. If we can create the same nudge globally, the concept of money supporting sustainable development globally is more plausible."
Reforming barriers in the Basel III and Solvency II EU directives, and in stock market listing rules should be on the agenda, he said.
Mather said it was not just about altering regulations - "there are things we can do in the private sector on our own."
"There are many business opportunities and returns available, but money is not flowing because there is no vehicle, or no way to do it in a diversified way," he said. Pimco is working on ideas through which bond investors could finance renewable energy infrastructure in emerging markets. "We think we've got good ways of sourcing the opportunities," he said. "If we do it at scale it could be a big opportunity." Scale is important because the big pools of money do not want to be bothered with investing $20m here and there, and having to track the effects.
There were lots of opportunities for public-private partnerships in emerging markets, he said, adding that the European Union had unused guarantee capacity.
Some of the work would be developing market mechanisms such as green bonds and "innovative financial instruments that everyone can access," said Mather.
But the biggest impact would be in poorer regions. "The UN can play a central role in convening political leaders," Mather said.
“As with any UN report, the key is it doesn’t just sit on a shelf and gather dust," said Waygood. "Even a report to the UN secretary-general needs to live free, and there are some interesting things going on with the ecosystem around the UN that can help make that happen.”