Dr Indranil Ghosh
CEO of Tiger Hill Capital

Matthias Lomas
Impact Strategist, Tiger Hill Capital 

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

Governments are introducing bold new initiatives to transition their economies onto a more sustainable path and meet the United Nations’ Sustainable Development Goals (SDGs).

However, huge mobilisation of private capital is needed to meet the SDG funding gap. This is an area where sovereign wealth funds, and particularly those with a domestic development role, are uniquely placed to play a vital part.

India’s National Infrastructure Investment Fund catalyses investment in much-needed infrastructure projects

The Sustainable Development Transition

In December 2019, the European Union (EU) embarked on the European Green Deal, an initiative that its proponents hope will have the same reverberating significance as the creation of the European Single Market in the 1990s or the introduction of the Euro in 1999. 

As part of the deal, the European Commission is undertaking a comprehensive review of all regulations to align with a commitment to cut carbon dioxide (CO2) emissions by 50% to 55% by 2030.

The Green Deal is expected to accelerate the development of renewable energy, the deployment of energy efficiency initiatives, and emissions trading markets. The transport sector will be under pressure to achieve zero emissions by the 2030s, while industrial sectors will be required to use fewer materials according to new circular economy policies. To help channel more capital towards genuinely sustainable activities, the EU has also announced a strict classification scheme determining what can be considered a sustainable investment, which asset managers must implement by the end of 2021.  

Other major economies are also making bold moves. Despite the federal government of the United States (US) opting out of the 2015 Paris Climate Agreement, 24 US states have chosen to abide by it. The United Kingdom has committed to net-zero carbon emissions by 2050, as has New York City. As part of its commitments to the Paris agreement, China has pledged to launch a nationwide carbon-emissions trading scheme, focusing first on the coal-fired power industry. 
These initiatives are all part of an era-defining mission to transition to a more sustainable, lower-carbon economy. The rallying point for this transition is the United Nations’ 17 Sustainable Development Goals (SDGs). The SDGs go beyond the goal of reducing carbon emissions to include areas such as creating well-paid jobs and economic growth, innovation, sustainable infrastructure, gender equality, health and wellbeing, and reducing inequality.  

The UN estimates the annual funding gap to meet the SDGs in developing countries is $2.5 trillion each year for the next decade1. However, the total funding gap for the SDGs is likely to be much larger because this figure does not include developed countries. Neither does this amount include estimates for the cost of increasing the global stock of affordable housing, expanding access to childcare, the costs of caring for elderly populations, or adequate investments to make lifelong learning a reality. As I tabulate in my book Powering Prosperity, the annual funding gap over the next decade is more likely to be about $5 trillion.2

To meet the SDGs, we need to incentivise private investment into sustainable activities on a grand scale. The public sector alone cannot fill the gap. The global tax base—all the tax revenues collected by all governments—is about $25 trillion. To fill the $5 trillion investment gap, we would have to increase taxes by 20% across the board—an unrealistic prospect—or increase borrowing to impractical levels. 

Although estimates of the total assets managed by sovereign wealth funds vary, they are not big enough to make a substantial contribution to  plugging the gap.3 However, they can play a critical role in de-risking investments which can then enable global private wealth (totalling $200 trillion) to be crowded-in.Sovereign wealth funds occupy a unique position because they are able to make long-term, large-scale, and early-stage investments that are beyond the risk profile of the private sector. They are also able to deploy strategic capabilities and work with governments to shape regulation and incentives that are beyond the means of private enterprise.

Over the last decade we have seen an increasing number of sovereign wealth funds established to diversify and drive sustainable economic development in their home country. Additionally, sovereign wealth funds set up as future generation funds, investing mostly in foreign markets are increasingly embracing environmental, social, and corporate governance (ESG) factors in their investment decisions. These trends will enhance sovereign wealth funds’ role in helping drive sustainable development. 

Here we will look at three ways that sovereign wealth funds can play a catalytic role in sustainable development. 

1. Long-term, Large-scale Investments in Economic Clusters

Through long-term, large-scale investments, sovereign wealth funds can help create new economic clusters that drive economic growth, provide well-paid jobs for many people, and help build industry and innovation capacity. In this way they can directly contribute to SDGs such as sustained, inclusive and sustainable economic growth, full and productive employment and “decent” work for all (SDG 8), as well as inclusive industrialisation and helping to foster innovation (part of SDG 9).  

