Do SDGs make sense? How it looks to Geneva's Finance summiteers
The UN Secretary-General may think we are way off track for meeting the Sustainable Development Goals (SDGs) by 2030 as set out in 2015 by the UN General Assembly. But do they make sense anyway in 2019?
Formerly the Social Good Summit, UNDP's* SDG Finance Geneva Summit 2019 on 9 October pitched itself as "an innovation springboard" giving 20 entrepreneurs from developing countries the chance to present their products and services to impact investors.
At the same time, it offered some ground-up as well as top-down assessments of the climate for private investment in support of the UN's Sustainable Development Goals (SDGs).
Contributing editor Peter Hulm reports on the discussions (3000 words). Update: other reports
"We do not speak the same language. Despite all the talk, there is surprisingly little in terms of actual investments developed together" [by aid professionals and financiers].
Tatjana von Steiger Weber, Deputy Head of Global Cooperation in the Swiss Agency for Development and Cooperation (SADC), was not the only person to say it at the SDG Finance Geneva Summit 2019. (see this video)
But investors, be warned. You need to be ready to navigate an alphabet soup of acronymns — for organizations, platforms, programmes, companies and concepts — to find your way through all the proposals laid before you. (* UNDP = United Nations Development Programme, by the way.)
Impact investing, SDG-aligned projects, ESG (environment, social, governance) practices, blended finance, green bonds, tools for the missing middle — what do they all mean? And how can they be applied in practice?
You might be relieved to learn that the specialists seem just as frustrated as you.
Let's start with the UN's 17 Sustainable Development Goals for 2030 and its 232 indicators.
SDGs not specific enough
Here's what Kanini Mutooni, Managing Director for Europe, the Middle East and Africa at Toniic, San Francisco, told UNDP's invited Geneva audience:
"We don't see the SDGs as an end in themselves because, obviously, the SDGs are not specific enough."
Randall Kempner, Executive Director of the Aspen Network of Development Entrepreneurs, now 10 years old with a global network of over 300 member organizations focused on small and growing businesses (SGBs) in 150 countries, declared:
"The biggest challenge is not about access to capital. It's not about the money. It's about investible deals."
Money looking for good deals
The D.C.-based entrepreneur reminded participants that Allianz told the Summit it has at least $460 million "looking for good deals".
"They are not alone," he observed. "Even in emerging markets [...] there is plenty of money, but it is not being invested into small and growing businesses. [...] Investors are too risk-averse. There is an over-estimation of the risk and under-estimation of the potential return."
His bleak assessment: "There really is a lot more talk than action when it comes to impact investing in developing countries because there is this very high bar for what investible means."
"Many companies don't have a business model or market access to make them attractive," he noted.
It's lack of talent, not lack of cash
But his main concern was something different, harder to align to abstract principles or international agreement on accounting terms:
"The one challenge [...] we need to address is the lack of talent [...], not the lack of money."
Without denying the tremendous entrepreneurial talent found in all countries, "great finance managers, great marketing managers, great managers are not spread so equally around the world," Kempner said, "because the talented professionals move from the Global South to the Global North. [Those who stay in emerging markets] are much more likely to work for a big company or an international NGO or the UN than they are to work for a small and growing business."
"We need to figure out how to attract, retain and develop particularly mid- and senior-level managers for 'missing middle' companies or we will not scale impact investing," he warned.
The missing middle
Jean-Philippe de Schrevel, Founder of Bamboo Capital Partners, launched in 2007 with close to $400m under management, explained the problems of the "missing middle". "The SMEs (small and medium enterprises) — in need of $200-300K all the way to $1m — are not being served today," he suggested.
"It is [...] risky, it is costly, to serve them. At the same time they represent the most important part of the value creation, of the job creation. In most industries they are a critical part of it."
From the big banking end, Guillaume Bonnel, Head of Sustainable and Impact products at Crédit Suisse (hosting the summit), argued: "We need to make impact investing more liquid, [...] more investor friendly." Private assets that have a positive impact on SDGs should be more easily accessible to investors.
Impact measurements in the firms that sell stocks on regular markets need to be featured, he said. "How does Nike make more sustainable shoes, for example?" he said. Investors should be able to see this in company reports.
Assistant UN Secretary-General Ulrika Modeer, Director of the Bureau for External Relations and Advocacy (BERA) in UNDP, reflected that impact investment still represents only 0.1% of total assets managed around the world.
Where impact investors invest
So what do impact investors put their money into? Kanini Mutooni reported on a survey in her group recently: "What we found is that across 76 portfolios representing about $3bn in assets, the highest level of capital deployment was in affordable housing, and sustainable cities (SDG11)."
She commented: "I was surprised. I thought it would be more towards clean energy."
Modeer remarked that investing principles will change as young people come into more money and want it to work for them. "[Millennials] will not stay quiet when they believe [a project] is not really impact investment in line with the sustainable development goals or the needs of people and planet," she said.
Old money and old thinking are out - but all need help
Mutooni agreed. "A lot of millennials immediately identify with being an impact investor. It goes completely against the old money and the old thinking."
