A Spectrum of Solutions: How Impact Investors Are Funding the SDGs
Last month marked the Global Day of Action for the Sustainable Development Goals (SDGs) at the UN General Assembly, where government, business and nonprofit leaders met in New York City to lay the path forward for economic justice and sustainable development by 2030.
Also last month, Toniic —our action-oriented community for deeper impact investing — released a report showing how impact investors are fueling solutions to the global challenges framed by the 17 SDGs. These investors have overwhelmingly embraced the SDGs for their potential to unite the public sector, companies and investors around a shared language and common set of issues.
The report, T100 Focus: The Frontier of SDG Investing, unearths data from 76 Toniic member portfolios, totaling $2.8 billion in committed capital. It illuminates where the most active impact investors see investable opportunities that advance the SDGs across asset classes.
Each of the SDGs is addressed in the aggregated portfolios studied by Toniic, but five of them account for more than 60% of the invested capital. The data also reveals that impact investors are going beyond current media darlings, such as clean energy, to include themes such as affordable housing, sustainable agriculture and access to health care in their portfolios.
Sustainable cities and communities take the spotlight
SDG 11—sustainable cities and communities—is the top target of the portfolios, attracting nearly a third (29%) of all SDG investments—making it even more of a focus than affordable and clean energy, SDG 7 (17%).
As urban areas continue to expand, people all over the world struggle with inadequate infrastructure, pollution and lack of services. This context gives a sense of urgency to investors pursuing the aim of SDG 11: Make cities and human settlements inclusive, safe, resilient and sustainable.
Within SDG 11, community empowerment attracts the largest share of funding (37%), followed by green building (30%), affordable housing (24%), and smart cities and mobility (9%). For example, OpenPath Investments is investing in multi-family residential housing in western U.S. states with a strong social model (the Urban Village program) encouraging residents to function as a traditional community while incorporating sustainable practices.
The types of investments pouring into this goal are largely real assets investments, such as real estate, and fixed-income investments in community lending. The portfolios studied contain no public equity investments in SDG 11, indicating that place-based direct and fixed-income investments are good opportunities to boost sustainable cities and communities.
One Toniic member, Lital Slavin, a founder of the Tel Aviv impact investment firm Beyond, started a place-based urban renewal project in a community in Haifa, Israel. She joined forces with other impact investors on this multi-year project to address the effects of long-term neglect in Haifa’s Hadar neighborhood, without dislocating the community. They created the Hadarim Fund with the goal of building 150 residential units, creating local jobs, and supporting the community through investments in infrastructure and education.
“This project will be one of the major impacts of my life if we are successful—a template for urban revitalization that benefits the residents and does not displace them,” Slavin said in the report.
Clean energy investments shine through
Closely following SDG 11 is SDG 7—ensuring access to affordable, reliable, sustainable and modern energy for all. This attracts the second-largest amount of capital across T100 portfolios, invested in three theme areas: the transition from fossil to clean energy (65%), access to clean energy (28%) and energy efficiency (7%).
Investments in SDG 7 are spread across asset classes, including fixed income, private equity, public equity and real assets. Investors are expecting higher financial returns for investments in this goal; we believe due to the relatively high exposure to private equity.
“On the private equity side, we invest in companies that change the world we live in by producing electric power in new, cleaner and cheaper fashions,” said Jochen Wermuth, chief investment officer of Wermuth Asset Management, about the office’s investments.
A Focus on good health
Making the world a healthier place means investors must look to a broad spectrum of capital; this rule is also true for SDG 3, which focuses on good health and well-being (where 7% is invested in the T100 portfolios). Investors in this SDG mainly support access to health care (58%) and disease prevention and response (34%). There is a near-even split of private equity providing capital for startups that develop new models and products for global health and public equity, focusing on companies of scale that can increase health care access.
“You can’t solve all the problems with the same type of money,” says Toniic member Ruth Shaber, founder of Tara Health Foundation, which recently incubated the Reproductive Health Investors Alliance to bring new investment to reproductive health and justice in the U.S. “Being able to bring a spectrum of capital with different impact and financial return expectations is going to bust things wide open.”
Investing across a spectrum of capital
Shaber voices an overarching lesson within the portfolios: While the report shows that investments across asset classes are needed to address all the SDGs, each goal has distinctive investment opportunities.
While private equity is the most common investment in SDG 12 and SDG 7, public equity is the top asset class in SDG 3, reflecting the scale of health care solutions. Real assets dominate in SDG 11 and SDG 12, where fundamental needs such as land acquisition for sustainable agriculture require more patient capital.
T100 investors are also looking beyond the obvious: Many of the investments in the studied portfolios are private and illiquid, with aspirations for tremendous impact that goes far beyond what is typically achievable with public market investments. Understanding impact investors is understanding a vibrant new form of capitalism, and the key to unlocking more financing for the SDGs lies in their portfolios and engagement.
Kristin Siegel is Director of the 100% Network at Toniic.
Photo courtesy of torsmedberg.