INTERVIEW – A large amount of money, is needed to realize the Sustainable Development Goals before 2030 according to experts. An extra sum of 5 to 7 trillion USD in addition to the existing cash flows to sustainability and development, to be precise. Hence it is not only desirable, but also necessary that institutional and private share holders invest capital in sustainable development. Eight questions for Carolien de Bruin, founder of C-Change, who facilitated the Dutch Investment Agenda for the SDGs in collaboration with Herman Mulder, co-chair of the SDG Charter.
Amidst the social enterprises that are part of the Impact Hub situated in the Royal Tropical Institute in Amsterdam, Carolien de Bruin speaks of her ‘dream for SDGI’: investing with impact, the new normal and putting the Netherlands on the map as a driving force behind the SDG Agenda.
At the end of 2016, 18 Dutch financial institutions with a collectively managed capital of 2,800 billion euros and 3 impact investment networks and advisors signed the Sustainable Development Goals Investment Agenda (SDGI). The SDGI Agenda, is supported by pension funds, insurance companies and bank and describes priorities to promote sustainable investments at home and abroad in collaboration with the government and supervisory authorities. An important principle here is that the Netherlands is home to a rich tradition of sustainability. Working together enables the private sector to contribute to the SDG Agenda and the Netherlands to be at the forefront of ‘SDG investment’.The SDGI Agenda was initiated during the Impact Summit Europe 2016 Sources: FMO, PGGM, SDGI
Why is it important for large financial institutions to commit to the SDG Agenda?
“Up until now, the SDG, but also the development agenda, were mainly linked to ‘impact investments’. The impact of capital investments on the environment and society is actively monitored and managed and weighed in decisions. Worldwide, this amounts to 140 billion USD, while 3 to 5 trillion USD is necessary for the SDGs. This means that we need much more private capital. Not only to make a positive difference, but also to minimize negative developments such as climate change. In order to do this, we need sustainable companies and investors who invest their money here. For the SDG investment agenda, we have looked at what large capital holders require in order to make a substantial contribution to this goal, and what the government and supervisory authorities can do to unlock more capital. Globally, this is an increasingly more important agenda and an area in which, especially considering the current geopolitical developments, countries such as the Netherlands are increasingly expected to assume a pioneering role” de Bruin says.
What withholds financial institutions from investing with impact?
“Throughout the entire investment process, there are several barriers when it comes to investing with impact. Firstly, institutional investors have strict mandates to which they must adhere to be able to fulfill obligations to their customers. Especially for pension funds, this is an important point: they cannot risk their clients’ retirement provision. Taking long-term considerations, such as the costs of climate change, or even inequality, into account requires adjustment of these mandates. Here, The Dutch Bank (DNB) plays an important role. In addition, frequently cited barriers are: finding investment possibilities, or a pipeline that meets the specified criteria, risk hedging where this is necessary, but also a lack of transparency, and intermediaries between investors and the companies and projects that need capital. The important thing right now is to look at how we can collectively build a system in which these kinds of challenges are addressed.”
“The fact that this is the first time that the private, public and social sectors have a shared language and strategy for their priorities – and capital – is amazing.” – Carolien de Bruin
How is the SDG Investment Agenda currently put into practice?
A concrete example is covered by the action point “blending and risk sharing”. This means that the government can hedge certain risks so that it becomes feasible for large investors to participate in SDG investment opportunities. This way, barriers are removed and a pension fund can also invest with impact. De Bruin: “This enables national governments and investment entities, but also international parties to make a substantial difference. An example of a similar construction is the ‘Climate Investor One’ investment instrument (ed. Climate fund in which different investment funds are combined and risk capital is provided). Building on the SDGI Agenda, the Dutch Foreign Office Taskforce for Innovative Financing is currently working on identifying deals and ways to collaborate with the signatories of the agenda.”
To what extent is this agenda new compared to what was already happening in the field of impact investment?
