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Global foreign direct investment is shrinking rapidly—that’s the finding of the Global Investment Trend Monitor, which was released on Tuesday at the World Economic Forum (WEF) in Davos. At the launch, governmental actors and leaders in business and investment agreed that investors are attracted by trust and transparency, anti-bribery and corruption policies, and a commitment to SDG and ESG factors.
The Global Investment Trade Monitor was launched by the United Nations Conference on Trade and Development (UNCTAD) at a round table at the Davos Hilton on Tuesday (22 January). The high-powered meeting included major investors and government representatives:
The headline finding of the report is that global foreign direct investment fell by 19 percent in 2018. It is now an estimated $1.2 trillion, which compares to the low point reached after the global financial crisis in 2008.
Trust and transparency critical for attracting investment
All parties at the table seemed to agree that countries which can demonstrate transparency and a strong commitment to anti-bribery and corruption (ABC) are more attractive investment targets.
In fact, with less foreign direct investment available in the last year, ABC compliance is crucial. “The basis of investment, whether it is foreign or domestic, is trust,” a panelist told LexisNexis after the meeting. “As long as the level of trust is greater than the level of risk, investment will be attractive.”
A former advisor on investment and infrastructure to Presidents Bush and Obama agreed with this assessment. “A clean, honest, transparent market will attract a lot more investment than any other,” he said. “Countries need to have rule of law and they need to make those laws transparent. And corruption is the poison that puts investors off.”
The message is clear: Anti-bribery and corruption efforts will generate a return on investment. Ignoring the issue could mean investment income drops off rapidly.
Impact investing focuses on environmental, social and governance factors
At the launch it was also revealed that there has been a continued rise in ‘impact investment’ which focuses on the Sustainable Development Goals and environmental, social and governance (ESG) improvements.
James Zhan, Director of Investment and Enterprise at the United Nations Conference on Trade and Development, said there is a big opportunity for major companies to make a real impact on the achievement of these goals. He said there is still a gap of $2.5 trillion per year needed to finance the SDGs in developing countries. Another panelist told LexisNexis that he was surprised at how often the participants mentioned the Goals. “I keep hearing the SDGs mentioned today,” he said.
Expert insights from UN insider on ethical investment
Speaking outside the Congress Centre at Davos prior to the launch of the report, James Zhan, Director of Investment and Enterprise at the United Nations Conference on Trade and Development, explained these trends in more detail.
Q: What are the trends in ESG and SDG investment?
“In the area of SDG and ESG issues, there is a rapid scaling-up in the business and corporate world. For example, in the UN we have a Sustainable Stock Exchanges Initiative which started in 2009 and is scaling up now.
We started with five stock exchanges and now we have almost all stock exchanges worldwide working together to promote ESG issues through the stock exchange platforms; having more and more listing requirements for firms to report their performance on ESG; and also, for the stock exchange to mobilize financial resources for investing in the SDGs. It’s coming up in almost all the stock exchanges from the largest like New York and London to the smallest like in Africa, South East Asia and Latin America.
Regarding the SDGs, there are global efforts to mobilize financial resources, to fill in this $2.5 trillion annual gap for financing the SDGs in developing countries. For that we see firms are slowly but steadily moving into this area.
We need to help governments to formulate new strategies, incentive schemes and a policy framework to attract international investment in SDG sectors and we also need to mobilize further the business community to invest in the SDG sectors.”
Q: Why will it benefit companies in the long-term to focus on the SDGs and ESG factors?
“My message is that investing in the SDGs is a must, and it is profitable and beneficial to sustainable development and inclusive growth. Investing in SDG sectors—if businesses can find risk return profile high SDG projects and also work responsibly in these sectors—will be very sustainable and will be very much welcome. So, look for business opportunities and look for long-term growth.”