Good Morning, Ladies and Gentlemen, and welcome to the Fifth Annual Symposium on the Role of Religion and Faith-Based Organizations in International Affairs.
Our topic today—“Financing For Sustainable Development: Towards an Economy of Life”—focuses attention on the challenge of mobilizing sufficient finance for achieving the sustainable development goals. This is a tremendous challenge that will require the full engagement of a wide range of stakeholders, each pursuing the same ultimate objectives in fundamentally different ways.
The challenge is tremendous—for two main reasons. First, the sheer magnitude of the financial flows that will need to be mobilized annually; and second, the diversity of means and approaches represented by the various stakeholders called upon to deliver this finance.
There is no need to dwell here at length on the first of these issues. We know that the amounts needed far outstrip the available public finance, but we also know that such resources are available in private financial markets. What has proved a bit difficult is the recognition in the development community that non-public flows obey entirely different rules than does public finance, and thus require a different approach in terms of public policy and inventive structures.
This is why the second issue is a potential problem. As each stakeholder pursues the objectives through different means and approaches, it is difficult to come up with a single incentive structure, a single argument, a single compelling reason, why non-public money should flow in the same general direction and in the same way as public funds and aim to achieve all the same objectives. It is therefore unreasonable to expect that one public policy framework, or one public appeal should suffice to mobilize all these different interests in equal measure.
However, thanks to the sustainable development agenda, both these concerns are manageable. Public fiscal policy, private finance, philanthropic institutions, and the private business community are all increasingly subscribing to the sustainable development goals and orienting their activities toward the achievement of the 2030 Agenda for Sustainable Development. And so, we do not have to define and reconcile differing objectives—we are all committed to reach the same outcomes, but merely do so with different tools and instruments.
Impact Investing – a new Investment Paradigm
It is these common outcomes, embodied in the SDGs, which have increasingly defined the practice of impact investing, moving it from a niche of importance only to a few morally motivated investors, to increasing prominence in the mainstream world of investing. Owners of capital are more and more demanding that their investments should generate returns beyond the merely financial. They seek impact—social and environmental returns on their investment—alongside the financial return.
And as the importance of impact as a criterion of investment decisions grows, so too does the pressure to measure this impact, to define metrics that quantify these additional returns. Some observers see markets moving in the direction of requiring a reporting of impact-adjusted, or impact-weighted financial accounts; others hope to see the development of composite indicators of the return on investment, indicators that measure the financial, social and environmental impact simultaneously.
Whatever the approach, the main point is that non-financial return is beginning to assume an unprecedented importance in mainstream investment decisions. And the assessments of the return on a given investment s will increasingly take into account the (positive or negative) indirect associated impacts of that investment.
I see this increasing focus on the different types of returns as a welcome trend that will reinforce efforts to move beyond GDP. This will enable us to measure both overall progress toward sustainability, as well as the impact of a given investment, in terms of a wider range of indicators of performance, beyond the monetary metrics we use today. It also means that the assessment of the risk and the return of an investment must broaden in scope to be able to account for some, if not all, of the externalities associated with any given economic activity or any investment.
Herein I see a parallel to the ancient discipline of faith-based investing. Investments guided by overall impact, like investment guided by faith–based principles and values, look beyond the simple monetary return on an investment, to consider also its compatibility the guiding principles or the basic values.
The negative screening of the “pre-Zug” approach to faith-based investing is tantamount to excluding certain types of assets from the faith-based investment portfolio.
The new “post-Zug” approach, predicated not only on what one is against, but also what one is for, is in my mind very similar to the positive impact investing approach. And the search for positive impact in investing is equivalent to injecting into mainstream investment decisions the types of values and non-financial considerations that have long guided faith-based investing.
This does not mean that impact investing and faith-based investing are identical. But it does signal a certain convergence of approaches that will, in time, stand us all in good stead.
Ultimately, we would like to see a world in which the return on investment is only considered adequate if the investment contributes to some larger objective, if it generates a positive impact in another economic sector, or in another dimension of development, be it social, environmental or both. In that world, we will have surmounted the problem of negative externalities because we will be looking at, and accounting for, all impacts. And social and environmental objectives will be fully integrated into business models and all financial decisions, and we will have achieved a truly sustainable financial system that works for sustainable development, and not merely for financial profit.
I wish you a day of excellent and fruitful discussions, and I am looking forward to hearing the conclusions that you will come to.
