At last year’s BSR Conference, PepsiCo Chairman and CEO Indra Nooyi challenged business leaders in the room to think differently about working together: “Consider the world’s greatest challenges—from climate change to resource scarcity to inequality. … These are shared challenges, and for that reason, the solutions can only be collaborative. Collaboration—in the right balance with competition—can drive value, too, for businesses and for the planet.”
These words embody the spirit in which BSR embarked on research, sponsored by BNY Mellon, to examine how institutional investors and other stakeholders can help unlock capital for environmental and social progress. The culmination of that research is our newest report, “Conditions for Scaling Investment in Social Finance,” launched today. The report offers a holistic view of the spectrum of investment opportunities to meet the challenges highlighted by the Global Goals for Sustainable Development and climate change and identifies five conditions required to scale up social finance, which is defined as investments that generate financial returns and consider environmental and/or social impact.
Among the five conditions for scale highlighted in our report (accessibility, measurement, transparency, collaboration, and systemic change), collaboration is the common thread tying them together and contributing to the success of each. Collaboration among multiple stakeholders can help remove barriers to entry for private investors and increase financing for the global development agenda. The world’s most pressing challenges, such as resource scarcity and poverty, cannot be solved by one sector alone. Collaboration offers the opportunity for each actor to bring his or her expertise and resources to the table to further environmental and social goals.
For example, the Global Impact Investing Network and Cambridge Associates have recently partnered to improve measurement through the Impact Investing Benchmark, the first comprehensive analysis of the financial performance of impact investing funds. The Investor Network on Climate Risk, a coalition of more than 100 institutional investors representing US$13 trillion assets under management, has encouraged systemic change by successfully petitioning U.S. and Canadian securities regulators to mandate corporate disclosure of climate risks and opportunities.
Collaboration also allows stakeholders to cater to various risk tolerances, which can fuel greater private investment flows and facilitate innovation in financing. When institutional investors limited by current interpretations of fiduciary duty (such as pension funds) act alone, they are constrained in their ability to pursue innovative financial products. And the lack of a track record or strong evidence base, which is often the case with impact investing, can deter mainstream investors, limiting investment for the global development agenda. Foundations and development banks, on the other hand, are not as restricted by fiduciary duty and typically have higher risk tolerances. They can provide first-loss-risk guarantees and other financial tools to make investments more attractive to private investors.
Public-private partnerships and blended finance, such as the recently announced Sustainable Development Investment Partnership, can address these challenges. The partnership, founded by Citi, Standard Chartered Bank, Deutsche Bank, the Bill and Melinda Gates Foundation, and the U.S., UK, Canadian, and Nordic governments, among others, will leverage development assistance and concessional finance tools to attract greater private investment and mobilize US$100 billion in financing for infrastructure projects. It is just one of many forms of blended finance that have emerged recently to tackle global environmental and social issues.
We invite companies, investors, governments, and others to explore opportunities for collaboration as essential way to preserve value and effectively channel greater financial flows toward the Global Goals. This week is pivotal, as the UN General Assembly finalizes the sustainable development agenda for the next 15 years. By bringing together our collective resources, we can help channel greater investment into creating a more just and sustainable world.
Download our report, “Conditions for Scaling Investment in Social Finance.”