We recently had the privilege of participating in the 2017 United Nations Private Sector Forum and CEO Roundtable, organized around the theme of “Financing the 2030 Agenda: Unlocking Prosperity.” It was eye-opening to hear examples of how business leaders are using private capital, innovation and expertise to meet the UN Sustainable Development Goals (SDGs) – and to share our own thoughts on what the investment community can do.
Private capital and the SDGs
The SDGs are a set of 17 goals adopted by world leaders in 2015, designed to end poverty, protect the planet and ensure prosperity for all. Despite the ambitious nature of the SDGs, many private businesses are already contributing to their achievement, motivated by a variety of factors.
In many cases, enlightened economic self-interest is guiding businesses to solve long-standing social and sustainability problems in new ways. In others, SDG achievement stems from businesses looking to mitigate medium- or long-term risks. In yet others, a critical assessment of social and economic risks emerging from the status quo is motivating companies to make progress.
Whatever the motivation, the role of the private sector is critical, as the resources needed to meet the SDGs are enormous – $5 trillion to $7 trillion annually, according to UN estimates. While much of the funding will come from official government aid, the private sector will need to contribute not just through public-private partnerships and providing capital to meet the SDG objectives, but through developing innovative solutions to fill critical gaps the public sector has trouble addressing.
The role of the investment community
The investment community has an especially important role in this, and we believe it can make the biggest impact today in two ways:
Collaborating to develop common standards for SDG-related disclosures; and
Leveraging existing fixed income technology to direct capital toward impact goals.
Common disclosure standards
Speaking a common language among finance professionals with respect to SDG and, more broadly, Environmental, Social and Governance (ESG) initiatives can accelerate focus and accountability. It will also allow consumers of financial services as well as business products and services to make more informed decisions. Understandably this will require a significant shift in market practice, but getting it right could unleash large amounts of liquid capital to support sustainable, inclusive growth and better standards of living across the globe.
Leveraging existing fixed income technology
Developing financial instruments that directly target positive impact will also be critical. However, large amounts of capital will only be deployed if such securities are competitive and come with the right profit incentives.
At PIMCO, we believe that securities can be created to target a range of impact outcomes based on the SDGs, without compromising on investment return potential, and in some cases even enhancing it. We are excited to be collaborating with the UN Global Compact, the UN PRI (Principles for Responsible Investment) and a host of issuers to usher in a new era of “impact bonds.” We are also engaging with issuers to encourage them to map revenues to SDGs as well as to report more broadly on SDG progress.
During our visit to the UN, we were pleased to hear how many businesses, all using private capital, innovation and foresight, are providing ground-breaking solutions to help meet the SDGs – and we firmly believe that the investment community can take this further. Identifying capital deployed toward meeting the goals and establishing a credible system to measure both profits and achievements on SDGs have the potential to unlock the tremendous amounts of liquid capital needed to make an impact.
Scott Mather is CIO for U.S. core bond strategies and a member of PIMCO’s ESG leadership team.
Learn more about PIMCO’s sustainability initiative, which is dedicated to firmwide integration of ESG (environmental, social and governance) principles. Our investment process emphasizes careful analysis of the broad secular trends at the core of long-term sustainability.