Governments should consider action to foster more private-sector investment in support of the UN’s Sustainable Development Goals (SDGs), according to Europe’s largest investor.
Norges Bank Investment Management (NBIM), which runs the NOK8.6tn (€879bn) Government Pension Fund Global (GPFG) in Oslo, wrote in a paper: “Achieving the SDGs, in both developed and developing countries, could contribute to the long-term return of the fund through increased economic resilience.”
In an Asset Manager Perspectives discussion paper, NBIM said people often assumed that, in order to meet the financing needs of the SDGs, the huge level of savings around the world could be matched with sustainable investment opportunities.
However, it argued that if such projects offered an attractive risk-related return, then capital would naturally flow to them already. NBIM went on to paint a more complex picture.
“An important hurdle to investing in SDG-supportive projects is that the costs of unsustainable business practices are frequently not borne by the producers, but by society, or other businesses at large,” the manager said.
“Sustainable investments may also create additional costs in the short run, while the benefits may only accrue in the long run.”
It argued that governments could introduce market-based mechanisms to incentivise companies and individuals to internalise the costs of the pollution and environmental damage they caused.
NBIM also said that a longer investment horizon could also help match initial costs with revenues further into the future.
“Recent research indicates that some of the currently employed long-run discount rates for climate change abatement investments may be too high, depressing the attractiveness of such investments,” it said.
Governments could also make co-investments and cooperate more closely with the private sector, it suggested, and consider aligning financial incentives with the SDGs through public policies and regulatory frameworks.
NBIM said that, apart from providing long-term capital and promoting value creation at companies, it invested in 38 developing markets, and in firms selling or developing products or services for a more environmentally-friendly economy. It also actively excludes companies with “unsustainable business practices that may impede progress towards the SDGs”.