Thank you.
Our topic today—“Financing For Sustainable Development: Towards an Economy of Life”—focuses attention on the challenge of mobilizing sufficient finance for achieving the sustainable development goals. This is a tremendous challenge that will require the full engagement of a wide range of stakeholders, each pursuing the same ultimate objectives in fundamentally different ways.
The challenge is tremendous—for two main reasons. First, the sheer magnitude of the financial flows that will need to be mobilized annually; and second, the diversity of means and approaches represented by the various stakeholders called upon to deliver this finance.
There is no need to dwell here at length on the first of these issues. We know that the amounts needed far outstrip the available public finance, but we also know that such resources are available in private financial markets. What has proved a bit difficult is the recognition in the development community that non-public flows obey entirely different rules than does public finance, and thus require a different approach in terms of public policy and inventive structures.
This is why the second issue is a potential problem. As each stakeholder pursues the objectives through different means and approaches, it is difficult to come up with a single incentive structure, a single argument, a single compelling reason, why non-public money should flow in the same general direction and in the same way as public funds and aim to achieve all the same objectives. It is therefore unreasonable to expect that one public policy framework, or one public appeal should suffice to mobilize all these different interests in equal measure.
However, thanks to the sustainable development agenda, both these concerns are manageable. Public fiscal policy, private finance, philanthropic institutions, and the private business community are all increasingly subscribing to the sustainable development goals and orienting their activities toward the achievement of the 2030 Agenda for Sustainable Development. And so, we do not have to define and reconcile differing objectives—we are all committed to reach the same outcomes, but merely do so with different tools and instruments.
Impact Investing – a new Investment Paradigm
It is these common outcomes, embodied in the SDGs, which have increasingly defined the practice of impact investing, moving it from a niche of importance only to a few morally motivated investors, to increasing prominence in the mainstream world of investing. Owners of capital are more and more demanding that their investments should generate returns beyond the merely financial. They seek impact—social and environmental returns on their investment—alongside the financial return.
And as the importance of impact as a criterion of investment decisions grows, so too does the pressure to measure this impact, to define metrics that quantify these additional returns. Some observers see markets moving in the direction of requiring a reporting of impact-adjusted, or impact-weighted financial accounts; others hope to see the development of composite indicators of the return on investment, indicators that measure the financial, social and environmental impact simultaneously.
Whatever the approach, the main point is that non-financial return is beginning to assume an unprecedented importance in mainstream investment decisions. And the assessments of the return on a given investment s will increasingly take into account the (positive or negative) indirect associated impacts of that investment.
I see this increasing focus on the different types of returns as a welcome trend that will reinforce efforts to move beyond GDP. This will enable us to measure both overall progress toward sustainability, as well as the impact of a given investment, in terms of a wider range of indicators of performance, beyond the monetary metrics we use today. It also means that the assessment of the risk and the return of an investment must broaden in scope to be able to account for some, if not all, of the externalities associated with any given economic activity or any investment.
Herein I see a parallel to the ancient discipline of faith-based investing. Investments guided by overall impact, like investment guided by faith–based principles and values, look beyond the simple monetary return on an investment, to consider also its compatibility the guiding principles or the basic values.
The negative screening of the “pre-Zug” approach to faith-based investing is tantamount to excluding certain types of assets from the faith-based investment portfolio.
The new “post-Zug” approach, predicated not only on what one is against, but also what one is for, is in my mind very similar to the positive impact investing approach. And the search for positive impact in investing is equivalent to injecting into mainstream investment decisions the types of values and non-financial considerations that have long guided faith-based investing.
This does not mean that impact investing and faith-based investing are identical. But it does signal a certain convergence of approaches that will, in time, stand us all in good stead.
Ultimately, we would like to see a world in which the return on investment is only considered adequate if the investment contributes to some larger objective, if it generates a positive impact in another economic sector, or in another dimension of development, be it social, environmental or both. In that world, we will have surmounted the problem of negative externalities because we will be looking at, and accounting for, all impacts. And social and environmental objectives will be fully integrated into business models and all financial decisions, and we will have achieved a truly sustainable financial system that works for sustainable development, and not merely for financial profit.
I wish you a day of excellent and fruitful discussions, and I am looking forward to hearing the conclusions that you will come to.
Thank you.
File date:
Tuesday, January 29, 2019