House View by the Chief Investment Office

Breaking down the barriers to private wealth funding for SDGs ...From lack of transparency to wrong incentives.

16 January 2017 | Tags: World Economic Forum

Reading time: 6 minutes

This is an excerpt from the UBS white paper: Mobilizing private wealth for public good.

Before making recommendations about how to remove the obstacles preventing greater private wealth engagement in funding the SDGs, it’s important to understand in more detail what the barriers really are.

One barrier is a lack of transparency on where investment needs really are. This difficulty arises because data on funding needs across countries is incomplete or scarce, and what data we have is not readily available in a centralized, one-stop-shop of SDG information. A stylized analysis of where the biggest funding SDG funding gaps lie for zero hunger and quality education (including and excluding institutional frameworks) highlights how we need to improve data collection on SDG funding gaps across countries, and bring that data together for all stakeholders in a readily accessible place.

"One barrier is a lack of transparency on where investment needs really are."

A lack of centralized information, the second roadblock, doesn’t just stop private wealth from working out where the biggest SDG funding gaps are. It also makes it much harder for private wealth investors to know where the available investment opportunities are too. Companies have different approaches to reporting on sustainability and commitment to the SDGs. Giving and investment opportunities can be hard to find, with no standard way of presenting SDG funding schemes. And where opportunities do exist, often there is no common set of standards respecting the terms of investment, the type of investment (debt or equity) and its characteristics, or the depth of the market if an investor wants to buy and sell the instruments funding these longer-term, often infrastructure-based investments.

"Lack of centralized information doesn't just stop private wealth from working, it also makes it much harder for investors to know where the available investment opportunities are."

The third obstacle is that the incentive structures for many SDG funding gap initiatives favor institutional investors or philanthropic donors, but look less appealing to the for-profit private wealth impact investor. Historically governments and policymakers have wanted to spur charitable giving using tax or fiduciary incentives.

"The current SDG funding gap initiatives favor institutional investors over for-profit private wealth investors."

Such incentives could have a similar catalyst effect if applied to for-profit impact investing - yet the sweeteners added to impact investing deals to fund SDG-related investments tend to lower risk, rather than enhance returns. Many institutional investors, working under tight reporting, funding, and regulatory constraints would rather invest if potential losses are mitigated or if price swings are limited.

Source: Global Impact Investing Network(GIIN), 2016.

Private wealth investors often have fewer limitations on the ways they can invest, and have more flexible long-term timeframes. They would often prefer investment partners or multilateral development banks to provide enhanced returns rather than lower risk as an incentive. Such incentive structures are rare, so private wealth capital deployment is not as great as it could be.

Continue reading

Recommendations to ready private wealth for public good

To mobilize private wealth commitment to funding the SDGs, we need to start by increasing data availability on where SDG funding gaps lie.