This article is part of the UBS House View Year Ahead 2018, our yearly outlook on markets. You will find investment ideas and portfolio implications in the full report.
As the global economy will continue to expand in an unsustainable manner in 2018, the world will continue to grapple with environmental and social challenges. In the past 40 years, the use of natural materials has tripled, resulting in increased environmental degradation and urban pollution. Current atmospheric carbon dioxide levels are the highest they've been in 3 million years – a contributor to frequent and extreme weather events. And close to 1 billion people today still suffer from undernourishment, lack access to clean water and live on less than USD 1.25 per day.
Investors could have an important role to play in the solution. In 2015, the UN created its Sustainable Development Goals (SDGs) resolving, among other things, to end poverty, combat climate change, and fight injustice. The UN acknowledges that social and legal structures have a role to play, but also recognises that fulfilling this ambitious set of 17 goals will require both public and private investment across all forms of capital – physical, human, and environmental.
This demand for private capital within the SDG framework, and the rapid evolution of the sustainable investment industry across a broader range of asset classes, and with greater depth, means that investors now have an opportunity to make a positive impact on some of the world's most pressing issues without sacrificing risk-adjusted returns.
Impact investing in particular is a key means of mobilizing private wealth to address pressing global challenges and achieve the UN SDGs by 2030. Return-seeking private capital is best suited to address those SDGs where a market price can be attached to capital and where regulatory change is not as essential, such as in alleviating hunger by improving food production and distribution, improving access to and quality of healthcare and education, or in clean and affordable energy, among others.