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SPECIAL FEATURE “


is an increasingly large and dedicated set of investors committed to ESG principles, in addition to financial return. At the same time, the data shows that these growing markets are mainly concentrated in advanced economies, and largely bypass developing countries – in particular low-income countries. Europe, North America and other advanced economies account for around 90 percent of the sustainable investment market. Private finance is still not finding its way into investments in developing countries at the scale and speed needed to achieve the SDGs. Investors and development finance


institutions (DFIs) still struggle to source companies and projects that meet their stringent investment criteria, especially in the poorest countries and fragile states where capital needs are the highest. It is most often here that information and data flows are weak, and companies may have more difficulty in meeting certain standards. Added to this is the potential that public sector subsidies for blended finance approaches will fall, which may reduce attractive investment opportunities in developing countries further. These transactions also typically incorporate robust ESG-standards. Overall, there is a concern that the current uncertain market environment may encourage some investors to become more risk


averse and adopt a ‘wait and see’ approach, especially in more difficult markets. And while ESG may be popular, there are also many people deeply sceptical about the extent to which ESG-metrics are robust or sufficient to catalyze a sea-change in the types of investments the world needs to see to meet the SDGs or reach the decarbonisation objectives of the Paris climate accord. Long-term, there are no signs that


investors’ commitment to ESG-alignment will wane due to COVID-19. On the contrary, citizens, business leaders, investors and policymakers alike have called for a ‘green recovery’ – one that places more emphasis on environmental conservation and puts people and planet at the center. The challenge is to ensure that this market momentum benefits the poorest people and places. How can this be achieved? It calls


for an increasingly active ‘hands-on’ approach from the development finance community. Development agencies, multilateral development banks, development finance institutions and foundations have a particular role to play over the next few years to nurture the project pipeline in the poorest and most vulnerable countries, and ensure high ESG standards. Investors also need to recognize that more patient capital is needed. Government regulations can


Advanced economies account for around 90 percent of the sustainable investment market. Private finance is still not finding its way into investments in developing countries at the scale and speed needed to achieve the SDGs.


Gail Hurley


PHOTO: Courtesy of Gail Hurley


also encourage private investors to finance ESG-related initiatives, and more countries may also focus their efforts here as they face an extra squeeze on their finances. These strategies will help lead private investors (back) into markets on the other side of the crisis. The drive for more transparency


and accountability in ESG is also critical. While it’s relatively easy to source a wealth of information on the performance of ESG-aligned instruments versus conventional funds or bonds, more information is needed on how investments advance sustainable development outcomes and make a positive impact on people’s lives and livelihoods. The signs are positive that ESG- aligned investments will further accelerate. And COVID-19 has further strengthened the strategic importance of impactful investments in the developing world. More efforts are needed, however, to ensure that ESG tools also boost sustainable development in the countries furthest behind.


Gail Hurley is a senior advisor and researcher on development finance. She worked for the United Nations Development Programme (UNDP) for 10 years, and currently advises the UN, foundations, NGOs and governments on catalyzing financing for the SDGs.


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