Leveraging the SDGs to guide emerging market investment

A guide to emerging market investments

The annual Sustainable Development Goals Report provides an overview of the world’s implementation efforts to date, highlighting areas of progress and areas where more action needs to be taken to ensure no one is left behind. Five years since the adoption of the goals, the report notes that progress had been made in some areas, such as improving maternal and child health, expanding access to electricity, and increasing women’s representation in government. Yet, even these advances were offset elsewhere by increasing greenhouse gases emissions, food insecurity, deterioration of the natural environment, and persistent inequalities. Now, in only a short period of time, the COVID-19 pandemic has unleashed an unprecedented crisis, causing further disruption to SDG progress, with the world’s poorest and most vulnerable affected the most.

Directing finance towards critical sustainability solutions.

We are at a key moment in the evolution of sustainability with transparency becoming the new paradigm for conducting business. The SDGs have ushered in a new era of global development objectives to tackle the world’s most pressing challenges, and the active participation of business is a principle driver in achieving these goals. Measuring and disclosing their impact on the SDGs will help businesses better engage stakeholders, enhance sustainable decision-making processes and strengthen their accountability.

A transformative pathway

Emerging markets have a greater need for investments in infrastructure, technological innovation and educational improvements. Socio-economic, gender and income disparities in emerging markets are some of the highest in the world. Further, these regions are more vulnerable to environmental and health-related issues. Together, these conditions make investing with an SDG focus in emerging markets especially relevant.

More than half of SDG investment opportunities are in emerging markets.

By investing with the intention of helping advance the SDGs, investors can play a critical role in creating a more inclusive society. According to the Business & Sustainable Development Commission, the majority of the SDG value and its business opportunities are in developing countries. Emerging markets represent the lion’s share of opportunities across the food and agriculture, cities, energy and materials, and health and well-being systems. Advancing the SDGs in emerging markets also represents the potential to create millions of new jobs across these four systems. SDG investing could create $12 trillion or more in market opportunities and up to 380 million jobs by 2030, with nearly half of these new jobs in emerging market cities.

Impact investing

The growth of impact investing comes from the desire to scale impact and solve for the biggest socio-economic and environmental challenges of our time. But is funding flowing to where it is needed the most? The simple answer is no. Many investors don’t consider the SDGs to be reliable, believing that they aren’t relevant to mainstream investment. Perhaps more concerning is that one fifth of investors are unaware of the SDGs altogether. Emerging markets are failing to attract sizeable investment due to deep-rooted investor habits and perceptions. Investors tend to stick to markets they know, which overwhelmingly means Europe and North America, with many consider emerging markets to be a gamble they are unwilling to take.

According to the GIIN, attaining the SDGs by 2030 will require an estimated $2.5 trillion of investment per year in emerging markets alone. Finding and supporting the companies that will benefit from this – a key tenet of impact investment in emerging markets – may seem a tall order, but the rewards will be great. Companies that can help to solve emerging markets’ most pressing issues are those best placed to benefit from regulatory reforms, as well as achieving faster growth and superior profitability over the long term.

As Arundhati Roy wrote, “historically, pandemics have forced humans to break with the past and reimagine their world anew. It is a portal, a gateway between one world and the next.”  As the world begins to recover from the deep strains of 2020, many will be tempted to pick up where they left off before the crisis hit. But in doing so, we miss the point. We need to match the new awareness of our global fragility with renewed support for the approaches that will make us less susceptible to crisis in the first place. We can frame 2021 as the year of a great transition.

Satgana’s globally distributed nature enables us to support and invest in entrepreneurs wherever they are, including in typically overlooked countries or areas. We will soon announce some of the first portfolio startups we have started working with, all driven by the purpose of advancing social and environmental progress with market-based and innovation-led approaches. Stay tuned!