Can Private Wealth Close the SDG Funding Gap?

By Abha Malpani

We are seeing a paradigm shift in consciousness that has the potential to mobilize private wealth for public good, and transform the social impact sector as we know it.

According to a recent report by UBS, the size of the private wealth market is US$250 trillion. The UN claims that the annual investment gap to fund the sustainable development goals (SDGs) in developing countries is US$2.5 trillion annually; meager in comparison. More awareness on where impact investments are needed, and how to invest is required.

Increased awareness will be a game changer for the impact investment market

The current size of the impact investment market is between US$114-135 billion, expecting to reach US$307 billion by 2020, according to reports from Global Impact Investing Network (GIIN) and Markets&Markets. In line with the global divestment trend, where millions are choosing to not support shares, bonds or investment funds that are unethical, increased awareness on viable impact investments will grow that market much more.

Every year governments, foundations and individuals spend more than US$500 billion on efforts to improve the world. Of the $500 billion spent each year, less than 0.01 percent is spent on global priorities research. Availability of research informs decision-making and research is exactly what is needed to determine global priorities so that the money available is spent more effectively.

Impact investments can give financial returns

The 2017 Annual Impact Investor Survey by GIIN shows that 91 percent of more than 200 impact investors surveyed had financial returns that satisfied or exceeded their expectations. A 2015 Morgan Stanley report which surveys over 10,000 equity mutual funds over seven years, shows that sustainable investment funds have met or exceeded the median returns of traditional equity funds.  Private wealth invested for impact does not have to compromise financial gain.

Millennials and women will drive the impact investment market

Surveys like that of Morgan Stanley and Tridos Bank find that most individual investors are interested in sustainable investing.  And, compared to the overall individual investor population, millennials and women are nearly two times more likely to invest in companies or funds that target environmental, social and governance (ESG) outcomes. In fact, studies show that millennials are two times more likely than the average person to divest from a company that does not meet sustainability practices.

Considering that 460 billionaires will soon hand down $2.1 trillion to their heirs over a period of 20 years; and that women already control more than half ($14 trillion) of personal wealth in the U.S. alone (and are expected to control  $22 trillion by 2020), the $2.5 trillion needed annually to close the SDG funding gap is not far from achievable.

There are options for every budget

As more businesses with social impact at their core get investor ready, the impact investing landscape has evolved to have platforms to match social investors with social enterprises, irrespective of their budget. These include: GIIN’s Impact Base; Washington-based Impactus Marketplace; New York-based The Impact, and Singapore-based IIX Global. The rise of equity crowdfunding sites; social impact bonds; green bonds; or SRI funds are other ways to invest responsibly and profitably.

Measuring ROI has evolved

One of the biggest obstacles for the impact investment market was lack of industry standard measurement metrics to evaluate social and financial ROI. Addressing this challenge, standardized metrics to measure social impact have emerged over the last few years: the Impact Reporting and Investment Standards (IRIS), and the Global Impact Investing Rating System (GIIRS). This has been a huge step forward for a relatively nascent market.

There is an impending groundswell of opinion in favor of impact investing that can address some of the world's most pressing problems. We need to fuel it with more transparency, awareness and access to information on impact investing opportunities so it becomes a global trend.

Abha Malpani is a writer and communications professional who works towards helping businesses grow in Dubai. She is a strong believer in the triple bottom line and keen to make a difference. In her endeavor to start something of her own, she co-founded Start with Something, a website highlighting stories of people and organizations that are changing the world. She hopes that what she writes will inspire her and others to start something that has an impact. She is also a volunteer member of +Acumen Corps. One day she hopes to have her own social enterprise. You can find her on Twitter @abhamalpani.

Image credit: Qimono