Billions of decisions made annually determine the allocation of over US$380 trillion of financial assets worldwide. The outstanding value of global equity and bond markets is US$185 trillion. Over the past decade informed citizens have driven demand for sustainable investments reaching over US$30 trillion in 2018, green bonds so far issued for over US$770 billion, and impact investing estimated at US$715 billion in 2019. ‘Gender lens’ investing is also a growing trend. One recent study found that retail investors account for a disproportionate share of impact assets under management, attesting to people’s preferences for making a positive difference with their resources. Another recent retail investor survey in the US revealed that 84 percent of investors want to align their investments with their values, and virtually all believe that sound ESG practices can lead to higher long-term returns.
Overview of this Catalytic Opportunity
Opportunities |
 Embed SDGs into decisions across financial and capital markets. |
Scale |
The outstanding value of global equity and bond markets isUS$185 |
SDGs |
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citizens as.. |
Savers, investors. |
Use cases |
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Next steps |
Regulators should set requirements for pension and insurance companies to consult policy holders on the use of funds and publish stress tests of all material SDG-related risks and impacts. |
Emergence and popularity of sustainability and socially themed robo-advisors reflects citizen interest and preferences for meaningful investment options from both risk and impact perspectives, although in many markets stricter standards are needed to avoid ‘greenwashing’ and ‘pinkwashing’. With Bank of England estimating that up to US$20 trillion of assets could be wiped out if the climate emergency is not addressed effectively, climate and other environment-related data is the most important hotspot in this landscape, prompting Refinitiv to launch the Future of Sustainable Data Alliance. Enhanced disclosure is increasingly a core listing requirement, alongside the growing volume of ‘use of proceeds’ bonds.
The UN Global Compact has developed a framework for the issuance of SDG bonds, linking interest payments directly to achievement of SDG goals. By quantifying SDG impacts and integrating metrics and reporting into bond contracts they seek to connect investors demand for SDG themed bonds directly to business KPIs. Energy company ENEL issued the first such bond in 2019, which promises to pay an interest penalty if the company does not meet renewable energy and greenhouse gas conditions. While such SDG bonds raise funds for large corporations, a new generation of SDG bonds could be envisaged that leverage digital technologies to aggregate millions of smaller projects for capital market access.
Digitalized data, supported by increasingly complex machine-driven analytics should incorporate sustainability considerations. So-called ‘alternate data’ is becoming more important, particularly environmental data emanating from large biophysical data sets managed by public institutions. Standardisation is critical for large-scale applications across global financial and capital markets, making initiatives such as the European Commission’s Taxonomy for Sustainable Activities and the Task Force on Climate Related Financial Disclosure particularly important. Leveraging new data sources, progress on taxonomies, standards and analytical frameworks for assessing SDG-related risks and impacts will be key in offering transparent options and empowering citizens to direct how their resources, stored in pension, insurance and sovereign wealth funds, are invested. citizens’ authority overuse of their funds is key to transforming financial and capital markets to take SDG considerations into account.
Applying such analytics to project financing is particularly challenging, especially as it relates to infrastructure investments needed to support economic development and the SDGs. Refinitiv, one of the Task Force’s key knowledge partners, is taking forward a pathfinder initiative The ‘Digital Governance of Infrastructure’ initiative.
Next Steps: Regulators should accelerate mandatory disclosure requirements to, and of, lenders and investors, and ensure that pension and insurance policy holders as intended beneficiaries are legally entitled to be consulted in the use of funds, and that financial institutions are required to publish balance sheet stress tests of all material SDG-related risks and impacts.
