Estimates of the finance needed to achieve the Sustainable Development Goals (SDGs) stand between USD 2.5–USD 3 trillion a year, the majority of which is needed in developing countries. While this may seem like a lot, gross world product and global gross financial assets are estimated to be over USD 80 trillion and USD 200 trillion respectively. The finance gap is not a result of the lack or availability of capital.
Nor is it a result of a failure to acknowledge the return on investment for SDG-related funds, firms and projects. Estimates suggest that achieving the SDGs could unlock up to USD 12 trillion in market opportunities and create more than 380 million jobs. This sits against an established backdrop of the economic and ethical rationale for wider environmental, social and governance (ESG) investing. Not only is investing in the ESG the ‘"right thing to do," the business case is clear and backed by stable performance.
Instead, progress towards achieving the SDGs is being prevented by a lack of data disclosure and standardization. Assessing which funds and firms offer a positive environmental impact is not straightforward. The lack of data disclosure and standardization is blocking the flow of capital since investors do not know how to measure or compare. Where data and disclosure do exist, investment pours in.
The lack of standardization is another critical roadblock. Differences in terminologies, definitions, measurement practices and reporting metrics and timeframes make cross-firm comparability difficult. These issues are mirrored in the green bond market.
The good news is that an increasing number of firms are making environmental commitments; to reduce carbon emissions, to become carbon-neutral, to be powered by 100% renewable energy. But this rhetoric must be backed up with targets and policies that establish benchmarks, demonstrate progress and allow for transparent reporting. While the capital needed to achieve the 17 SDGs (and unlock a further USD 12 trillion in market opportunities) is available, data disclosure and standardization are blocking investment flows.
The new SDG500 Fund aims to mobilize USD 500 million toward achieving the SDGs in emerging markets across six individual funds and may present a way forward.
And finally, policy initiatives like the EU taxonomy are helping by setting disclosure requirements for green activities, thus unlocking access to information on ESG performance.