The best-known example of this is that of Temasek Holdings, the Singaporean state-owned investment vehicle, which has played an important role as an asset manager of government-linked companies from the 1970s onwards. It nurtured these companies into competitive multinationals by providing capital and sound management over time. It also encouraged them to pursue international mergers and acquisitions to gain foreign expertise. For example, it grew Keppel Corporation from a small local ship-repair yard to a diversified conglomerate and leading global ship-repair and offshore platform builder. More than half of Keppel’s revenues are from overseas operations. Keppel’s success helped spur the development of the shipbuilding industry and wider maritime industry in Singapore. Indeed, today the maritime industry accounts for 7% of Singapore’s gross domestic product (GDP) and 170,000 jobs.5

The successful management of these companies played a pivotal role in Singapore’s economic development and attracted much foreign direct investment (FDI) which helped make Singapore one of the world’s leading hubs for multinationals. By fulfilling its role, Temasek has been able to use the proceeds from part-privatisations (the institution still retains major stakes in some strategic companies) to become a financial-investment vehicle that invests globally. 

Mubadala Investment Company, one of Abu Dhabi’s sovereign wealth funds, is another good example. While Temasek inherited an initial portfolio of 35 national companies, Mubadala began with few real assets, instead being funded by oil revenues. Since 2006, it has created local economic clusters by making large-scale, long-term investments. 

Perhaps the most successful example has been in aerospace. Abu Dhabi had the competitive advantage of high levels of air traffic. Mubadala leveraged the large number of aircraft landing in the United Arab Emirates to create an aircraft maintenance, repair, and overhaul (MRO) hub. To do so, it bought in foreign MRO expertise through the acquisition of Swiss company SR Technics in 2006. Subsequently it progressed to advanced technical services for gas turbines, creating a sophisticated MRO facility in Abu Dhabi. It then moved onto aircraft financing and finally advanced composite parts manufacturing with the creation of Strata Manufacturing in 2010. By 2016 it had completed the 25 square km Nibras Al Ain Aerospace park with Abu Dhabi Airport Company. It hopes this will attract original equipment manufacturers (OEMs) and more industry suppliers and smaller enterprises to Abu Dhabi. 

Mubadala’s strategy has already been a marked success in terms of well-paid job creation. Strata Manufacturing produces components for OEMs like Boeing and Airbus. It employs over 700 staff, the majority of whom are Emirati, and a significant proportion are women. Additionally, it has helped grow an Abu Dhabi aerospace supply chain. Over 50% of its 480 suppliers are based locally. Moreover, Mubadala expects the Nibras Al Ain Aerospace park to create 10,000 jobs by 2030 due to increased growth in the local aerospace sector. The development of the aerospace cluster has also attracted foreign capital which will further catalyse the sector’s development. 

Nabras Al Ain

Abu Dhabi's Mubadala has developed the Nibras Al Ain Aerospace Park, which it expect to create 10,000 jobs by 2030.

2. Game-Changing Strategic Partnerships

Sovereign wealth funds have also proven that they can attract substantial private capital to meet the SDGs by creating capital partnerships which bring together leading players in investment and operations. For example, India’s National Investment and Infrastructure Fund (NIIF) has attracted large amounts of capital by forming partnerships with international institutional investors. 

NIIF was established in 2015 with $3 billion from the Indian government to bridge the country’s infrastructure gap with long-term, stable capital. The government has a 49% stake in NIIF and can recommend projects, but there is no obligation for NIIF to invest. The fund is managed by highly experienced investment professionals.

NIIF has three funds: the Master Fund, Fund of Funds, and Strategic Opportunities Fund. The Master Fund invests in mature businesses running operating assets in core infrastructure such as roads, ports, airports, and power. It includes the Hindustan Infralog Private Limited (HIPL), a $3 billion ports and logistics platform created by NIIF and DP World that acquires businesses with strong growth potential in these sectors. By funding sustainable infrastructure, NIIF directly contributes to SDGs such as Clean Water and Sanitation (SDG 6), Affordable and Clean Energy (SDG 7), resilient infrastructure (part of SDG 9) and Sustainable Cities and Communities (SDG 11). 

