BUS604: Innovation and Sustainability

Key Points

• Unlocking the US$2.4 trillion a year additional investment needed to achieve the Global Goals depends on orienting the global financial system towards long-term sustainable outcomes.
• In principle, there is no shortage of capital given that total financial assets stand at more than US$290 trillion and are growing by five percent a year.
• However, investors place a high premium on liquidity in their choice of assets, despite mounting evidence of the long-term outperformance of more sustainable investments.
• Three critical areas of action for business leaders to unlock Global Goals investment are:
  
• Creating an open-access and standardized system for companies to report on their performance on the Global Goals and enable sustainability benchmarking;
  
• Plugging the global infrastructure gap with a massive scale-up in the availability of blended finance to share risks between public and private investors; and
  
• Aligning financial regulation with the Global Goals, extending the work of the Financial Stability Board's Taskforce on Climate-Related Disclosures, and helping to make sustainable asset classes more investible at lower cost.
  

Business leaders who adopt the Global Goals as a growth strategy can do a lot to unlock the significant amount of long-term public and private investment needed to achieve them. The UN Sustainable Development Solutions Network (SDSN) values the total additional investment needed to achieve the Global Goals in all countries at US$2.4 trillion a year, around 11 percent of annual global savings, with the lion's share – around US$1.6 trillion – needed for infrastructure. 

There should be a big enough supply of capital available to finance the Global Goals. 

Financial assets currently exceed US$290 trillion and are growing at five percent a year. Nearly US$100 trillion is invested in pension funds, insurance companies, and investment funds, including sovereign wealth funds. As of November 2016, over US$11 trillion was invested in negative yielding sovereign bonds – capital that could be invested more productively elsewhere. 

However, that seemingly ample capital supply won't meet the investment demand generated by the Global Goals without major changes in the financial system. The main trouble is that too many investors want immediate results. Over half of CEOs report feeling under pressure to deliver financial results within a year or less, leading many to prioritize immediate shareholder rewards over investments for the future. 

Achieving the Global Goals depends on aligning the global financial system with sustainability and long-term outcomes. But the financial system consists of tens of thousands of institutional participants – including regulators, banks, insurance companies, stock and bond exchanges – and billions of individual market participants. 

Lengthening the investment horizon of so many market participants and attracting them to sustainable investments in line with the Global Goals requires clear thinking, individual and sectoral action, and unprecedented collaboration between the public and private sector. The financial sector is highly innovative and responsive to opportunity (see Box 10: Innovations in finance that can progress sustainable development). The Commission has identified three areas of action for business leaders to pursue in response to the Global Goals opportunities: standardizing and simplifying sustainability reporting; unlocking public and private investment in infrastructure; and aligning financial regulation and investment principles with sustainable development.

Rapid progress in these three areas will help investors, businesses, and governments to achieve the universal benefits of sustainable development in a joined-up fashion, and to share in those benefits themselves. But we recognise that financial customs and investment communities differ in different jurisdictions: the actions we suggest under the principles below are to be refined and adapted appropriately.