Sovereign Wealth Funds and Sustainable Development Goals

Javier Capapé, Director, Sovereign Wealth Research, IE Center for the Governance of Change.

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

Sovereign wealth funds are not usually associated with impact investing. Yet, here I will try to demonstrate the opposite. The Global Impact Investing Network (GIIN) defines impact investing as investments that generate positive, measurable social and environmental impact alongside a financial return. The impact investment market provides capital to address some of the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education. Although impact investing is primarily associated with emerging markets, it is also relevant for developed markets, and includes a range of returns from below market to market rate, depending on investors' strategic goals.

The GIIN estimates that at the end of 2019, over 1,720 organisations manage $715 billion in impact investing assets up from $228 billion in 2017 and $77 billion in 2015. In short, impact investment assets have more than doubled every two years since then.

Increasingly, impact investors are looking to the United Nations Sustainable Development Goals (SDGs), launched in 2015, to assess the environmental, financial and social performance of their investments. While data for most indicators is not yet available, the global effort on advancing the 2030 Agenda stays strong, amid recent distortions caused by the Covid-19 pandemic and current geopolitical tensions.

According to IFSWF Data, in 2021, sovereign wealth funds deployed more than $7.1 billion in water, renewable energy, agritech, and new energy sources like long-term nuclear fusion projects or geothermal urban solutions. Yet, the scale of the challenge is massive, as the above direct investments are measured in single digits $ billions, The current SDG financing gap is measured in $ trillions. According to the OECD’s and UNDP’s estimates, the COVID-19 pandemic has increased this SDG financing gap to $3.7 trillion in 2020, compared to $2.5 trillion in 2019.1

ESG, necessary but not sufficient

Environmental, social and governance (ESG) investing was an early answer to the SDGs challenge. Whereas impact investing is goal-focused, ESG is a set of criteria to identify non-financial risks that can have a material impact on an asset’s value. As we will see below ESG is necessary, but not sufficient to achieve the SDGs. The growth of ESG investing is manifest. In 2020, it totaled over $35 trillion and projected to reach $50 trillion by 2025, which would represent more than a third of the projected total global assets under management, according to Bloomberg Intelligence.2 ESG assets have more than doubled in less than a decade. Such growth has not happened without controversy. More and more asset managers are rebranding financial products as ESG-compliant, in an effort to attract more capital from investors who are increasingly keen to be more sustainable. Often, however, no meaningful changes are made to the investment strategy. The incentives for “greenwashing” are clear, and the risks of misbehaving at this early stage can affect this delicate trajectory.

Yet, what is motivating the rapid growth in ESG-focused assets? An example can be found by looking at the largest holdings of the world’s largest ESG fund in 2021, the Parnassus Core Equity Fund, valued at $23 billion: Microsoft, Alphabet, and CME Group. Microsoft and Alphabet are well-known technology giants, whereas CME is the world’s largest financial derivatives exchange including agricultural products, currencies, energy, metals, etc. The rest of the 10 largest holdings include companies in various industries like online payment services, computer graphic processors, telecommunications, and financial information. Only one company belongs to the energy industry, Linde, a UK-based industrial gas leader might play a pivotal role in the development of green hydrogen. On the face of it, this fund looks like just another global technology fund. It is true that this group of companies, with their innovative business models, may well be part of the global long-run solution to SDGs and climate transition. As in logic courses, all these firms are necessary, but not sufficient to fill the SDG funding gap.

Impact investing to achieve the SDGs

So, how are SDGs going? Let’s focus on SDG 1 – ending poverty, in all its forms, everywhere by 2030. Following the pandemic, an additional 120 million people were pushed back to extreme poverty in 2020, the first time this has happened in a generation. The global poverty rate is projected to be 7% in 2030 a far cry from being eradicated.4

A fair question then is how many of the thousands of companies included in hundreds of ESG funds directly address this issue or are designed in a way to solve it? Assuming screening is correctly done, and that these firms are evaluated in enough detail, their actions would not make the problem worse, as they seek to avoid new harm. Yet, which of those companies will directly address these SDGs? Milton Friedman’s famous doctrine that “an entity’s greatest responsibility lies in the satisfaction of the shareholders” should work well in theory, but what about when millions of small stockholders have divergent preferences? Or, even, if self-declared responsible investors claim they want the company to seek something else beyond financial returns? What if the concept of shareholder value includes SDG impact? Societies’ preferences change over time. New generations demand more from companies (and investors) today. Instead of contradictions, what if you can be profitable while solving the most pressing problems on earth?

Sovereign wealth funds have been investing in SDG-focused companies for years, some probably without knowing this particular link, based on a due diligence process that identifies business models and selects those that offer the most attractive and promising strong risk-adjusted returns. Yet, is it possible to invest well in companies that directly do good? Yes. And the number of SDGs that sovereign wealth fund investments have furthered is ample and accelerating. These investors have invested in impact companies beyond renewable energy (a goal of SDG 7) and sustainable consumption and production processes (SDG 12). Certainly, they have bet heavily on companies that help to achieve other goals such as good health and well-being (SDG 3), sustainable industry, innovation, and infrastructure (SDG 9), or increase the quality of education (SDG 4).

The latter offers a picture of how sovereign wealth funds and other institutional investors foster the growth of companies with a potential impact on education. Since 2015, sovereign wealth funds have joined 41 venture capital investment rounds in technologies companies active in the education business (edtech) from eleven countries. Today, India is the most popular country for sovereign wealth funds investments in education. It has come to the fore after severe government regulations in China banned for-profit edtech businesses in 2021. For example, since April 2021, four major investment rounds attracted global investors to Indian edtech companies. Sovereign wealth funds have targeted late-round leaders including BYJU’S and Unacademy. The former is a Bangalore-based edtech giant with over 115 million registered students supported by both the Qatar Investment Authority and Abu Dhabi’s strategic investment vehicle ADQ. The seven-year-old Unacademy has expanded thanks to backing from Singapore’s Temasek Holdings and flagship global private equity firms like Sequoia Capital or General Atlantic. This young and vibrant company has already achieved the goal of 50 million active learners5 and is valued at $3.4 billion.6

This edtech case is just one example of the multiple areas where sovereign wealth funds can provide valuable support to impact companies. Why not imagine more targeted impact investment tools where these resources are put to work in favour of hundreds, thousands or millions of citizens in countries with pressing needs while delivering strong returns? From healthcare innovation to clean energy, urban sustainable cities to locally-focused solutions to hunger, job creation and poverty alleviation to clean water and sanitation. The SDGs are ambitious, the long-term returns are just there for the taking for entrepreneurs and long-term investors. Will sovereign wealth funds join the move?


  1. OECD & UNDP. 2021. Closing the SDG Financing Gap in the COVID-19 era. Accessed 30 March, 2022 at
  2. Bloomberg Intelligence. July 21, 2021. “ESG Assets Rising to $50 Trillion Will Reshape $140.5 Trillion of Global AUM by 2025”. Accessed at
  3. MSCI. 2021. “MSCI’s Top 20 Largest ESG Funds”.
  4. United Nations. 2022. The Sustainable Development Goals Report 2021. Accessed at
  5. Unacademy. 2022. “About us”.
  6. TechCrunch. Aug 2, 2021. “Indian edetch Unacademy valued at $3.3 billion in $440 million fundraise”. Accessed at