The price of doing nothing is too high

April 29, 2019

 

 

The World Economic Forum at Davos earlier this year saw a spirited debate on ‘purpose’, with several critics arguing that despite a more socially-inclined public veneer, buzzwords such as philanthropy, corporate social responsibility, impact investing and social enterprise are just that — buzzwords that fail to reduce inequalities.

There is a deepening frustration with the rhetoric of purpose, sustainability, and the notion that profits and social good can go together. These concerns are understandable. Despite talk of impact and social purpose, few businesses are putting these principles at the core of their operations. Yet to achieve Sustainable Development Goals (SDGs) by 2030, the private sector will have to participate in equal measure.

The SDGs present an urgent challenge. But they’re also bringing to light some of the biggest investment opportunities in a generation, worth some US$12 trillion. And nowhere is the scale of this opportunity larger than in India. While many home-grown enterprises have stepped up to fill gaps, not everyone has benefited from India’s impressive progress.

Oxfam estimated that in 2018, 73 percent of the wealth generated went to the top one percent of Indians. A recent Pew Research Centre survey found that about half the mobile users in India use basic phones without internet connectivity — leaving millions without the means to participate in efforts such as Digital India. Women are particularly underserved — fewer than a third of all internet users in India are women.

So how do we encourage the private sector to bring its resources, innovation and agility to the SDGs? Businesses will pursue the SDGs only when core issues are addressed. The risks are high; underserved markets and regions impose particularly difficult operating conditions; and infrastructure and supply chains are often underdeveloped.

The government has a critical role to play. After India’s government set an ambitious target of generating 100 GW of solar power by 2022 and rejigged policy, it was private enterprise that took advantage of the conducive policy environment to open up new markets.

In 2019, large solar farms are estimated to generate more than 10,000 MW of electricity. Reduced prices and off-grid solar is bringing power to those who have been doing without. The UN also has an important role to play in bringing government and the private sector together.

We must also explore new and innovative approaches to financing that go beyond traditional debt and equity. The good news is that innovative financing is catching up in India.

The Educate Girls Bond in Rajasthan was the world’s first development impact bond in education. It sought to increase enrollment and learning for 18,000 children with payments tied to success. While the costs of putting it together were high, the bond produced results.

Similarly, HSBC’s SDG bond, the first of its size issued by the private sector, was oversubscribed three times. Indonesia’s Sovereign Green Sukuk is another example, a global first that has raised US$1.25 billion for responsible, Sharia-compliant, green investments since it was first issued in 2018.

Blended finance is often spoken of as a solution that absorbs the risks that prohibit private sector investment by bringing non-commercial capital. We can’t afford to view different sorts of capital, from the commercial to the altruistic, as separate from each other.

For any project or investment, the cost of financing is tied to the price of risk. This is where public, donor or aid funds — including domestic funding — must step up and bear greater risk to provide truly complementary financing.

Corporations should also put sustainability at the core of their businesses. Purpose-driven investing doesn’t amount to purpose-washing. That’s where tools like SDG Impact, a global initiative launched last year, comes in. SDG Impact provides investors with the clarity, insights and tools to support and authenticate their contribution to achieving SDGs.

As BlackRock’s Larry Fink noted in his 2018 letter to chief executives, it’s not just possible for corporations to make a positive contribution to society, it’s essential. Without investment in employees, innovation and sustainability, there can be no long-term growth — and no better-than-expected returns. Economic growth and human development are not contradictory; they are mutually reinforcing.

Responsible business attracts long-term sustainable investment where risks are better managed. More investments create opportunities for economic growth, which translates into more means for countries to empower disadvantaged communities. Business leaders and changemakers must act with urgency to do their part to transform our future. The price of doing nothing is too high.

Previously UNDP Resident Representative in India, Francine Pickup is now UNDP Resident Representative in Serbia