WEF Davos 2023;
- The UN's Sustainable Development Goals will help build a better world for all — but meeting them costs money and requires investment.
- Countries like India have long used Investment Promotion Agencies (IPAs) to attract foreign investment, but now IPAs are also being used to direct that investment toward sustainable development.
- Indicators including manufacturing, climate change and health are all beneficiaries of this method of attracting investment.
To invest and promote investment is to think about the future. Because of previous generations’ investments in the future, more people today have access to healthcare, education and decent work than ever before. Now, however, the delivery of the UN’s Sustainable Development Agenda is being threatened by climate change and inequalities which threaten to undo those gains.
Investment Promotion Agencies (IPAs), which serve as an intermediary between investors and government, can play a pivotal role in channeling investments in inclusive and sustainable economies that can unlock significant opportunities for shared prosperity.
This is particularly true when it comes to their role in attracting foreign direct investment (FDI), which IPAs can do in a manner that also pushes a country toward meeting the Sustainable Development Agenda.
The role of IPAs in attracting FDI
FDI flows in 2021 stood at $1.58 trillion. The regular parameters that track FDI suggest that such inflows not only lead to capital generation but also job creation, knowledge transfer, innovation and inclusive growth. IPAs are contributing to the Sustainable Development Goals (SDGs) primarily by promoting economic growth and employment, the building of resilient infrastructure, supporting industrialisation and innovation and ensuring access to modern energy.
In 2021, SDG investment increased by 70% from 2020, with a combined value of greenfield investment and international project finance in SDG sectors valued at $371 billion in 2021. This momentum in international project finance highlights the emergence of risk-sharing arrangements between domestic capital, and enables governments that are actively participating to initiate such projects.
To this end, governments have liberalised their regulatory framework and are proactively targeting FDI in line with their national objectives. South Africa has provided cash grants of up to $3 million to cover the costs of retrofitting existing industrial facilities to use renewable energy through rooftop solar panels. The Netherlands has offered a partial deduction of tax against investment in environmental technology. Meanwhile, India had liberated renewable energy generation and distribution projects by allowing up to 100% FDI ownership. New Zealand’s IPA has an internal framework to assess the regional and sustainability impact of projects that aid in earmarking special assistance accordingly. Similarly, Invest in Denmark and Germany Trade and Invest have developed and implemented a sustainability evaluation tool.