Building Resilience: Sustainable Financing in Emerging Markets
The global response to COVID-19 bears witness to the power of collective action, and how technology can be mobilized to garner and streamline efforts across sectors, including health, education, telecommunication, and more. The pandemic has also exposed how vulnerable and fragile our economy can be; in a matter of months, hundreds of thousands of people died, millions of jobs were lost, and livelihoods shattered. Leading international organizations project global gross domestic product (GDP) growth for 2020 to range between -8.8% and 1%, and the number of those living in extreme poverty to increase by 420 million people.1 In the wreckage left behind by the coronavirus pandemic, sustainable finance is all the more crucial in paving the way from devastation to recovery.
The next decade presents a ‘use it or lose it’ moment for emerging markets to reorient the financial sector towards building a more sustainable and resilient future. Investments in infrastructure are expected to reach US$90 trillion by 2030 to meet the needs of increased populations around the world, and COVID-19 has urged governments to provide large stimulus packages.2 This places greater emphasis on the need to invest with a view of environmental, social and governance (ESG) issues, and not just traditional finance metrics. Indeed, for low and middle-income countries, returns on responsible investment is high, amounting to US$4 on every US$1 spent on resilient infrastructure.3 Moreover, The Sustainability Report by Morgan Stanley analyzed the performance of more than 10,000 mutual funds to find that sustainable equity met or exceeded median returns of traditional equity 64% of the time. 4 This proves that there need not be a trade-off between financial and non-financial returns. In fact, ESG investments have a higher potential for long term payoffs. As the current pandemic forces a more prudent management of financial resources, sustainable investment options by governments, investors and corporations need to be prioritized.