Get Focus insights straight to your inbox
Two years ago most people could not tell you what the United Nations Sustainable Development Goals (SDGs) were. Now, most people are aware of them, but perhaps not how many there are: the answer is 17 by the way.
Now sustainability seems to be at the forefront of our day-to-day personal lives, through to actions taken and announced by corporations and governments.
As we approached COP26 in Glasgow, SDG 13 – Climate Action was at the top of the list for urgent action that needs to be taken at all levels of society for a sustainable future.
In some ways, it's simplest to address SDG 13 through our personal purchasing and lifestyle choices. All of this pushes back through supply chains as companies (and governments) respond to popular demand.
However, such is the urgency of change required that front foot (as opposed to defensive/reactionary) action by governments and companies is required.
This is where things get more complicated. For some countries and companies, it’s not too challenging to make bold sweeping announcements about what they will (and can afford) to stop doing, from burning coal for power through to oil and gas development. For others to do that overnight could have disastrous consequences for their economies, jobs and finances. So transition is the name of the game and it needs to be a just and equitable transition. Some are moving faster than others and in the meantime, they are “offsetting” their emissions through a variety of actions.
Finance has a role to play here. Increasingly investors (like our life insurance and pension plans) are insisting that they don’t invest in companies or projects that are bad for the climate.
Banks and capital markets however have the largest role to play. They finance all levels of the global economy from personal banking, through international trade to large-scale international project development.
It is here that, encouragingly, we are seeing unprecedented rapid action, which is not always clear to see in the blizzard of announcements and acronyms flying around.
Mostly this remains at an individual institutional level, which while vital (as with our own purchasing and lifestyle choices), is still not enough.
It is collective institutional and/or government action, which could make a dramatic and immediate impact like at COP26 – we all hoped.
One such example is a finance industry which is over 100 years old. It started in the UK but now is global in nature – it is called export finance. This US$600bn industry has quietly been financing nation-building infrastructure across the world including power stations, transportation projects, roads, healthcare facilities, etc. Most countries in the world have an official government export credit agency that variously promotes (through loans and financial guarantees) the export of the technologies required to build these projects.
These agencies were at the forefront of banking the very first mobile phone networks in the 1990s and are now funding wind and solar farms as well as major rail projects among other projects.
They are experts in their field and have developed a sophisticated set of controls to assess and monitor the environment and social impact of the projects they support, long before the SDGs existed.
Their due diligence also extends to value-for-money assessments, debt sustainability analysis and strict control over the use of funds, ensuring these reach the projects they are intended for.
It’s likely that the next wave of climate innovation technological change will require their support and backing. It hasn’t all been good news, however, as these same agencies have, until relatively recently, also been banking significant amounts of carbon-emitting infrastructure projects.
This however is changing and rapidly. The industry is urgently looking at how it can encourage the growth of more green and sustainable technologies and projects – as they did with wind and solar by introducing favourable repayment terms for those technologies. At the same time, they are helping other markets transition away from carbon-emitting activities.
To this end, 16 of the leading export finance banks and The Rockefeller Foundation recently published a White Paper on Sustainability in Export Finance and how the market can move through individual, but also critically collective industry, action to urgently address the SDGs.
Not just SDG number 13 however … all 17 SDGs.
While the focus on climate is critical, it’s important to note that things many populations take for granted such as healthcare, water, sanitation, power, education and housing are still out of reach for vast parts of the planet. Investment in this infrastructure has the potential to address severe inequality, dramatically and immediately change people’s lives and export finance can play a major role. Just last month Investec financed two hospitals in Ghana working with the Swedish export credit agency which will deliver healthcare to over 3 million people who currently only have access to basic services. This is one of many recent examples.
The White Paper project is ambitious but The Rockefeller Foundation (who coined the term impact investing) sees export finance’s potential to deliver on the SDGs. It has backed the paper in the hope that sustainable lenders and impact investors will become aware of export finance's potential as a mechanism to help deliver on the SDGs.
Investec was proud to support Chris Mitman in his role as co-chair of the White Paper steering committee and co-fund the production of the report along with ANZ Bank and the Working Group banks, and its authors, International Financing Consulting and Acre Impact Capital for producing this seminal and game-changing paper.