AustralianSuper, Ontario Teachers Plan, the Abu Dhabi Investment Authority, Temasek, and the Canada Pension Plan Investment Board have committed a combined total of $4 billion to the Master Fund. Four domestic financial institutions—ICICI Bank, HDFC Group, Kotak Mahindra Life Insurance and Axis Bank—are also invested. The creation of investment platforms bringing together leading professionals in operations and investment has been cited by investors as a key factor giving them comfort.7 The generous 3:1 co-investment rights for international limited partners (investors) and limited government interference have also been strong pull factors for private investment.

The Fund of Funds partners with fund managers NIIF believes to have a strong track record to invest in areas like renewable energy, clean transportation, water, sanitation, and affordable housing. For example, the NIIF and the UK government have each committed £120 million in the Green Growth Equity Fund, which is managed by EverSource Capital, a multi-asset investment firm, and Lightsource BP, a renewable energy development and management firm. 

The Strategic Opportunities Fund focuses on growth and development stage investments requiring long-term finance. Its first investment was a 59% stake in IDFC Infrastructure Finance Limited, which refinances project development loans. 

Innovative sovereign wealth funds, like the Nigeria Sovereign Investment Authority, leverage partnerships to find solutions to thorny problems that impede the flow of private capital into their markets. Focusing on investment in essential infrastructure such as power generation, healthcare, real estate, agriculture, transport, and water, NSIA has helped unlock private-sector funding in these vital areas for Nigeria’s economic development. Currency risk is often a key bottleneck to private investment in emerging markets. NSIA has managed to overcome this problem, by partnering with local currency guarantee provider GuarantCo, the credit enhancement unit of development finance-backed Private Infrastructure Development Group. The currency guarantees have enabled domestic institutional investors to invest in Nigerian municipal infrastructure bonds which they previously classed as too risky. NSIA is now issuing green bonds—which have achieved ‘AAA’ ratings due to the guarantee scheme—directly contributing to Affordable and Clean Energy (SDG 7). 

Some sovereign wealth funds partner with large corporate players to create new domestic markets. For example, in 2019, the Russia Direct Investment Fund, along with Russia’s second-largest mobile operator Megafon and internet company, partnered with Alibaba to establish AliExpress Russia, a domestic and cross-border e-commerce platform. The partnership will enable Russian businesses to sell their products via the platform, leveraging’s social-media platform VK, which has 97 million monthly active users, and MegaFon’s 80 million mobile subscribers. The platform aims to stimulate economic activity by opening more opportunities for small businesses and contribute to job creation in a fast-growing economic sector. 

"Innovative sovereign wealth funds, like the Nigeria Sovereign Investment Authority, leverage partnerships to find solutions to thorny problems that impede the flow of private capital into their markets."

3. Shaping Regulation and Incentives

Sovereign wealth funds can also work with governments to shape regulation and incentives that help incubate start-ups in areas which contribute to the SDGs such as creating new economic clusters, financial inclusion, and renewable technology. With their experience in developmental investing, sovereign wealth funds bring expertise in helping to shape public policy, double-bottom line thinking, and aligning stakeholders from public and private sectors to crowd in capital. These are skills that private sector companies do not usually possess. They can also make investments in early-stage investments into businesses which go beyond the risk profile of the private sector. 

France’s Bpifrance, established in 2012, has been credited  by entrepreneurs as being instrumental in developing France’s tech ecosystem and thereby helping create productive employment and “decent” work for all (SDG 8).8 It has invested several billion euros into start-ups, some of which are now unicorns – enterprises valued at over $1 billion. Furthermore, Bpifrance has helped draw in foreign capital by investing into leading foreign innovation funds in Europe and North America on the condition they invest in French start-ups.9

Bpifrance has also worked with the French government to introduce various incentives to support start-ups. Since the beginning of the Macron presidency in 2017, France has scrapped a wealth tax on all assets other than property, enacted a flat tax on dividends and made it simpler to wind down companies. However, the creation of a special tech visa, making it easier to bring in talent from abroad, is cited by tech entrepreneurs as the measure which has had the most positive impact.10  

