This is an excerpt from the UBS white paper: Mobilizing private wealth for public good.
There’s no time like the present to engage private investors and encourage them to use their wealth to help fund the SDGs.
The notion that society’s richest have been the biggest winners in the post-financial crisis world (and that the rest of society has fallen behind) have contributed to social disquiet, increasingly populist politics, and a push back against the tide of globalization.
How can private investors respond to this perception?
Increasing uptake of investments with positive social and environmental returns, as well as profit potential, may be one way to help soothe certain tensions. Investments designed to help meet the SDGs can satisfy this "dual bottom line" of financial and societal/environmental returns. And in many ways private wealth investors are well-suited to helping meet the SDGs. Many of the goals have long-run investment horizons, just like private wealth investors. Some of the impediments that hinder institutional capital from funding SDGs simply don’t exist for private clients. And the traits that bodies like the World Economic Forum want to promote to support sustainable global growth - such as responsive and responsible leadership - are bread and butter concepts for many private investors looking to protect and grow their wealth across generations.
Private wealth has the ability to fund SDGs in terms of investment approach. The size of the private wealth market - USD 250trn in 2015 - is sufficiently large that even just a small proportion of this money would make a big potential difference in helping fund the SDGs. Private wealth is willing to give to philanthropic projects or invest in "impact investments" with a dual bottom line.
Millennials have a particularly strong affinity for making impact investments, which is particularly significant given that approximately 460 billionaires will soon hand down USD 2.1trn to their heirs over a period of just 20 years.
In many ways, private investors are well-suited to helping meet the SDGs.
Yet despite these developments, private wealth is arguably not being mobilized to fund the SDGs. Why? Looking across a wide range of initiatives to fund the SDGs, we can identify three key stumbling blocks that are hindering private wealth mobilization:
- There is a lack of transparency on where investment needs lie - put simply, too many private wealth investors don’t know where their investment or philanthropic capital is required. That could be due to a lack of data or information on SDG funding requirements across or even within countries.
- There is an absence of information about available opportunities - even when we know about SDG funding gaps, private wealth investors are often in the dark about possible investment opportunities, largely due to a lack of centralized information or a marketplace.
- There is a problem of incentivization - many SDG funding gap schemes offer investors the carrot of risk mitigation using public or not-for-profit funds. This is most appealing to institutional investors’ risk-return preferences. But often private wealth investors would be happy to take on additional investment risks if money was used to boost returns instead. This incentive structure could catalyze more private wealth capital commitment to funding the SDGs, yet this incentive structure is seldom on offer.
Many SDGs funding gap schemes offer investors the carrot of risk mitigation using public or not-for-profit funds. While this works for institutional investors, private wealth would be happy to take on additional investment risk if money was used to boost returns instead.
Which SDGs should private wealth focus on fulfilling?
It is clear, that private wealth alone cannot fulfil all of the SDGs. In our qualitative analysis we highlight those where private wealth has the biggest impact.