FAROS Institutional Investors Forum (Euro Finance Week Frankfurt)

Ladies and Gentlemen:

Thank you very much for the invitation to join you in Frankfurt today. It is a pleasure and privilege to have the opportunity for a productive exchange with all of you as leaders of the global investment community.

It is a truism to say that we live in challenging times. But to set the frame for our discussion today, let’s recall the facts:

- First, climate change: Last year was the hottest ever. The past decade has been the hottest on record. The number of natural disasters has quadrupled since 1970. Millions of people and trillions of assets are at risk from rising seas and other climate disruptions. According to the World Bank, the impact of extreme natural disasters is equivalent to a global USD 520 billion loss in annual consumption, and forces some 26 million people into poverty each year. Let me ask those of you who have invested in real estate in coastal cities / have you reassessed those investments recently? you might want to do that!

- Second, rising inequality: Eight men (because they are men, not women) hold the same wealth as the bottom half of humanity. Entire regions and countries fail to catch up to the waves of progress, left behind in the Rust Belts of our world. In two-thirds of European economies, youth unemployment remains above 20%. While the baseline outlook may be strengthening, growth remains fragile and weak. Certainly too weak and too fragile to create the almost 500 million jobs needed in the next decade to meaningfully dent the number of unemployed young people. All of this undermines the very foundations of our societies.

- Third, the nuclear peril: Global anxieties about nuclear weapons are at the highest level since the end of the Cold War. It may not be priced in the markets, but the fear is not abstract; and neither is the risk of further proliferation.

- Fourth, unresolved conflicts: From Syria to Yemen, from South Sudan to the Sahel, Afghanistan and elsewhere, peace remains elusive. These conflicts provide fertile ground for violent extremism and drive migratory movements on an unprecedented scale. One UN study has estimated that the cost of conflict in a single year exceeds USD 14 trillion or 13.4% of global GDP.

The list goes on but I will stop here because I think the bottom line is clear: business as usual is not an option. Complacency is not an option. Not if we want to give our children the way of life, the opportunities, the security we ourselves enjoyed.

But here comes the good news: We have a plan. And the world is increasingly acting in line with this plan. For the first time in history, all 193 member states of the United Nations have adopted a blueprint for peace, prosperity and dignity for all on a healthy planet: the 2030 Agenda on Sustainable Development.

With 17 Sustainable Development Goals (SDGs for short), all of us, including the business sector, have a roadmap for inclusive, sustainable and fair globalization.

The goals are unique because they call for action by all countries – poor, rich, and everything in between – to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build sustainable economic growth. They cover the spectrum of social needs from education and health to social protection and job opportunities, while tackling climate change. They are integrated and indivisible. They balance the three dimensions of sustainable development: the economic, the social and the environmental. They do not leave anyone behind.

Achieving these goals would create a world that is comprehensively sustainable: socially fair; environmentally secure; economically prosperous; inclusive; and more predictable.

So far so good, but why, you may ask, are we discussing this here today? After all, if the Financial Times is any indication, the coming end of Quantitative Easing or the recent volatility of Bitcoin are top of mind.

The short answer is the question itself.

I came to Frankfurt with my partners precisely to make the case for why you – asset managers, hedge funds, insurers and pension funds – have a stake in the success of the Agenda 2030.

When Dr. Faber and others of your colleagues joined me three and a half years ago in Geneva, we agreed on the importance of proving the added value of SDGs for the business community – and we identified two mutually reinforcing arguments:

First, the SDGs as a moral imperative.

No modern company, no modern investor can conceive of themselves as external to the environment in which they operate. Your actions – what and how you produce, where and how you invest – have an impact. You are shareholders in the world. You have responsibility for this world.

We are increasingly seeing that companies use the Sustainable Development Goals as their roadmap, adjust business plans accordingly, and hold their managers accountable to them.

At its most basic, supporting the Agenda 2030 is quite simply “the right thing to do”. This is not trivial. Given the stakes of inaction, complacency or disregard – namely, a planet unable to support life, a fractured economy marred by social conflict, failing governance structures hostile to investment – the argument could really stop right here. At the end of the day, you can only achieve long-term success if you operate in an economically stable, politically sound, and socially cohesive environment. Everything else is secondary.

But on top of being the right thing to do, it is also the smart thing to do. And this brings me to my second argument: the SDGs are a commercial opportunity, as the sustainability index that Dr. Faber will discuss later proves.

The omnipresent question at conferences like this one, in board rooms across the world, on the trading floors of London, Hong Kong or New York is always: “Where will growth come from?” A derivative of that question, better tailored to everyone in this room, would be: “How do you get a return on your capital?”