But it is not sensible to allow such generational conflicts to work themselves out, she said. Toniic tries to ensure it involves the whole family in investing discussions, not least because "investing does have a certain level of risk that other traditional investments may not have had", and families have to be ready to take this on board together.
Waiting for data
Also, asset managers are still waiting for data showing they would not be giving up returns to create an impact.
"In the US alone in 10 years $30tr will become available to Millennials. That money will be used and deployed in a completely different manner. Which also means that advisors and bankers will also need to change. Millennials [want] a customized solution. They want online products, online wealth management, and they want to do things themselves. Very different from us oldies," she joked.
Skeptical about big investors
Big financial groups such as Goldman Sachs or Blackrock are now discussing whether to move into impact investing, participants heard. But the panellists were skeptical.
Jean-Philippe de Schrevel's reaction: "I am not sure there is real content behind this yet but it's a sign that they feel compelled to talk about it."
"You have the large investors coming to the table — slowly, progressively, carefully, conservatively. We want them to accelerate the pace," he noted. But "typically they will want to see sizeable opportunities. They will want to see track records for a long period of time. And we don't have the time [for] that, unless you want to wait another 15 or 20 years, which we don't."
Blended investing the only solution
For him, a blend of public and private investment is the only way to move forward fast enough.
Kanini Mutooni said she was also cautious about accepting money from big investors who had no knowledge of the country or financial environment in which they are planning to invest even if they accept impact principles.
She told the Summit: "I say to entrepreneurs that I mentor: do not accept money from an investor or a fund who does not have a base in your home country, because that investor is going to 'spray and pray'."
Entrepreneurs must say no
"There is a responsibility on the entrepreneurs themselves to say no [and a] responsibility on the investor to really be where they are investing and be able to identify the right talent."
"We have developed what we call the Toniic SDG Framework tool," she informed participants. "It breaks down every single SDG into an investable theme and attached to that we add what we call the IRIS metric [...] which is the generally accepted way of measuring impact."
Three successes with public-private partnerships
Bamboo Capital repositioned itself two years ago as open to partnerships, de Schrevel reminded participants. He listed three achievements since then, two of them directly dependent on the expertise that the UN can provide:
- A financing fund for SMEs in the least developed countries with the United Nations Capital Development Fund. "They have presence and boots on the ground in 38 countries, 300 staff, the pipeline and the expertise. It would take us 15 years to replicate that," he admitted.
- With the International Fund for Agricultural Development (IFAD), Bamboo is helping small-order farmers in Africa in partnership with another company. IFAD provides "a lot of pipeline presence, a lot of technical assistance".
- Smart Africa is a network of 26 African countries to provide a tech foreign impact fund: "Here we are after the talent, and the entrepreneurs and the new African champions that hopefully will be the mother [of other projects] or the example to follow," he said.
How to scale up
De Schrevel, who created the first commercial microfinance project BlueOrchard between the UN and Geneva's private bankers in 2001, added: "International NGOs are moving to impact investing because they realize it could be an efficient way of achieving their mission."
He reported: "We are teaming up with Care USA to start a gender investing fund, because they have been around for 50 years doing these sort of things. You know, challenging and changing the way women are treated inside companies but on a consulting basis.
"We want now to couple that with investments. This is not something that Bamboo could do by itself. But [here we are] building on the experience of an international NGO with a presence in 96 countries."
Prize entrepreneurs in memory of Jason Spindler
The Summit also recognized entrepreneurs who are making an impact on their own, handing out the Jason J. Spindler Big Data for Impact Award.
It is named for a banker turned philanthropist who died in January 2019 in a terrorist attack on his I-DEV International offices in Nairobi at the age of 40.
Starting his working career as an investment banker on Wall Street, Spindler found himself at ground zero on 9/11, helped others and pulled them out of the wreckage, recalled Patricia Chin-Sweeney, Africa Director of I-DEV International. He left banking to become a Peace Corps volunteer in Northern Peru where he helped to build a multi-million dollar agrobusiness (video LINK).
Impact investors submitted the companies to be considered for the Innovation and Development Award, focused on enterprises making use of "big data", a particular concern of Jason Spindler.
The assessments covered three fields of impact investment: financial services, climate and energy, and health.
Top prize to Credit Mantri, India
The award went to Credit Mantri (Chennai/Madras, India). Established in 2012, CreditMantri uses data and technology to transform the way credit is delivered to 'credit invisibles' in India.
"There has traditionally been a shortage of financial institutions willing to extend fresh credit to those who are deemed risky," says CreditMantri in its prospectus. "CreditMantri was the first company in India to offer a free credit score online to anyone. Additionally, CreditMantri applies a customer profiling framework which uses both traditional and alternative data.
"Such profiling allows the company to classify users into various segments, each with a distinct need — credit challenged, new to credit, low income credit healthy and high income credit healthy. The company further assists users in discovering credit products which best match their profile."
Helping 170,000, 5 million users and trusted by financial bodies
CreditMantri enables lenders to profitably extend small ticket loans to these groups, it notes. "When off-the-shelf credit products do not meet the needs of certain underserved segments, CreditMantri co-creates tailor-made credit products with lenders who are willing to utilize alternative data and credit decision models to make loans available".
