The SDG (Sustainable Development Goal) Finance Geneva Summit (SGS Geneva) was held at the Credit Suisse Forum Geneva on October 9. The Summit, initiated by the United Nations Development Programme (UNDP), aims to gather together top decision makers from all countries to contribute to the achievement of the sustainable development goals of the UN. The Summit covered health, energy, financial services, climate change and many other fields and provided unique and valuable opportunities for experts, scholars and industry leaders to exchange ideas. About 250 invitees, including innovative start-ups, impact investors, development financing participants, representatives of Fortune 500 and venture philanthropists, attended the Summit. Focusing on this Summit, the Green Legal Global Alliance Research Institute shared concerns with all participants about the fresh goals and countermeasures of global sustainable development. 

I. What are SDGs? 

The sustainable development goals (SDGs), also known as global goals, are committed to poverty eradication through concerted actions, protecting the earth and assuring peace and prosperity for the mankind.

These 17 goals were advanced on the basis of the Millennium Development Goals and incorporated new areas such as climate change, economic inequality, innovation, sustainable consumption, peace and justice. These goals are interrelated, and the key to achieving one goal often rests with the solution of problems related to other goals. 

To achieve the SDGs, we need to insist on cooperation and practicality and improve the life of ourselves and future generations in a sustainable way. These goals provide clear guidelines and targets for all countries and get integrated the development priorities of one country with environmental challenges facing the whole globe. The SDGs are inclusive. These goals are committed to radically solving the poverty issue and bring us together to contribute to human development and earth protection. Helen Elizabeth Clark, administrator of the UNDP, stated that "Supporting the 2030 Agenda for Sustainable Development is the top priority of the UNDP, and the SDGs provide us with a common programme and agenda to address severe challenges facing the world today, such as poverty, climate change and conflict. The UNDP has a wealth of experience and expertise in promoting development and backing countries to achieve sustainable development." 

II. Impact Investment: A New Investment Philosophy 

An increasing number of investors come to realize that they can make an impact by choosing the investment area and way of the fund. Specifically, the impact of capital allocation intention enables investors to control the economic operation or corporate operation mode. It can channel funds to new technologies to promote innovation, or reward companies with good ESG practices to strengthen responsible behaviors. In addition, specific impact funds can either help address global problems, or exert a positive impact on investors' portfolios. For example, it can bring attractive risk returns to diversified funds, while it has low relevance to traditional assets. 

What is impact investment? 

The impact investment aims to produce a positive and measurable social or environmental impact while achieving considerable financial returns. Impact investment can be implemented in either emerging countries or developed countries, and its return of objective depends on the strategic objectives of investors, ranging from being below the market level (36% of respondents who currently allocate impact capital) to being in line with the market level (64% of respondents). The impact investment market can channel funds to areas such as sustainable agriculture and food production, energy efficiency, inclusive basic services (including housing, health care and education protection) or microcredit and thus help address the world's most pressing challenges. 

Under this background, the impact investment becomes a fresh investment philosophy and represents a logical extension of traditional investment methods. The impact investment aims to maximize the overall benefits of all stakeholders while focusing on maximizing return and shareholder value, instead of favoring any party. Impact investors believe that the adherence to this investment philosophy will eventually lead to increased returns and minimized risks. 

III. Mainstream of Impact Finance: Main Impetus and Deficiencies in the Transformation of the Financial Industry 

Over the past few decades, the financial community has shifted slowly to socially responsible investment (SRI) and ESG investment (with environment, society and management as three core factors to assess the sustainability and moral impact of investment) from traditional investment, and turned to impact investment about a decade ago. 

These three types of investment can broadly fit into "sustainable finance". Despite remarkable progress in sustainable finance since the 1970s, challenges remain. 

Major Deficiencies in Sustainable Financial Models 

Some big companies are quite skilled in demonstrating their good management level and run in a sustainable and responsible way. The problem lies in that they don't need to prove that the whole value chain shares the same characteristics, and that supply and distribution remain a duty to others. This represents one of the deficiencies. 

Think about it like the following. If you don't incorporate all the dimensions of impact in your economic or financial model, it's quite easy to make the results look good. For example, a fashion company might track and report Key Performance Indicators (KPIs), such as working conditions and labor rights, to make itself seem to be a leader of sustainable development in the industry. But if the company does not take into account the fact that the chemical dyes they use will eventually be discharged downstream and affect the entire ecosystem (just in this case), the cost of environmental protection and pollution treatment will be shifted to others. As a consequence, it incurs a hidden cost and external factor. 

However, in the company's report, the company may show excellent performance because of its occupational health and safety plan, the protection of labor rights and any other data in the report. These problems or data are no small matter, but they only represent an incomplete picture. 