With over USD 9 trillion of bonds trading with negative yields as we speak, it is a fair question.

My argument here has nothing to do with philanthropy, or with normative social or political beliefs. Rather, the case for incorporating the lens of the SDGs in your investment strategies is commercial.

Think about what finance achieves, if done right: it matches long-term savings and investment, financing the infrastructure essential to productivity.

Now consider this data point: Recent estimates tell us that to achieve the SDGs by 2030, we will need an additional USD 2.4 trillion in investments per year. Investments in low-carbon infrastructure, in energy, in agriculture, in health, and in education.

You can see this as a challenge, but better yet as an opportunity. In fact, it is above all else a really compelling growth story.

According to the Business Sustainable Development Commission launched in Davos last year, achieving the SDGs would open up at least USD 12 trillion in market opportunities. And that is actually a modest assumption if you consider that achieving the single goal of gender equality could contribute up to USD 28 trillion to global GDP by 2025.

Mark Twain, himself a passionate if somewhat unfortunate investor, once said that “you can’t depend on your judgment when your imagination is out of focus.” This is what the Agenda 2030 can correct – it allows us to adjust our perspective, beyond the short-termism of quarterly reports, towards an appropriately long-term horizon. The point is that the more you invest with foresight, the less you will regret in hindsight.

But you don’t even have to look that far ahead. Markets bring the future forward, and the financial impacts often occur immediately, even if the real impact may be several years into the future. The combined market capitalisation of the top four US coal producers has fallen by over 90% since the end of 2010, and three filed for bankruptcy last year. There has been similar, albeit less acute, drama for the more diversified German utilities.

The message is simple: The sustainability train has left the station. Get on board or get left behind. Those who fail to bet on the green economy will be living in a grey future.

Final point – less quantitative and more cultural: The universal and integrated nature of the SDGs challenges us to work in a more horizontal and collaborative manner than we have ever done before. But to work together, we need to understand each other. And to understand each other, we need to speak the same language.

Not too long ago, it felt like the language of diplomacy, of the United Nations, was met by business with something in between bemusement and bewilderment. And, if I may add, the feeling was sometimes mutual.

It may be that the stakes are simply too great now for the disconnect between the private and public sectors to continue. But it may also be that the SDGs have built a linguistic bridge, a common reference point, for all of us to come together.

A recent survey of over 1,000 CEOs from around the world by the UN Global Compact and Accenture found that 87 per cent “believe the SDGs provide an opportunity to rethink approaches to sustainable value creation.” Another 70 per cent of those CEOs “see the SDGs providing a clear framework to structure sustainability efforts.” These findings showcase the strong and growing support for applying the SDGs in a business context.

Why? Because the 17 goals – such as “End poverty”, “Eradicate hunger”, or “Promote decent work for all” – give businesses a scorecard for sustainability.

Equally important, they give investors a benchmark.

To be able to invest through a sustainability lens at scale, the lens needs to be sharpened. Investors need transparent measurement and granular reporting to see the impact of their capital, and to evaluate the performance of firms against verifiable metrics.

This is why I strongly commend the work of the Global Sustainability New Index Institute. By giving investors the tools and the information they need to truly and holistically assess corporate performance – not just balance sheet and cash flow projections but performance measured against the SDGs – they enable investors to tap the full potential of sustainable value creation.

Companies that put sustainability at the core of what they do outperform those that don’t. We have seen this on climate action, which influences 13 of the 17 SDGs: businesses that take action enjoy 18% higher returns on investment. And it is no wonder these firms outperform – think Tesla, think Google, think Apple.
- They outperform because sustainability gives them the compass and perspective to take the long-term view.
- They outperform because sustainability connects them to the Zeitgeist.
- They outperform because – if they are innovative enough to go sustainable – they are nimble enough to navigate volatile, competitive markets.
- They outperform because they attract the best talent – or have you met a high-flying millennial who doesn’t care about sustainability?

Scaled up, the Institutes’ benchmarking could create a well-defined, rated and liquid market for sustainability as a tradable good across regions and industries. Just consider the macroeconomic benefits alone – from absorbing excess global savings and helping to push up global equilibrium interest rates, to ultimately increasing global growth. Growth that is sustainable and inclusive, that benefits not just a few at the top, but that lifts up the fortunes of the many.

The world has the resources to deliver the 2030 Agenda, not least in the trillions of savings that are locked up and earn low or negative returns.

To liberate and invest them towards inclusive, sustainable growth is the role of finance. And that is why finance will make or break the whole endeavour.

There is our responsibility. There is our opportunity.

Thank you all very much. Vielen Dank.