Toniic: How Private Impact Investments are Funding SDGs

Tonic T100 SDG investing Cover-GreenMoneyImpact investors are fueling solutions to the systemic challenges framed by the UN Sustainable Development Goals (SDGs), finds a new report from Toniic, the global action community for deeper impact investing.

The report, T100 Focus: The Frontier of SDG Investing, unearths data from 76 Toniic member portfolios, totaling $2.8 billion in committed capital, to reveal where the most active impact investors see investable opportunities towards the SDGs across asset classes.

These investors are filling the financing gaps in affordable housing, smart cities and clean energy, and they’re going beyond these “media darlings” to address health, hunger and the circular economy in their portfolios.

Sustainable Cities and Communities Take the Spotlight

While the aggregated T100 portfolios address all 17 SDGs, just five account for more than 60 percent of the invested capital:

• SDG 11: Sustainable Cities and Communities (29%)
• SDG 7: Affordable and Clean Energy (17%)
• SDG 3: Good Health (7%)
• SDG 2: Zero Hunger (6%)
• SDG 12: Responsible Consumption and Production (5%)

Sustainable cities and communities are the top target of the portfolios, attracting nearly a third of all SDG investments — making it even more of a focus than renewable energy. As urban areas continue to expand, people all over the world struggle with inadequate infrastructure, pollution and lack of service, which gives a sense of urgency to investors pursuing this goal.

Toniic member Lital Slavin, who invested in Hadarim Fund, an urban renewal project in Israel, said it will “be one of the major impacts of my life if we are successful — a template for urban revitalization that benefits the residents and does not displace them.”

Her investment in this fund reflects that within SDG 11, community empowerment attracts the largest share of funding (37%), followed by green building (30%), affordable housing (24%) and smart cities and mobility (9%). Nearly half of the investments pouring into this goal are in real assets (49%), such as real estate, and fixed-income investments in community lending dominate community empowerment, helping to make it the most liquid theme.

Clean Energy Investments Take Second Place

Ensuring access to affordable, sustainable energy for all attracts the second-largest amount of capital across T100 portfolios, invested in three theme areas: the transition from fossil to clean energy (65%), access to clean energy (28%) and energy efficiency (7%).

Investments in SDG 7 are spread across asset classes, including fixed income, private equity, public equity and real assets. Investors are expecting higher financial returns for investments in this goal; possibly due to the relatively high exposure to private equity. For example, Wermuth Asset Management invests private equity in companies that produce cheap electric power and in electric cars that charge the grid.

Focus on Good Health, no Hunger

A broad spectrum of capital is making the world healthier. Investors in SDG 3 mainly support access to healthcare (58%) and disease prevention and response (34%), and there is a near-even split of private equity for startups that develop new models and products, and public equity focusing on companies of scale. Biotech company Novo Nordisk illustrates the use of public equity to fund the development of medicines for rare and chronic conditions.

Investments in sustainable agriculture — mainly through real assets such as sustainable farmland — feed SDG 2. Direct investments accounted for two-thirds of SDG 2 allocations, and the remaining third through funds. Investors accept a longer timeline for returns in this area — greater than five years — reflecting the need for more patient capital to support transformative change in sustainable agriculture.

Finally, SDG 12 investments reflect the widespread need to minimize resource extraction and use of toxic materials. There’s a wide variety of opportunities in resource efficiency, which comprise 84 percent of SDG 12 commitments. The circular economy (15%), too, is a focus for investors like private equity fund Circularity Capital, which supports businesses that decouple their growth from resource constraints, enhance resource productivity and drive competitive advantage.

Investing Across a Spectrum of Capital

While the report shows that investments across asset classes are needed to address all the SDGs, each goal has distinctive investment opportunities.

Private equity is the most common investment in SDG 12 and SDG 7, and public equity is the top asset class in SDG 3, reflecting the scale of healthcare solutions. Real assets dominate in SDG 11 and SDG 12, where fundamental needs such as land acquisition for sustainable agriculture require more patient capital.

T100 investors are also looking beyond the obvious: Many of the investments in the studied portfolios are private and illiquid, with aspirations for tremendous impact that goes far beyond what is typically achievable with public market investments.

Additional Articles, Energy & Climate, Food & Farming, Impact Investing, Sustainable Business

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