October 22, 2021
Introduction
Globally, emerging markets increasingly offer sustainable investment opportunities. At the same time, emerging market economies often struggle to attract investment, especially through capital markets or private equity, whether because of a lack of investment products, a perception of heightened risk, or other factors. Speakers in this event shared their experiences with respect to sustainable investment. They presented the practical experiences of investors and other stakeholders in emerging markets and offered lessons learnt and best practice for the sustainable investment community. Specifically, the session dwelt on long term sustainable investment in developing countries, in particular in Sustainable Development Goal (SDG) related sectors and areas.
Session Highlights
UNCTAD estimates that global investment flows declined by 35 percent over the last year as a result of the COVID-19 pandemic. Despite this, the value of global sustainable investments increased by 80 percent in 2020 compared to 2019. However, emerging markets are usually left behind in opportunities related to sustainable investment. In 2020, they accounted for only 5 percent of funds, and less than 3 percent of assets with respect to sustainable investments. This is probably due to the perception that they have high risks, thus, turning away potential investors.
During this session, Panellists showcased their strategies of attracting investments into emerging markets’ economies through sustainable investing. This strategy considers environmental, social and governance (ESG) factors when making investment decisions. The ESG is closely linked to Sustainable Development Goals (SDGs) and forecasts an investment’s financial returns and its overall impact through a scoring criterion. The key thematic areas linked to SDGs that can potentially be marketed to investors for an impact related engagement include transition towards a low carbon economy, natural capital preservation, social cohesion and societal responsibility.
Through this strategy, investment institutions and fund managers engage corporations in proactive dialogue on the potential gains of sustainable investment. This links the corporates’ output to specific SDGs. In India, for example, the commitment to sustainable growth through its India Resurgent programme has significantly increased investments in solar and wind energy generation by attracting new investments. To this end, its capacity has grown from 26GW in 2015 to 100GW in 2021 and enabled electrification of 99.8 percent of villages across the country. This is linked to SDG 7 on ensuring access to affordable, reliable, sustainable and modern energy for all.
Indeed, it was noted that thematic SDG financing outperformed non-ESG ones over the past 12 months. This forecasts significant growth of ESGs over time. For this to be maintained, the Panellists reiterated the importance of forging partnerships with governments, private sector, insurance service providers, banks and other financial institutions for increased investment flows into emerging markets. Additionally, there is a need for proper incentive schemes in order to attract and keep anchor investors.
This session ended with several key lessons for sustainable investments. First, risks remain a high level concern, especially among potential investors. It is therefore important to be aware of the risks together with their mitigation strategies. Second, each country operates in its own unique context and regulatory environment. Third, for an ESG investment to succeed, it must be commercially viable. Fourth, the investing landscape today will not be the same in future due to changes in governance, investment structures, and investors’ interests.
Opening
- Mr.YongfuOuyang, Chief, Institutional Investment Facilitation Section, UNCTAD
On the panel were:
- Mr. Rahul Agarwal, Senior Assistant Vice President, Invest India
- Mr. Rahul Agarwal, Senior Assistant Vice President, Invest India
- Ms. Angela Bai, Secretary General, China Association of Social Value Investment (CASVI)
- Ms. Caroline Le Meaux, Head of ESG Research and Engagement, Amundi
- Mr. Glen Yelton, Head of ESG Client Strategies, North America, Invesco
- Ms. Noelle Tan, Senior Client Professional, Deputy Member Impact Committee for PG LIFE, Partners Group
Moderator
- Mr. Joseph Clements, Economic Affairs Officer, Sustainable Investment, UNCTAD