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The Mindset Shift Needed to Finance the Sustainable Development Goals
The Sustainable Development Goals (SDGs) indicate that decades of work have not yet had the impact to achieve a sustainable future for all. Achieving the SDGs by 2030 (as planned by the UN) requires a mindset shift. Investments in SDG programmes have typically focused on profit, but what we now need is a focus on impact.
In this video, Kanini Mutooni, Guest Lecturer on the Sustainable Finance online short course from the University of Cambridge Institute for Sustainability Leadership (CISL) discusses how impact investing is critical to the achievement of the SDGs.
Understanding financial systems in the context of sustainable development can contribute to creating a sustainable economy with long-term value returns for business and society alike.
Transcript
What I believe is needed in finance to meet the sustainable development goals are, first and foremost, a mindset shift.
For the last 20 years, the way we’ve deployed capital has been on what I call two-dimensional investing, based on risk and return. What we need to do in order to align capital to sustainable development goals is we need to add a third dimension, which is impact. With three dimensions – risk, return, and impact – we will start to move on the right journey in terms of the SDGs.
When you think about frontier markets, especially Africa, we have a 2.5 trillion-dollar gap, as far as the SDGs are concerned. That’s in addition to the 1.5 trillion that the rest of the world has. Without three-dimensional investing, there is no way that we will reach the target to fund the SDGs by 2030.
This mindset shift also means a shift in looking at profit and purpose, and moving away from what I call the Milton Friedman way of approaching capitalism.
The Milton Friedman model of capitalism is all about maximisation of shareholder value. It puts the shareholder first; social impact is not prioritised. If we start to shift away from that mindset and put social impact first, we will start on the journey to reaching a goal in terms of financing the SDGs.
There’s a reason impact hasn’t been mainstreamed. And a lot of these reasons are completely validated and completely understandable. For impact to be mainstreamed, we need to get to a point where we have what I call consistent, reliable, validated data to measure impact. And without that, it will be very difficult to make this financial world that we’ve known for so long and that we become so familiar with start to shift its mindset.
The rigour that we brought to the investment process also needs to be brought to impact investing. And we’re still very far from getting to that target, but there’s definitely lots of steps that are being made to get there.
With more data, with more evidence, likely in the next five years, we will start to see mainstreaming of impact investing. Consistency and validation of data is completely central to getting to that point.