By Karen Peattie

A PILOT scheme to increase the flow of private sector capital to achieve the United Nations’ sustainable development goals is being developed by the Edinburgh-based Global Ethical Finance Initiative.

It comes after a major new report – a two-year collaboration between the United Nations Development Programme (UNDP) and the Scottish Government, with work led by the Global Ethical Finance Initiative and analysis conducted by merchant banking group RJ Fleming and Co – concluded that “business as usual” in the financial services sector will not deliver the 2030 target to achieve the global goals.

With sustainability and impact moving from being specialist subjects to becoming core drivers of investment strategies worldwide, the report calls for a step change, identifying a private equity fund-of-fund solution that provides the required scale to attract new capital from institutional investors.

Detailed due diligence for the pilot scheme will involve fund managers, asset owners and specialist impact investors. It is due to be launched later this year as part of the build-up to the COP26 climate summit, now postponed until 2021.

Omar Shaikh, managing director of the Global Ethical Finance Initiative, said: “Having consulted almost 100 representatives from a cross-section of investment professionals and asset owners, representing total assets under management of over $21.5 trillion, we have undertaken one of the most comprehensive contemporary reviews of the appetite among the global investor community for supporting the SDGs (sustainable development goals) and ESG-aligned investing (environmental, social and governance).

“By developing a deep understanding of the challenges investors face in this space we have identified a long-term, private markets solution that we believe will remain attractive despite the economic downturn.

“Current market conditions present significant opportunities as cash is at a premium, especially for small to medium-sized businesses.”

The new independent managed platform, a global impact fund-of-funds, will fill the gap between specialist impact fund managers and mainstream investors, Mr Shaikh added.

The proposal is designed to attract global institutional investors who otherwise would not deploy tens of millions of dollars in this space, ensuring they receive a financial return at the same time as delivering an authenticated positive social and environmental impact.

Jamison Ervin at the UNDP said: “There is an asymmetry between the availability of supply of private sector finance and the supply of investment-ready projects.

“Our goal in this partnership is therefore to explore and test new ways of channelling finance to focus on inclusive, nature-based, SDG-aligned enterprises.

“We are excited to support the development of a new, innovative finance instrument that will help accelerate the deployment of private sector financing where it is most needed.”