Resilience and Realignment: Sovereign Wealth Funds' Sustainable Investments in the Age of Geoeconomic Fragmentation

The opinions contained here are those of the authors and do not reflect the views of IFSWF or any of its members.

The global financial landscape is experiencing a profound shift toward geoeconomic fragmentation, with sovereign wealth funds navigating complex trade-offs between open capital markets and national strategic interests. This article introduces a new methodological framework for analysing sovereign wealth fund investments based on regional proximity. We track capital flows along six regional corridors: Middle East–Europe, Middle East–Africa, Africa–South Asia, Eastern Asia–Oceania, and North America–Latin America, complementing our existing data on intra-regional investment. This approach helps identify how investment patterns are evolving in response to geopolitical realignment. Our analysis tests the hypothesis that capital flows increasingly favour geographically proximate regions, with a corresponding decline in long-distance, cross-continental transactions.

Sustainable Investment Endures Amid Political Headwinds

Sovereign wealth funds have maintained a remarkably steady commitment to SDG-aligned investments despite recent global disruptions. Our dataset of direct equity deals from 2020-2024 shows no retreat from sustainability; in fact, sustainable investment activity has proven resilient. The database covers 1,721 transactions worth $358.5 billion, with sovereign wealth funds executing 576 SDG-focused deals amounting to over $104 billion, representing approximately 34% of transactions and 29% of capital deployed.

Annual sustainable investments jumped from about $9.6 billion in 2020 to $25.6 billion in 2021—a nearly 167% increase—and have since remained within a range of $22-25 billion annually through 2024. In 2024, sovereign wealth funds closed 139 sustainable deals (nearly half their transactions that year) worth approximately $21.94 billion. This consistency suggests that sovereign funds have maintained their sustainability focus throughout the polycrisis.

Notably, the average ticket size of SDG investments has converged with that of conventional deals, overcoming a historical hurdle for large investors. The year also saw notable mega-deals, including ADQ's exceptional $24 billion commitment to develop Egypt's Ras El Hekma region.

Chart 1.1 Sovereign Wealth Fund Sustainable Investments by Value ($ million)

Source: IFSWF Database

Within sustainable investing, sovereign funds are realigning their sector focus in response to evolving priorities. Resilient infrastructure has emerged as the fastest-growing pillar of SDG portfolios. In the wake of pandemic disruptions, geopolitical risks, and supply-chain vulnerabilities, sovereign wealth funds are channelling more capital into transport, telecom, and utility infrastructure projects that bolster domestic resilience and connectivity.

By 2024, cumulative investment in "resilient infrastructure" (SDG-aligned transportation, utilities, and digital infrastructure) overtook energy in value, becoming the largest single category of sovereign sustainable investment. Sovereign funds from the Gulf and Asia, in particular, executed major infrastructure transactions, from toll road networks and ports to data centres, aiming to strengthen critical bases for long-term growth.

By contrast, renewable energy investments, which surged to record highs in 2023, saw a slight pullback in 2024. The total value of energy deals fell by approximately half, dropping from $12.9 billion in 2023 to $6.3 billion in 2024. This moderation likely reflects timing and market cycles rather than abandonment of climate investing; renewable energy still accounted for a substantial share of SDG deal value in 2024, and the multi-year trend remains positive.

Meanwhile, financial services oriented toward inclusion and small and medium enterprises (SMEs) have enjoyed a modest rebound. After a lull in 2022-2023, sovereign wealth funds showed renewed interest in fintech and inclusive finance startups that broaden access to banking, insurance, and digital payments. Temasek's stake in SarvaGram, a rural fintech platform serving underbanked middle-income segments in India, exemplifies this trend.

Geoeconomic Fragmentation Reshapes SWF Allocations

The geographic distribution of sovereign funds' sustainable deals is evolving in response to geoeconomic fragmentation. Heightened geopolitical risk and economic nationalism have prompted sovereign investors to recalibrate where they invest, with a discernible shift away from distant markets toward domestic or regionally proximate ones.

Chart 1.2 Sovereign Wealth Fund Sustainable Investments by Target Region

Source: IFSWF Database - TIL Analysis

North America, long the top destination for sovereign capital, has seen its share of SDG investments decline significantly. In 2021, approximately one-third of sustainable investment value was directed to North America, but by 2024, the U.S. accounted for only 15%. This marks a multi-year retreat as the U.S. has become a less welcoming destination for foreign direct investment.

