In response, the United Nations launched its 17 sustainable development goals (SDGs) in 2015. The SDGs are a blueprint for a better and more sustainable future for all. All 193 UN member states signed up for the goals, with agreed milestones. The initial targets were set for 2030.

The investment required to progress the SDGs is significant. The United Nations Conference on Trade and Development estimates it will require private sector funding of US$5 trillion to US$7 trillion per year to meet the SDGs by 2030.

Areas of biggest need

The SDGs are of particular importance to Asian and emerging markets (EM). These regions are most in need of investment if there’s to be any chance of the goals being met.

Take water and sanitation. Per capita water resources are declining, and 80-90% of wastewater is discharged without treatment in developing countries.¹ Then there is financial inclusion. The World Bank estimates 31% of the world’s adult population don’t have access to financial services within the traditional financial system.² Adequate health provisions and social care are as vital as ever. However, out-of-pocket spending as a share of total healthcare expenditure is still ruinously high in many developing countries. The list goes on.

There are positives. Many EM countries are in the early stages of development. Money invested in these regions will therefore have a larger impact than capital invested in developed markets. They also benefit from rising demand for products, services and infrastructure that contribute positively to society and the environment.

How does this look in practice?

One company to highlight is Manila Water (SDG 6 – Clean Water and Sanitation). It’s committed to pursuing water security and sustainability projects as Manila urbanizes. The company is already making meaningful progress. In 1997, only 26% of the East Zone of Manila had 24-hour access to water. That figure now stands at 97%. Manila Water also increased sewer connections by some 180 times over this period. The company is therefore providing essential amenities.

In Peru, there’s pharmacy firm InRetail (SDG3 – Good Health and Wellbeing). It has a network of over 2,200 stores throughout the country that provides access to safe and affordable pharmaceutical products, particularly to the growing middle class.

And then there’s Helios Towers (SDG 9 – Industry, Innovation, and Infrastructure). Nearly 200 million people in sub-Saharan Africa live without mobile broadband coverage, primarily in rural areas. Helios Towers facilitates digital connectivity for these communities in Tanzania, Congo, Madagascar, and Malawi. The results have been impressive. Some 141 million people are now covered, up 19% year-on-year. Rural mobile phone tower sites increased by nearly 6,000 (up 70% year on year) Meanwhile, service availability is at an impressive 99.97%.

Filling the financing gap

Despite the importance and urgency of the SDGs, a substantial financing gap remains. The war in Ukraine and consequent supply shocks caused global inflation to soar. Central banks began hiking cycles and curbing access to financial markets, which led to lower financial flows from developed to developing countries.

As a result, EMs need an estimated extra $3.9 trillion in annual investment to achieve the SDGs by 2030. In Asia, the UN estimates that countries will achieve less than 10% of their measurable targets by 2030. To make up the shortfall, it will take an estimated $1.5 trillion of investment per year.³

But the money is in the system. Total financial assets held by banks, institutional investors and other bodies are valued at more than US$378.9 trillion. By combining its efforts, the financial world can play a crucial role in bridging the financing gap. This includes the US$123 trillion investment management industry.⁴

Final thoughts…

We believe SDG-aligned investing is a vital way to tackle the most pressing issues facing the world. True, recent events have curtailed investment at a time when it’s needed most. Nonetheless, many companies are already pursuing profitable avenues of growth to capitalize on this opportunity. More will no doubt follow as they see the benefits of helping address the SDGs. For investors, we believe this creates a once-in-a-lifetime opportunity to do good, while still offering competitive financial returns. We may not get another chance.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.

IMPORTANT INFORMATION

Applying ESG and sustainability criteria in the investment process may result in the exclusion of securities within the universe of potential investments. The interpretation of ESG and sustainability criteria is subjective meaning that products may invest in companies which similar products do not (and thus perform differently) and which do not align with the personal views of any individual investor. Furthermore, the lack of common or harmonized definitions and labels regarding ESG and sustainability criteria may result in different approaches by managers when integrating ESG and sustainability criteria into investment decisions. This means that it may be difficult to compare strategies within ostensibly similar objectives and that these strategies will employ different security selection and exclusion criteria. Consequently, the performance profile of otherwise similar vehicles may deviate more substantially than might otherwise be expected. Additionally, in the absence of common or harmonized definitions and labels, a degree of subjectivity is required and this will mean that a product may invest in a security that another manager or an investor would not.

Discussion of individual securities above is for informational purposes only and not meant as a buy or sell recommendation nor as an indication of any holdings in our products.

AA-150823-166903-1