Comprehensive Understanding of Impact 

It is necessary to have a joint implementation mechanism to improve the report mechanism, so that if the report results are negative or substandard, they can change the real picture. 

Based on the lessons of various sustainable financial initiatives in the impact investment industry and AlphaMundi's practice, we do not rely on investment companies' reports to judge whether they are sustainable. Instead, we are committed to identifying and tracking the meaning of impact. To this end, we keep in line with the global standards, such as the recently established principles of the International Finance Corporation (IFC), to improve the transparency of reports and provide impact verification mechanisms. Besides, we also draw on the IRIS+System of the Global Impact Investor Network (GIIN), a general impact measurement framework of the impact investment industry. 

If these tools are employed in the above example, the fashion company will need to make transparent its measured contents and the one who measures. Third party reports, together with community input, will present a more complete statement of the company's report instead of an internal narrative. 

Mainstream Practice of Impact Finance 

Although many believe the impact investment as a niche market, I think we need to make these impact finance practices a mainstream to change the rules of the game and get the sustainable finance integrated in the SDGs. 

This goal seemed to be unlikely a decade ago. When impact investment emerges, no one knows whether the industry will honor its promise of financial and impact returns. Since then, it has not only exerted that potential, but often performed beyond expectation. 

At the initial stage, impact investment focused on private equity and private debt in emerging markets. By now, it has demonstrated its value in most asset classes and all regions. From real estate to cash, listed stocks and bonds, an increasing number of innovative investment products are being created, which exactly coincides with what the industry needs for development. 

Some skeptics may say that so far, the impact investment has "only" amounted to USD500 billion in total. By contrast, the total investment under mainstream management totals about USD300 trillion. However, this is not the point. Regardless of the current total, it should be our shared goal to lift up the percentage of global capital with measurable impact, so as to make an important contribution to the accomplishment of SDGs. 

If we want to go a step further, we should rethink the fiduciary responsibility and redefine the criteria employed to determine whether asset managers strive to pursue risk-adjusted returns for clients. The restatement of the fiduciary responsibility requirements will hold mainstream asset managers accountable, explain to clients why sustainable financial products are not offered and demonstrate to clients that the same risk-adjusted returns cannot be gained through such products. 

Further, it is necessary to provide systematic education to investors, fund managers and other financial professionals on sustainable finance, tools and practices. This will build consensus, share knowledge and bridge the gap among capital owners, asset managers and providers of SDG-related investment opportunities. Considerations have been given to some instruments to achieve this goal, such as the inclusion of the sustainable finance section in the CFA exam, regulatory requirements for asset managers to pass the sustainable finance certification every two years, and the integration of the sustainable finance agenda into the KPIs of financial professionals. 

IV. How Can Entrepreneurs and Investors Successfully Delist in Emerging Markets 

How to Get the Proper Investment 

One of the phenomena we intend to discuss here is that it is often difficult for start-ups to get desirable investment. As there are not many options available to them in the local financial market, it is likely to be harder for them to seek investment through traditional financing channels such as banks. Given start-ups often lack sufficient performance records, they are often believed too risky to meet the financing requirements of most financial institutions. 

Start-ups may seek investment on a global scale and to do this, a lot of resources are required to study and establish connections with overseas capital markets. Besides, these companies also need to present acceptable and recognizable business proposals. At present, it seems that over 80% of local start-ups do not have the necessary contacts and resources to realize this option. 

Gather Talents Suitable for the Company. 

When it comes to talent, start-ups need proper senior managers to help build a middle-level management team and then to hire proper employees. As the market competition is fierce, it is easier said than done. 

Enterprises need to have appropriate incentives to attract, train and retain matching talents, while start-ups need to keep adapting and developing in a dynamic and uncertain market, get adapted to the update of business models and get ready to cope with changes in the economic environment at any time. 

The emerging market holds a variety of unpredictability, including public policies, logistics, service providers and suppliers, etc. 

Successful Exit Mode 

Based on the quite unique experience of Terrafertil and Fenix International, we discussed the successful exit mode for enterprises and advanced that no once-and-for-all solution is available to this. 

These two companies have kept their performance growing for 6-8 consecutive years and enjoyed a stable impact rating, as a result of which they have enough ability to attract strategic acquisitions from multinational companies. If the core business and development mission of these two companies are preserved by the acquirer, namely the new owner, the acquirer can rapidly expand these businesses to new markets by making use of their own resource superiorities. 

Both of the acquisitions mentioned above have played a positive role in business expansion and impact acceleration and brought a double-digit annual yield to shareholders. 

Start-ups that intend to scale up may seek second acquisition by large investment management companies with relevant departments or knowledge and skills, companies seeking IPO and companies with similar or complementary businesses. 

Source | sgsgeneva.org, Allianz Global Investors, Sina Finance