Correspondingly, sovereign wealth funds have redirected attention to markets closer to home. Domestic deal value has reached its highest level in years, as sovereign funds in Europe and the Middle East directed sizable funding into home-market projects. Abu Dhabi's Mubadala and the Qatar Investment Authority each committed nearly $1 billion to domestic investments, while France's sovereign fund deployed over $300 million across eight local deals.

Alongside this, proximate investments are gaining momentum. Nearly two-thirds of all sustainable deal value in 2023 was allocated domestically or within investors' home or neighbouring regions, marking a clear pivot from the more globalised dealmaking of earlier years. In 2024, this pattern held firm, driven by inter-regional partnerships grounded in geographic proximity and strategic alignment.

We are seeing growing investment linkages between the Middle East and nearby regions such as North Africa and Southern Europe. Indeed, Europe has replaced the U.S. as the prime theatre for sovereign sustainable investment, capturing roughly half of SDG deal value in 2024, up from under 29% in 2021.

This reallocation is broadly consistent with recent trends in geoeconomic fragmentation, showing that since 2022, goods trade declined more between geopolitically distant blocs than within blocs (IMF World Economic Outlook, 2024).

The EU-MENA nexus is particularly noteworthy. Middle Eastern funds like ADIA, PIF, and Mubadala have been channelling billions into Mediterranean Europe and MENA neighbours, from renewable energy projects in Egypt to digital infrastructure in Italy, forging a regional investment zone. The chart below illustrates the growing investment corridor between Middle East funds and European sustainable projects, demonstrating how geographic proximity is increasingly shaping investment patterns.

Chart 1.3 International Profile of SWF Sustainable Investments

IFSWF Database - TIL Analysis

Sovereign Wealth Fund Sustainable Investments by

In short, sovereign wealth funds' sustainable investments are being realigned geographically. Global deals that span across continents have become scarcer, falling to a historic low of 15% of sustainable deal value, while local, regional, and proximate deals have gained ground, reflecting a shift toward geographically closer deployment of capital. This pattern represents economic regionalisation in action, as investment flows increasingly follow proximity-based corridors.

Conclusion

Sovereign wealth funds are navigating geoeconomic fragmentation while maintaining continuity in their sustainable investment strategies. The evidence from the past five years shows that sovereign wealth funds have not retreated from the Sustainable Development Goals; instead, they are adapting their approach to maintain the SDG agenda amid changing geopolitical conditions.

Despite global challenges, the momentum behind sovereign sustainable investing remains intact. In 2024, sovereign wealth funds continued to finance a substantial volume of projects addressing climate change, infrastructure gaps, and social inclusion, affirming that sustainability is now entrenched as a key theme in sovereign portfolios.

The typical deal size for SDG investments has grown and is rapidly converging with that of mainstream deals, dispelling the notion that impact-oriented investments must be small or concessionary. In 2024, the average SDG deal size reached $160.4 million, virtually identical to the $162.3 million average for non-SDG deals. This convergence means sustainable investments are no longer limited to small ventures but are scaling up significantly.

The concentration of deals in critical areas like clean energy and resilient infrastructure underscores that long-term global challenges, from decarbonization to economic resilience, remain central to sovereign investment plans. Not all SDG areas receive equal attention—sectors such as education, water & sanitation, or biodiversity conservation have attracted relatively less capital. This uneven coverage suggests room for a more comprehensive approach in the future.

Crucially, sovereign wealth funds are realigning their sustainability strategies to fit the more fragmented world order. The shift toward domestic and intra-regional investments, as well as the retreat from long-haul deals in the West, illustrates a strategic adaptation to geopolitical reality. Funds are finding ways to continue investing for impact by focusing on opportunities in their backyards or aligned economies, thereby reducing geopolitical exposure without abandoning long-term development goals.

Their patient capital is helping to build renewable energy capacity at home, fund technology and healthcare champions in neighbouring countries, and develop infrastructure connecting regional markets. These investments underscore a theme of "resilience and realignment"—sovereign wealth funds are resilient in their commitment to sustainability while realigning their investment strategies to ensure that commitment survives in an age of increasing economic regionalisation and geoeconomic fragmentation.