×

Finance must seize UN's development opportunity in 2016

When it formally adopted its new Sustainable Development Goals (SDGs) in September, the United Nations might as well have given them a subtitle - sustainable investment goals.

According to a working paper prepared for the UN, these new 2030 development targets will require $2 trillion-$3 trillion in new investment annually - at least a tenth of the $22 trillion that the world stashes away in savings every year, according to the UN paper. In 2016 and beyond, financial institutions have an unprecedented chance to market associated opportunities to savers and investors and channel more money towards meeting the objectives.

The SDGs represent 17 broad aims in areas ranging from healthcare and education to poverty and the environment. For instance, the 10th goal is simply to "reduce inequality within and among countries." But there are also 169 more specific underlying targets - for example, "By 2030, ensure that all girls and boys complete free, equitable, and quality primary and secondary education." For financial institutions, both types of objective lend themselves to properly managed, globally diversified portfolios.

A young girl studying in a classroom in Gao, northeastern Mali.
Issouf Sanogo | AFP | Getty Images
A young girl studying in a classroom in Gao, northeastern Mali.

With respect to the broader goals, investors can spread their risks by allocating according to investment themes that can generate above-average returns and have little financial correlation with one another. For instance, companies that help alleviate water scarcity will produce financial outcomes that will have little relationship to emerging market healthcare firms, or education providers.

Impact investments, which target a more specific social impact in addition to financial profit, are typically even less correlated with traditional financial instruments. Take, for instance, a bond that pays an income in line with school enrollments in a certain region and other factors. Such products not only help fulfill the underlying 169 SDG-related targets but are also less exposed to movements in financial markets.

In 2016 and beyond, financial institutions should also look to incorporate SDG-related targets into impact investing schemes that are broader in scope. For instance, an impact solution that helps develop cancer cures can also invest a proportion of fees and royalties in expanding developing world access to cancer treatment. The latter would help meet specific objectives tied to the third SDG - ensuring healthy lives and promoting well-being for all at all ages.

So far, institutional investors have primarily engaged with UN initiatives by signing up to the Principles for Responsible Investment, which are designed to incorporate environment, social, and governance considerations into investing. According to the UN, signatories to the PRI now oversee $59 trillion, up from $4 trillion nine years ago. If institutions think of them as sustainable investment goals as well as development objectives, the SDGs represent a huge opportunity to take that engagement one stage further.

Financial institutions can adopt a number of measures to help meet the goals both next year and in the years ahead. For example, they can highlight investment opportunities associated with the SDGs and how they relate to their existing portfolios and sustainable investing frameworks. If positioned attractively, this may help inflows into existing strategies. They can also raise awareness of the financing needs surrounding the goals and tailor solutions for clients who are interested in meeting them. Third, they can foster product development in underserved areas that represent potential sources for SDG financing - in particular, impact investing and sustainable fixed income and private markets.

With a process as long-term as the SDGs, there is always the temptation to procrastinate. Given that the SDGs will remain in place until 2030, institutions may see them as an agenda item for tomorrow, not today. But with $2 trillion-$3 trillion required a year over that timeframe, 2016 would be a good place to start.

Caroline Anstey is head of UBS & Society, and Mark Haefele is global chief investment officer at UBS Wealth Management

Follow us on Twitter: @CNBCWorld