When investing is sustainable from an economic, social, environmental and governance perspective, it can provide not only capital but also drive job creation, alleviate poverty, encourage technology transfer, and upgrade industries. It can increase peace and stability and advance climate and environmental goals, addressing some of the greatest challenges the world faces today.
However, despite this potential, many of the frameworks that guide investment were designed in another era and have not been updated to reflect today’s realities and priorities. The challenge is to develop a coherent vision for international investment, under which different investment reform processes and initiatives can be aligned and mutually supportive.
Such collaboration is needed today more than ever. In 2020, owing to the shock of COVID-19, global FDI (foreign direct investment) fell by 35%. In 2021, it rebounded but very unequally: of the total increase in global FDI flows in 2021, almost three-quarters were recorded in developed economies.
At the same time, capital earmarked for sustainable investment has been growing dramatically, even during COVID-19, reaching more than $35 trillion. Yet well over 95% of this pool remains in developed economies. The challenge is therefore not the availability of capital, but the flow of this capital to where it is most needed: productive investments in developing economies.
Guiding sustainable investment flows toward developing economies
We are excited to announce the launch of the World Investment for Development Alliance (WIDA) at the World Economic Forum’s Annual Meeting 2022. By bringing all relevant stakeholders onto one platform, WIDA can enable conversations and coordination to identify opportunities for collaboration.
WIDA will not only help to coordinate organizations’ existing investment activities and efforts across geographies, but also create new collaborations to facilitate the growth and scaling of investments and promotional efforts at the national, regional and multilateral levels. This can help improve the investment climate in emerging and developing markets, increasing investor interest.
We are learning from, and building on, previous experience – such as helping to implement the World Trade Organization’s Trade Facilitation Agreement through the Global Alliance for Trade Facilitation, which has cut red tape, streamlined activities and increased trade in developing countries.
In addition, pilot projects specifically geared to exploring sustainable investment facilitation and promotion show it is possible to better enable sustainable investment flows in developing countries. For example, a pilot in India helped drive a series of actions identified and implemented through public-private collaboration. The pilot:
- promoted the adoption and rollout of ESG metrics to increase sustainability reporting and thus sustainable investment;
- helped orient industrial zones and parks to focus on sustainable operations;
- grew the use of home-country measures to support Indian firms’ outward FDI in a way that provides a new channel for India’s sustainable development, complementary to facilitating inward FDI;
- and encouraged wider use of deemed approvals to expedite authorizations for new investments, whereby, after a certain amount of time has elapsed, authorization is automatically granted to new investments.
These examples of investment facilitation show how public and private actors – together with expert organizations – can work together to identify and address bottlenecks and barriers that hold back investment.
In the forthcoming results of a survey of investment promotion agencies (IPAs), many indicated that they are looking for capacity building to facilitate investment that contributes to sustainable development goals (SDGs) in their country. For instance, 87% of IPAs found capacity-building in relation to investment facilitation and promotion either extremely important or very important; 32% specifically requested capacity building on how to grow sustainable investment. WIDA can help coordinate and grow such support.
WIDA can also help advance efforts to tackle the world’s investment challenges, both those of today and tomorrow, as outlined in this WIDA think piece. One way is through launching collaborative activities and projects, including in the areas of investment facilitation and promotion, sustainable investment and FDI qualities, and investment treaties. WIDA can bring together the work of each organization to be complementary and mutually supportive, helping each achieve its objectives more effectively and efficiently. At the same time, where there are gaps or needs, new efforts can be started.
We look forward to working with others to help improve the sustainable investment landscape. WIDA warmly welcomes other organizations that want to join this effort and work towards the goal of increasing investment to achieve development impact.