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EXECUTIVE PERSPECTIVE: Forging Partnerships, Creating Impact: A New Model for Business

Arif Naqvi

21 Sep 2017

Two years ago this week, the United Nations General Assembly committed to achieving a universal series of metrics for progress in advancing conditions for “people, planet and prosperity.” The UN Sustainable Development Goals (SDGs) are as ambitious as they are daunting: provide clean water and sanitation, quality education, affordable clean energy, and so on. In short, the foundations for any good society.

What has been largely overlooked, however, is that the SDGs offer a pragmatic roadmap for effective business investment. For example, four areas reflected in these UN Global Goals – food and agriculture, cities, energy and materials, and health and well-being – represent opportunities for up to US$12 trillion a year in business savings and revenue, according to the UN’s Business and Sustainable Development Commission.

If similar benefits are captured across the total global economy and paired with much higher labor and resource productivity, the investment opportunity could be two or three times greater. To give you a tangible expression of those benefits, the International Monetary Fund notes that if women simply participated in the formal labor force at the same rate as men did, India’s GDP would increase by 27%, and even in the United States – the world’s largest economy – it would increase by 5%.

In the investment firm I founded, we gauge and manage the prospects of our global investments against SDG metrics. The opportunities they outline are unprecedented, with this one pre-condition: If you want to be a great company in the 21stcentury, you first have to be a good company that realizes it must benefit its communities.

Yet it would be naïve to expect that business alone can fully deliver the better world envisioned in the SDGs. Private investors, governments, development finance institutions, NGOs and philanthropies must come together to create a whole new, sustainable eco-system through which to invest in our collective future. This vision requires hard dollars and soft power. Fortunately for us, and as the United Nations General Assembly Week (UNGA) is demonstrating, governments and civic leaders around the world are showing an unprecedented willingness to partner with business in achieving the SDGs.

So, as business leaders, how do we collectively tap into the massive potential that the SDGs afford us? First, we must think and act like Millennials. Perhaps more than any of us, Millennials more innately grasp that we are all investors in the future health and wellbeing of every person, and every nation, in the world. For them, the frameworks of impact investing – of pursuing profits and social benefits – isn’t charity, or a passing phase. It represents how business should be done.

Second, we have to shed antiquated views about “developing nations” and recognize the faster-growing economies of much of Asia, Africa, and Latin America for what they are: global growth markets. It is also these markets where progress and inequality co-exist in fairly equal measure. The massive opportunity we have today is to build on the gains of progress and eradicate the scourge of inequality that holds so many people back.

But how do we really invest in our collective future?  If we are to genuinely embrace the SDGs as an investment opportunity, the final element is changing our mindset.

First, we need a fundamental re-design of the global financing system. Pension funds, insurance companies, other institutional investors and sovereign wealth funds are stewards of US$290 trillion. As of August 2017, US$8.5 trillion of those funds were invested in negative yielding bonds. Let’s take a step back and understand the consequences of this.  Effectively, major stewards of other people’s capital are deciding to lock in losses with a notable portion of their investments. That is the sign of a broken system that has to be fixed.

Second, private finance is key. It represents one of the most scalable solutions to tackling global challenges. But from our experience, when you blend financing from private investors and operating partners with public development finance institutions, you generate an economic rate of return that is incredibly powerful. Development financing institutions and multilateral agencies can provide crucial loan guarantees and risk mitigation support, alongside traditional financing. Through such blended finance mechanisms, the social and economic landscape of cities from Hyderabad to Nairobi are being transformed through the creation of hard and soft infrastructure. We need to embrace and scale this approach so as to mobilize more development finance capital alongside the commitments that institutional investors are making to growth markets.

Third, the final element that brings this all together is what we term ‘partnership capital’. It is an approach to doing business where shareholder and investor returns go hand in hand with long-term partnerships forged between different parts of the socio-economic landscape and entrepreneurial eco-system. As we know, private capital is a massive enabler for economic development in growth markets. One does not have to look very far to imagine how transformative private capital can be when it is imbued with a partnership approach.

Consider the SDG-tied aspirations for a US$ 1 billion Fund that our firm recently launched to build affordable and accessible health eco-systems for middle and low income communities in Sub Saharan Africa and South Asia.  Alongside us, our partners in the Fund have created a healthcare platform that is currently delivering healthcare services to more than 3 million patients per year, expanding to over 10 million patients served by 2020.

Crucially, our partners bring more than just capital.  The Fund’s beneficiaries are enriched by the intellectual rigor of the Bill and Melinda Gates Foundation, the sector expertise and credibility of Philips and Medtronic, the development focus of our DFI partners, and the commercial acumen and market-based returns approach of institutional investors.  In coming together as an example of blended finance, we have collectively marshalled our resources, capital and capabilities to help attain SDG 3, a simple number with a gigantic goal behind it – ensuring healthy lives and well-being for all.

In our mind, there is no doubt that achieving the UN’s Global Goals will help shape a safer, more inclusive and prosperous world. The real question is how quickly leaders in government, non-profits and the private sector can coalesce as committed partners in generating and shepherding the world’s abundant capital. The methods are proven. The time is now.

Arif Naqvi is the Founder and Group Chief executive of The Abraaj Group, a global institution investing in select markets across Africa, Asia, Latin America, the Middle East and Turkey. He is a Board Member of the United Nations Global Compact, Founding Commissioner of the Business and Sustainable Development Commission, and a Global Business Leader of the B Team.

 

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