Durreen Shahnaz, chief executive and founder of Impact Investment Exchange (IIX) and author of The Defiant Optimist, writes about the interconnectedness of impact investing and the Sustainable Development Goals (SDGs).
- Impact investing is gaining popularity on the global stage, coinciding with discussions among international bodies and governments about the SDGs.
- Collaboration between international bodies, governments, and impact investors leverages private capital and innovative financing models, such as The Orange Bond, to accelerate SDG achievement.
- Impact investing delivers financial returns alongside positive impact: prioritizing gender equality (SDG 5) leads to a 25% improvement in profitability, 10% increase in return on equity, and 37% growth in earnings per share.
Thirty-four years ago, I was the first Bangladeshi woman on Wall Street. Here, at the very epitome of capitalism, it became evident to me that finance was practiced through a myopic lens. Elaborate financial models considered select perspectives only – elitist perspectives of the 1% that discounted women, underserved communities, and our living planet. However, these financial systems were almost wholly dependent on the remaining 99% and natural resources. So, because of these limitations, Wall Street’s financial system was deeply flawed.
“I had raised my concerns about nuclear power in one of the meetings about our financing of the utility companies’ plan to rebuild, but my challenge had been firmly dismissed. We were expected to shut up and do the work we were hired to do. This was the dark side of finance.” – The Defiant Optimist
By harnessing the power of financial resources and valuing overlooked social and environmental factors, a new type of investing emerges. Connecting impact with profit builds holistic financial models which compel us to think beyond short-term gains. This new avatar of investing, called impact investing, holds the key to unlocking development that can endure.
Rethinking capitalism
Impact investing is more than a financial strategy, it is a catalyst for redefining capitalism. It is the point of intersection where profit and purpose coexist harmoniously. The synergy between impact investing and the SDGs presents an opportunity to reshape our world, creating an equitable and sustainable society. As a Professor at the Lee Kuan Yew School of Public Policy in Singapore, I taught young students that by combining economic development and finance with social innovation and entrepreneurship, they had the power to chart new courses for their countries.
“Three sectors of society – public policy, civil society, and the private sector – come together at an important nexus. This is the ‘social innovation zone.’ This is the zone where it is possible to create social equity and justice in a sustainable way. One manifestation of that goal is a new type of entity called a ‘social enterprise’ – or an ‘impact enterprise,’ where sustainable social equity and justice can be achieved.” – The Defiant Optimist
Impact enterprises are businesses that create positive impact by addressing social or environmental needs while maintaining a financially sustainable business model. Impact investing emerges as a powerful tool within this context, directing private capital towards such enterprises. The integration of impact investing and the SDGs establishes a powerful framework.
Impact Investment Exchange (IIX), a Singapore-based pioneer in impact investing, has transformed the financial system so that women, the environment, and underserved communities are given value and a voice in the global market. It has achieved this by driving the SDGs forward with a three-pronged agenda:
- Expediting climate action: impact investments and enterprises support the transition to affordable and clean energy (SDG 7), foster sustainable cities and communities (SDG 11), promote responsible consumption and production (SDG 12), directly address climate change (SDG 13), and contribute to the conservation of marine resources (SDG 14) and ecosystems on land (SDG 15). Hence, impact capital can accelerate efforts to combat climate change, promote sustainability, and create a resilient future for our planet.
- Changing the narrative to position women as solutions: prioritizing gender equality (SDG 5) leads to a 25% improvement in profitability, 10% increase in return on equity, and 37% growth in earnings per share. Women are critical to solving the world’s biggest sustainable development challenges. This approach yields progress towards SDGs including decent work and economic growth (SDG 8), reduced inequalities (SDG 10), peace, justice, and strong institutions (SDG 16), and partnerships for the goals (SDG 17). Gender lens investing tools such as IIX’s Women’s Livelihood Bond (WLB) Series demonstrate the role of women as intersectional solutions.
- Building resilient communities: underserved communities can be empowered with impact capital to build resilience for a better future. Creating employment opportunities and sustainable livelihoods strengthens communities by alleviating poverty (SDG 1). Initiatives that promote sustainable agriculture, improve food security, and enhance access to nutritious food contribute to community resilience against hunger (SDG 2). Directing resources towards healthcare (SDG 3), education (SDG 4), clean water and sanitation (SDG 6), and sustainable infrastructure projects (SDG 9) also enhance community resilience and improve health outcomes.
Verifiable, value-driven investing
When I first began to imagine a social stock exchange, I realised that measuring and publicly reporting the environmental and social impact of companies would be a game-changer. A financial model that intelligently considers more data points is simply better informed, and including quantifiable impact data in financial models would tackle the myopia of Wall Street. For example, IIX Values verifiably measures impact for the WLB Series portfolio companies till the last mile, and the Series boasts zero default across five issuances.
Impact measurement frameworks often align with SDG targets and indicators, comprehensively evaluating primary, secondary, and tertiary impact on stakeholders. The development of national or international standards would benefit the whole impact ecosystem. Emphasizing the importance of measurable and verifiable impact can prevent impact-washing and ensure that true progress is made towards the SDGs.
Impacting actual lives: the ‘why’
With the WLB Series, I dared envision a future where economic prosperity is not at odds with social and environmental well-being, but rather intertwined with it – a world where investment had a purpose, financial decisions held the promise of impact, and women finally had equal opportunities to participate.
“I watched the Women’s Livelihood Bond displayed for the first time on the Bloomberg terminal, that hallowed symbol of Wall Street’s power. The screen had numbers and graphs on it, filled with fascinating data, but my eyes glazed over. All I could see were the smiles of thousands of women who would benefit from the bond. We were creating history. We were reinventing finance to make it work for the 99%.” – The Defiant Optimist
Impact investments tend to be lower risk and generate stable returns, but most importantly, they have a real and profound impact. The WLB Series has had a positive impact on the lives of over 1.3 million women across Asia and Africa. Women in remote parts of the world are connected to financial markets, enabling them to create better opportunities for themselves and their children, while fostering the growth of sustainable businesses. The ripple effects extend to society as a whole, which benefits from the skills and contributions of these empowered women. Finance for the 99% is sustainable and transformative.
As we strive to change systems for the better, it is crucial that we think boldly and embrace a big-picture perspective. From my time at Grameen Bank, where I empowered women in Bangladeshi villages to sign their names for small loans, the progress has been remarkable. SDG bonds have gained significant traction on a global scale, capturing widespread attention and support – green bonds for the environment, blue bonds for the ocean, and orange bonds for women. The journey towards a sustainable and equitable future has only just begun.
The opinions of guest authors are their own and do not necessarily represent those of SG Voice.
