Financial gap to meet SDGs in MEASA hits $5tn annually: NYUAD

Image: NYUAD

A new report from Stern at NYU Abu Dhabi’s (NYUAD) Transition Investment Lab (TIL) highlights a growing financial gap in the Middle East, Africa, and Southern Asia (MEASA) region, which now stands at nearly $5tn annually.

This figure marks an increase from last year’s $4.3tn, underscoring the widening challenge of funding the United Nations’ Sustainable Development Goals (SDGs) by 2030.

The report, titled The Great Reallocation: Mobilizing Capital for Transition Investment, identifies the convergence of economic, environmental, and geopolitical disruptions  — often referred to as a “polycrisis”— as the primary driver behind the expanding financial gap.

Despite this, the report also presents opportunities for institutional investors in the UAE and beyond to leverage ‘transition investment’ — a strategy that aims to deliver both socio-economic impact and financial returns.

In partnership with Mubadala and MEASA Partners, the report argues that the UAE is uniquely positioned to mobilise capital and channel investment into the region’s emerging markets. This opportunity is underscored by the MEASA region’s combination of high economic growth potential and severe socio-economic and environmental challenges.

Potential for progress on SDGs

“There is a burgeoning investable universe offering the potential to make meaningful progress on the SDGs while generating positive risk-adjusted returns,” said Bernardo Bortolotti, executive director of TIL.

“This report explores how transition investment can help preserve the sustainability agenda despite current geopolitical disruptions. We believe the region holds immense untapped potential to mobilise capital and make a significant impact on the SDGs,” he added.

Slowdown in ESG investments amid global disruptions

The report highlights a troubling trend in global sustainable investing. Since 2021, global net inflows into environmental, social, and governance (ESG) funds have dwindled, with negative flows recorded in the fourth quarter of 2023.

This decline in ESG investment is also reflected in private markets, where ESG-aligned funds across sectors such as private equity, infrastructure, and real estate have dropped by 18 per cent over the same period.

As a result, the financial gap to meet the SDGs by 2030 has widened, with increased skepticism around the tangible impact of ESG investments.

The report suggests that the stagnation in key SDG targets, including poverty reduction and access to education, has only deepened the urgency of mobilising capital to meet these goals.

“We are at a critical juncture. Over a third of SDG targets are either stagnating or regressing,” said Antonio Miguel Ribeiro, head of Investment Risk at Mubadala. “Transition investing can play a pivotal role in reversing this trend and help private market investors tap into attractive opportunities in the MEASA region.”

MEASA region offers compelling investment opportunities

The report stresses that despite the challenges, the MEASA region holds compelling opportunities for institutional investors. With a rapidly growing population and expanding economies, the region offers significant financial, social, and environmental upside.

However, the report warns that the current underinvestment in the region could exacerbate social and environmental risks, with far-reaching global consequences.

Peter Lejre, CEO of MEASA Partners, emphasised the importance of shifting investment strategies: “The population and economic growth of the MEASA region present attractive financial opportunities, but current investment allocations are insufficient. Without strategic intervention, the risks could be dire. The work done at TIL is crucial in raising awareness about regional opportunities and providing a new approach to evaluating the impact of investments.”

With the financial gap to meet the SDGs continuing to grow, the report calls on institutional investors to rethink their strategies and seize the opportunity for transition investment in the MEASA region. By doing so, they can contribute to addressing critical global challenges while generating long-term, risk-adjusted returns.

The above findings were shared at the Transition Investment Workshop held at NYUAD, which brought together financial institutions, asset managers, researchers, and policymakers to discuss how to unlock large-scale investments in emerging and lower-income countries.