Financial institutions use CreditMantri’´s proprietary lendability score, income estimation model and verification score to assess credit applications and approve them digitally in real-time, it adds.
Through its Credit Improvement Service, CreditMantri has helped over 170k credit-challenged users become credit-healthy by restructuring as well as resolving their negative accounts, and hence enabling them to re-initiate borrowing from the formal banking system.
Presently, CreditMantri has over 5.1 million credit-invisible users registered with them, of which a third have already become credit-healthy and are on their way to discover credit products best suited for them, it reports.
Three Wheels United (India) wins in climate and energy, Nayajeevan (Pakistan) for health
The climate and energy top company and runner-up was Three Wheels United (India). It uses finance and technology to electrify the light vehicle market in India, starting with electric auto-rickshaws (tuk-tuks).
The health impact winner was Nayajeevan (Pakistan). Established in 2012, Naya Jeevan provides low-income populations in emerging markets with access to health micro-insurance.
The Spindler family added $5k to the $5K award, doubling its value for the winner.
Geneva's 'incredible ecosystem' of SDG expertise and finance
Tatjana von Steiger Weber of SADC, who opened our review, emphasized that Geneva "has an incredible ecosystem of actors working on these issues with tremendous SDG expertise as well as financial knowhow."
Surveys had found that "most people say that knowing their investments made a positive difference would motivate them to save more," she reminded the Summiteers. "So why is so difficult to bridge the gap?"
Switzerland's water course
SADC is now experimenting itself with blended financing models. It chose water as as way to think and act in a way that is transboundary and crosssectoral.
So it has developed its Blue Peace Financing Mechanism covering both production and consumption. "Water is the perfect entry point to focus on the nexus between sustainable development and peaceful societies," she said. It opens up opportunities for "blue peace" bonds and related investments for energy, food and agriculture.
'You can combine profit and purpose'
Jean-Philippe de Schrevel said the history of microfinance in Switzerland demonstrated that "you can combine profit and purpose. You don't necessarily have to sacrifice financial returns to achieve something socially or environmentally positive."
"Micro-finance has shown that you can actually scale those solutions that have been developed at the grassroots," he insisted.
"I have seen the micro-finance industry over the last 20 years [show itself] to be able to self-discipline itself. We have gone through crisis but the sector by itself has been able to correct mistakes, impose standards — benchmark ratings, transparency, customer protection."
Mainstream Swiss banks coming on board
Switzerland's mainstream banks have also started to take sustainability and impact more into account, noted the SADC chief. UBS, Crédit Suisse and Julius Baer have signed the agreement for responsible banking (that takes into account the SDGs).
Guillaume Bonnel, Head of Sustainable and Impact products at Crédit Suisse, said the bank "will over time move towards 100% ESG (environment, social, governance) compliance" and is already partly so in asset management.
UNDP issues equity standards draft, with online training planned
Meanwhile, in September 2019 the United Nations Development Programme (UNDP)'s SDG Impact published a consultative draft of Standards for Private Equity Funds to certify they are "SDG-enabling". It is open to feedback at firstname.lastname@example.org.
UNDP says its aim is provide "actionable guidance for operationalizing good impact practice, facilitate adoption and implementation of principles frameworks already in place and inform performance reporting and benchmarking".
The Standards, once approved, will enable investor funds to obtain a three-tier certificate and seal, and "will be backed with online training to provide guidance for both users and third party accredited independent certifiers", according to the draft.
Baby steps and alarms
But these steps are miniscule compared to the challenges, or to the money seeking better returns than the rich market countries can offer. UNCDF admits that wealth growth in the poorest nations is still falling 1.5% behind the 7% needed to achieve the SDGs, i.e. 22% short.
Geneva financiers made it clear that getting investors to put their money into SDGs, particularly directed to "missing middle" who create most jobs in developing countries, will require public sector encouragement — through deals supporting private companies or fiscal breaks if the banks are to persuade their customers to switch to greener investments.
Modeer argues: "We need a systemic change."
Why tax breaks are necessary
The Global Green Index says that protecting biodiversity through finance, for example, requires tax breaks for sustainability investments. Green loans are increasingly popular, usually for carbon reduction, but performance measurement is a problem.
Without specific tax incentivess, green bonds may differ little from other bonds, and investors may not be willing to accept lower returns (a 'greenium'), it adds.
At the start of October, clearly disturbed by the difficulties of aligning with the SDGs, 50 representatives of the development finance sector -- including several at the Summit -- called on Swiss fiscal authorities to open up a policy dialogue to give more official support to scale up private investment in the SDGs and raise the country's profile as a global business hub for impact investing.
If these people have the money but can't find a way to invest it securely to reach the people who create the developing world's jobs, we need to worry too -- no matter how grand the schemes adopted by the UN.
Three Wheels United (PDF)
Naya Jeevan, Karachi, Pakistan (PDF)
Impakter detailed report dated 5 November 2019 (added 8 January 2020, also distributed 16 February 2020)
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