Partly due to these measures, France has overtaken Germany for tech fundraising and is catching up with the UK. In the first half of 2019, capital raised increased by 43% to €2.79 billion, compared with €2.47 billion in Germany and €5.30 billion in the UK. There are now 13 tech unicorns in France, 
including BlaBlaCar, a ride sharing marketplace for long-distance rides. The growth of the French tech ecosystem is rapidly contributing to the number of new well-paid jobs. Indeed, the tech worker population in France is growing by over 7% annually, compared with around 3% in the UK.11 

In another example, the UK has helped incubate start-up ecosystems by offering regulatory relief, to help create well-paid jobs and foster innovation in SDG-related areas like renewables and financial inclusion. New companies in emerging sectors often find that they must navigate complex regulations which can stunt their ability to attract investment. The UK’s regulatory sandboxes – testing grounds for new business models that are not protected by current regulation, or supervised by regulatory institutions– in fintech and renewables allow companies to test products and services in a controlled environment, provide regulatory waivers, and support to identify consumer protection safeguards. This ensures that they can test new products with less financial risk to assess the true viability of their business models.

The sandboxes have undoubtedly been a success in creating new companies. Forty-four start-ups tested in the first three sandbox cohorts either received additional investment from the private sector or were acquired during or after their test. The vast majority received regulatory clearance and 80% of firms are still in operation. The UK has a mature fintech cluster and a strong bench of renewable tech companies, thanks in part to the sandboxes. 

Furthermore, the fintech sandbox has backed financial inclusion companies like Quo Money which helps vulnerable citizens improve their money management skills, and has a specific function to support green fintech innovation. However, companies within these sectors often fail to reach their full potential and are sold too early to trade buyers because they lack access to patient capital. The UK government is stepping in to fill this void. In 2018 it launched British Patient Capital, a £2.5 billion quasi-sovereign investment vehicle which seeks to help UK start-ups become world leaders by investing in venture and growth capital funds. It is also working with institutional investors to unlock a further £5 billion of patient capital for start-ups. 

Renewable energy

Sovereign wealth funds’ Potential to Meet the Sustainability Challenge

This report has highlighted three effective ways in which sovereign wealth funds and other public entities can take advantage of their unique position to catalyse investment into meeting the SDG funding gap. Unlike the private sector, they can commit long-term, patient capital and can aggregate leading capabilities to bring about game-changing impact. 

Sovereign wealth funds are particularly well-placed to contribute to the SDGs by helping to create economic clusters, develop infrastructure, and incubate new companies. Through creating economic clusters, Temasek and Mubadala have contributed to sustained economic growth, provided productive employment to many people, and fostered innovation. Meanwhile, NIIF and NSIA are building affordable, clean, and resilient  infrastructure, and sustainable cities. And sovereign funds in France and the UK are showing how new ecosystems can be incubated via smart incentives and patient capital. 

As the European Green Deal recognises, and the Covid-19 crisis reminds us, there is an urgent need to transition our economies onto a more sustainable and resilient path. These early successes provide a runway for a much bigger contribution from sovereign wealth funds towards meeting this challenge.


  1. “World Investment Report 2014” (report, UNCTAD, 2014), 142,
  2. For full calculations see Indranil Ghosh, “Powering Prosperity: A Citizen’s Guide to Shaping the 21st Century,” (2020) 
  3. -assets-jump-to-7-45-trillion-preqin-idUKKBN1HJ28P 
  4. See Ghosh, Powering Prosperity
  7. Ibid.
  8. Ibid.
Dr Indranil Ghosh, CEO of Tiger Hill Capital, Author of Powering Prosperity. 
MIT-trained scientist Dr. Indranil Ghosh is a sustainable investor, author, and strategic advisor to governments and leading global corporations. He was formerly a senior strategist at Mubadala Investment Company, Bridgewater Associates, and McKinsey & Co.
Matthias Lomas, Impact Strategist, Tiger Hill Capital 
Mr Lomas is a political risk and development impact expert, with a focus on Emerging Markets and sectoral expertise in energy, natural resources, consumer, and education. He holds an MSc in comparative politics from the London School of Economics.