“The SDG investment agenda is new in the sense that this is the first time that shared ambitions have been drawn up and that the SDGs form the starting point for investment. In doing this, we bring impact investing, but also responsible and sustainable investing together under a single heading. This makes it easier for investors to find their place in the market. The fact that this is the first time that the private, public and social sectors have a shared language and strategy for their priorities – and capital – is amazing. Worldwide, this is the only initiative I know in which parties sit down together to determine their national ‘SDGI strategy’. In addition, it is also important to look at initiatives that already exist in this area. We are therefore not claiming this is going to be a new initiative, but rather that it is a summary of what we think is needed and what is happening in different groups and coalitions. Now it is up to those same groups to see which part of the agenda they pick up to see how this image fits into the big picture” says De Bruin.
How do you prevent ‘green or SDG washing’?
Frequently heard criticism of corporate social responsibility (CSR) or sustainability activities in the financial sector is that it is all just a marketing strategy. Window dressing or ‘green washing’ is mentioned as a risk. How should we deal with this in relation to SDGI? De Bruin: “This has to be taken seriously and we have to create transparency in this respect. At the same time, it is hugely important to create a good balance between imposing reporting obligations and stimulating investment. At this moment, imposing very rigid guidelines is not the way to prevent ‘SDG washing’. This would make investing with impact too difficult and too expensive. When you ask for a report, while something is hard to report, this can have the opposite effect and that is not our intention.” We can examine an investment portfolio to acquire insight into the extent to which an investment really makes a difference. When you can ultimately shine a light on the positive and negatives sides of an investment this will create a market demand for transparency. The supervisory authority plays an important role in creating accountability and transparency in the market, but it is a step-by-step plan. In the meantime, it is paramount that we are acting responsibly and sustainably without things becoming too complicated.
“To work towards a society in which everyone has equal opportunities and future generations are guaranteed a future, we need all companies and investors.” – Carolien de Bruin
Which SDGs are easier to invest in and which ones are harder?
“The degree of investability varies greatly between the SDGs. Especially in terms of renewable energy you see a lot of things happening, because CO2 emissions are easier to demonstrate than the fact that you have improved the life of a young girl somewhere. It is a little harder to find good investment opportunities for early childhood education, while climate change or infrastructure are generally more investable. The signing parties all agree that we have to be realistic about the investability of the individual SDGs, but that we definitely have to look for the limits of what is feasible when it comes to attracting investors’ capital for each goal.” “Leaving no goal behind.”
“Both processes are very clearly related. The covenant is about standards and their application. There is a lot of attention for minimizing the negative effects of investments and the avoidance of human rights’ violations. Our starting point has been to indicate how positive investment can be maximized, so that we can become global pioneers. These elements are important to get all parties on board for the ambitious SDG Agenda. In addition, the SDGI brings different sectors together. What was unique about SDGI is that banks, insurance companies and pension funds joined hands with the government and the DNB. What we have noticed is that the SDGs and SDGI form a good way to do more good things together. We hope that this investment agenda gives energy and that parties can also say: ‘we want to do more, and we are going to work together to achieve this as a country.”
What is your perspective for the Netherlands in 2030?
“I see the Netherlands as an exporter of a new way of working and a ‘new normal’ – as we say with C-Change, – it is in our DNA to push for more daring and ambitious agendas and initiatives. We believe that the private sector plays a hugely important role in this. To work towards a society in which everyone has equal opportunities and future generations are guaranteed a future, we need all companies and investors. With corporate pioneers such as Philips, DS and Unilever, but also with social innovators such as Tony Chocolonely, and of course with the signatories of SDGI we have a chance to show that a ‘new normal’ is more than just a dream. We have the pioneers, the commitment, and we are a small country, which enables us to experiment a lot. I see the Netherlands as one of the driving forces behind the SDG Agenda, so let us hope that this will have been achieved in 2030!”
Author: Wayra Kowsoleea
This interview has been published in Dutch on www.sdgnederland.nl