On December 3, 2014, Aniket Shah, Program Leader of SDSN’s Financing for Sustainable Development Initiative, presented at a discussion on “Asia Capital Markets and their role in Sustainable Development Finance and the Sustainable Development Goals” at the New York office of United Nations Conference on Trade and Development (UNCTAD). The event was organized by UNCTAD, AVIVA, Tellus Institute, and Stakeholder Forum.
Shah’s presentation is available for download here.
Asia Capital Markets and their role in
Sustainable Development Finance and the Sustainable Development Goals
3rd December from 1:00 to 1:50
Hosted by UNCTAD in DC2 (44th Street) room 1120
Aniket Shah has been seconded from Investec Asset Management to join SDSN from 2014-2015, where he is the Program Leader of the Financing for Sustainable Development Initiative. At Investec Asset Management, an international investment management firm based in South Africa and the UK, Aniket currently serves as an investment strategist. In this role, Aniket works with the world’s largest institutional investors, from both the public and private sectors, to develop long-term portfolio investment strategies with a focus on emerging markets and Africa.
Co-chaired by Chantal Line Carpentier, Ph.D. Chief, New York Office of UNCTAD and Felix Dodds, Tellus Institute
Organized by UNCTAD, AVIVA, Tellus Institute and Stakeholder Forum
Background information on Investment in Sustainable Development briefing: This will focus on how to mobilize and channel investment into key Sustainable Development sectors in Asia and in light of the Intergovernmental Committee of Experts on Sustainable Development Financing. For generations policy makers have sought to align the interests of the financial markets and society.
Nowhere is this tension more keenly and persistently felt than in the relentlessness of the capital markets to allocate capital to short term, unsustainable uses. Policy-makers need to plan for the long-term and tackle a range of environmental and social issues, such as poverty, climate change and human rights. As well as Nexus issues such as Water-Energy-Food.
Adopting the conventional definition of sustainable development and applying it to capital markets: “capital markets that finance development that meets the need of the present, without compromising the ability of future generations to meet their own needs.”
Public policy makers have traditionally tended to focus on the flow of aid when considering traditional sustainable development issues.
However, private capital in the tens of trillions is allocated matters far more than how the tens of billions of dollars of official assistance get dispensed.
A primary failure of the capital markets in relation to sustainable development as one of misallocation of capital. This, in turn, is a result of global governments’ failure to properly internalize environmental and social costs into companies’ profit and loss statements. As a consequence, the capital markets do not incorporate companies’ full social and environmental costs. Indeed, until these market failures are corrected through government intervention of some kind, it would be irrational for investors to incorporate such costs since they do not affect financial figures and appear on the balance sheet or – therefore – affect companies’ profitability. This means that corporate cost of capital does not reflect the sustainability of the firm. The consequences of this are that many unsustainable companies have a lower cost of capital than they should and so are more likely to be commercially successful than their more sustainable competitors.
Trends in Asian Investments
Developing Asia accounted for nearly 30 per cent of the global total and remained the world’s number one recipient region, with total FDI inflows of $426 billion in 2013.
FDI inflows to East Asia rose by 2 per cent to $221 billion. The stable performance of the subregion was driven by rising FDI inflows to China as well as to the Republic of Korea and Taiwan Province of China. With inflows at $124 billion in 2013, China again ranked second in the world. Driven by a number of megadeals in developed countries, FDI outflows from China swelled by 15 per cent, to $101 billion. The country’s outflows are expected to surpass its inflows within two to three years.
Inflows to South-East Asia increased by 7 per cent to $125 billion, with Singapore – another regional headquarters economy – attracting half. The 10 Member States of ASEAN and its 6 FTA partners (Australia, China, India, Japan, the Republic of Korea and New Zealand) have launched negotiations for the Regional Comprehensive Economic Partnership (RCEP). In 2013, combined FDI inflows to the 16 negotiating members of RCEP amounted to $343 billion, 24 per cent of world inflows. Over the last 15 years, proactive regional investment cooperation efforts in East and South-East Asia have contributed to a rise in total and intraregional FDI in the region. FDI flows from RCEP now makes up more than 40 per cent of inflows to ASEAN, compared to 17 per cent before 2000. Intraregional FDI in infrastructure and manufacturing in particular is bringing development opportunities for low-income countries, such as the Lao People’s Democratic Republic and Myanmar.
Inflows to South Asia rose by 10 per cent to $36 billion in 2013. The largest recipient of FDI in the subregion, India, experienced a 17 per cent increase in FDI inflows to $28 billion. Corridors linking South Asia and East and South-East Asia are being established including the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor. This will help enhance connectivity between Asian subregions and provide opportunities for regional economic cooperation. The initiatives are likely to accelerate infrastructure investment and improve the overall business climate in South Asia.
FDI flows to West Asia decreased in 2013 by 9 per cent to $44 billion, failing to recover for the fifth consecutive year. FDI outflows from West Asia jumped by 64 per cent in 2013, driven by rising flows from the Gulf Cooperation Council countries. A quadrupling of outflows from Qatar and a near tripling of flows from Kuwait explained most of the increase. Outward FDI could increase further given the high levels of GCC foreign exchange reserves.