Why scaling investment is crucial for sustainable development

Climate change has been on the international agenda for a long time, but recent developments have upped the urgency of taking immediate action for both humanitarian and developmental reasons. World leaders gathered in Glasgow to discuss climate change at the United Nations Climate Change Conference COP26, following the G20 summit in Rome in late October, which also prioritized sustainability.

Keeping climate change at bay through mitigation and adaptation is imperative to achieving the Sustainable Development Goals (SDGs), which were set by the United Nations in 2015 and made social, economic and environmental sustainability central to economic development.

Achieving the SDGs will, in turn, require an integrated approach and close cooperation among all stakeholders. Mobilizing financial resources will play an especially important role in reaching the SDGs and addressing the adverse effects of climate change. In this regard, foreign direct investment (FDI) has been a significant source of external finance for many countries, especially developing economies, to help achieve sustainable economic development.

Today, all economies vie for greater FDI inflows as it not only brings capital but also generates employment, transfers technology, and helps move up the value chain. Moreover, FDI can be instrumental in a country’s economic transformation towards a greener economy, as multinational corporations (MNCs) have both the financial wherewithal and technical capacity to help transform local operations to greener global best practices. MNCs have been increasingly incorporating environmental, social and governance (ESG) principles into their investment strategies, not only to achieve ESG investor score targets but also to save costs and mitigate risks, helping achieve both more sustainable and more profitable operations.

The international community is putting more efforts into scaling such investments through establishing effective mechanisms to support cooperation on investment issues, such as the planned World Investment for Development Alliance, which can facilitate collaboration on public-private projects to scale sustainable investment. One important dimension of such scaling is for countries to create a favourable environment to attract “Green FDI” in order to help achieve environmental and climate goals.

Unless host countries are attractive enough for such investments, MNCs will hesitate to invest there, especially in a time when attracting FDI is becoming increasingly difficult due to unexpected challenges such as the COVID-19 pandemic, policy uncertainty from increasing protectionism, economic shocks, and geopolitical risks. Moreover, the growing inclusion of sustainability clauses into new generation trade and investment agreements by major trading blocs will also affect MNCs’ location choices. Therefore, in order to make the best use of FDI in the aftermath of the pandemic, investment agencies should recalibrate their strategies and position themselves as promoters and facilitators of sustainable investment.

Through smart and targeted policies, sustainable investment can make significant contributions to a country’s economic development, including Green FDI to help reduce carbon emissions. Incorporating the SDGs into a country’s FDI attraction strategy can thus bring benefits across society. Therefore, FDI practitioners and policymakers should develop novel strategies that are more inclusive and SDG-oriented.

Cognizant of that we, as the Investment Office of Turkey, have recently revised our FDI strategy and made SDGs one of the main pillars of our investment promotion and attraction policies. We have also incorporated “impact investments” into Turkey’s national development agenda. Through an extensive engagement with national and international stakeholders, “impact investments” have become a priority for private and public sectors in Turkey.

Together with the United Nations Development Programme (UNDP), we co-published a series of reports on The Impact Investing Ecosystem in Turkey and SDG Investor Map Turkey, providing a guide for the private sector to perform diligence and make impactful business decisions. After these successful initiatives, Turkey’s Impact Investing Advisory Board was established to mobilize government agencies and private sector stakeholders to develop a state-of-the-art regulatory framework. Establishing such a national impact management framework will standardize the measurement and control across all sectors, which will incentivize impact investing and boost the performance of impact investors.

Success is contingent on going beyond defining certain metrics and standards or appeasing shareholders. Implementation, monitoring, and assessments are essential to creating real impact through sustainable investments. Therefore, national and international efforts to establish strong mechanisms for implementing impact investments and attracting Green FDI must be backed up through collaboration and partnership at every level.

International organizations, such as The United Nations Conference on Trade and Development (UNCTAD), UNDP, and Organisation for Economic Co-operation and Development (OECD), and the World Economic Forum have been playing an important role in creating effective platforms for cooperation. National institutions should continue to engage with these organizations in order to adapt their local investment ecosystems to the changing international investment trends, practices, and opportunities. We are all facing global challenges that require global solutions, and cooperation is a sine qua non requirement to find sustainable solutions for the problems that are threating humanity.