Global Goals Yearbook 2018

macondogroup

The future of the United Nations is more uncertain than at any time before. Like his predecessors, UN Secretary General, Antonio Guterres, has promised to reform the United Nations. Drivers are two major agreements: The 2030 Agenda for Sustainable Development and the Paris Climate Accord. Both stand for a move away from statal top-down multilateralism towards new form of partnership between the public and the private sector as well as the civil society. The Global Goals Yearbook, published under the auspices of the macondo foundation, therefore covers „Partnership for the Goals“ as its 2018 main topic. Our world is truly not sustainable at this time. To make the 2030 Agenda for Sustainable Development a success story, we need an enormous increase in effort. This cannot happen without help from the private sector. But businesses need a reason to contribute as well as attractive partnerships that are based on win-win constellations. We have no alternative but to rethink the role that public–private partnerships can play in this effort. That is why United Nations Secretary-General António Guterres is calling upon UN entities to strengthen and better align their private-sector engagement. In every change there is a new chance. The Global Goals Yearbook 2018 discusses the multiple aspects of how private sector engagement can be improved. Recommendations are, among others, to revise multilaterism, partnership models and processes and to invest more in trust, a failure culture as well as metrics and monitoring. When businesses engage in partnerships for the Goals, this is more than just signing checks. It means inserting the “do good” imperative of the SDGs into corporate culture, business cases, innovation cycles, investor relationships, and, of course, the daily management processes and (extra-)financial reporting. The Yearbook includes arguments from academic and business experts, the World Bank and the Club of Rome as well as UN entities, among them UNDP, UNSSC, UNOPS, UN JIU, and UN DESA.

REFINANCING PARTNERSHIPS

Act

Plan

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payment for environmental services, better

labor and community relations, and

even improving a project’s prospects for

financing are all factors. Projects such as

Brazil’s Mato Grosso do Sul State Road

Transport Project are good examples; in

that case, the sustainable approach to

erosion control saved about $46 million.

Underweight on infrastructure

Notwithstanding these benefits, relatively

few institutional investors – who

manage around $100 trillion in global

assets under management – have direct

exposure to alternative assets. Today, infrastructure

makes up less than 1 percent

of institutional investor portfolios. Critically,

only a fraction of this is going into

developing countries or being deployed

for “sustainable” infrastructure.

There is no shortage of investment capital

looking for long-term, stable returns, for

which sustainable infrastructure could

be an attractive asset class. The growth

of the green bond market – from $7

billion in 2012 to an estimated $295

billion outstanding at the start of 2018

– shows appetite among investors for

this kind of product.

But infrastructure – whether equity or

debt, in both developed and emerging

markets – can be a difficult asset class.

It is illiquid. Regulatory frameworks

limit the potential for many institutional

investors to play. The business

models often involve substantial risks for

counterparts. FX hedges in international

markets are expensive and typically only

available over a relatively short time

frame. Infrastructure remains a sector

that is prone to corruption.

Institutional weaknesses and missing

markets also act as barriers to matching

large-scale capital with sustainable

investment opportunities. All this compounds

to limit capital flows, especially

cross-border capital into developing

countries. For emerging markets, the

high perception of country risk adds to

the complexity.

But to deliver the SDGs by 2030, we need

to rapidly accelerate investment into

resilient economic, social, and natural

infrastructure around the world. Mitigating

some of the investor risks associated

with sustainable infrastructure investment

by “blending” public and private

capital can help.

Mitigating risks, mobilizing investors

At its simplest, “blended finance” is the

use of development capital to mobilize

additional private finance for SDGrelated

investments. Blending may be

one of the most important ways to

“tip the scales,” making assets such as

sustainable infrastructure in emerging

markets “investable” for mainstream

capital providers.

There are already some good examples

of blended finance at work. Instruments

such as guarantees, insurance, currency

hedging, technical assistance grants, and

first-loss capital from development agencies,

development banks, and forwardleaning

foundations are crowding in

commercial investment for developing

countries. The Emerging Africa Infrastructure

Fund (EAIF) is one example of

a “blended” vehicle that has attracted

commercial investment for sustainable

infrastructure by using first-loss development

capital from countries, including

the United Kingdom, Sweden, Germany,

and the Netherlands. EAIF investments

range from a water supply project in

Rwanda to solar in Uganda. Global insurer

Allianz recently committed €120

million to the EAIF as part of a $385

million fundraising round. As the first

institutional investor, the 12-year loan

arguably signals a shift in appetite for

emerging-market risk.

The Danish DKK 4.1 billion SDG Fund is

another good example. It has attracted

six pension funds to invest in emerging

markets. Torben Pedersen, CEO of PensionDanmark,

one of the investors in

the fund, said that it “is a good example

how to mobilize private capital on a large

scale to fund the investments needed

to fulfill the [SDGs]. This initiative is

underlining that the best development

aid is sustainable business.”

The SDG Fund is the third “blended

finance” vehicle in which PensionDanmark

has partnered with Danish development

agency IFU. Pedersen said that

he is “expecting good returns from these

investments and at the same time proud

of contributing to the solution of the

greatest societal issues ...”

Blended vehicles, which can use development

capital to mobilize mainstream

private investment for sustainable infrastructure

in emerging markets, need

to be scaled and replicated as a matter

of urgency.

Why isn’t capital flowing?

Despite growing momentum, these examples

are still “one-offs”; there are

barriers that prevent the blended finance

market from scaling. These barriers affect

different actors in the market but

combine to limit flows of private investment

for SDG-related assets, especially

in developing countries.

Investors are hampered by regulatory

restrictions and face a range of >>

Global Goals Yearbook 2018

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