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21 July, 2021updated 02 Nov 2021 14:59

SDG focus: Production, consumption and FDI’s role of responsibility

FDI can play a key role in ensuring responsible consumption and production, which is the UN’s 12th Sustainable Development Goal.

By Sofia Karadima

SDG12-production-consumption

The world’s growing e-waste problem is just one of the setbacks to the SDG12 target of sustainable consumption and production patterns by 2030. (Photo by Uriel Sinai/Getty Images)

Investing in sustainable consumption and production patterns, which is the UN’s 12th Sustainable Development Goal (SDG12), looks set to present tempting opportunities for foreign direct investment (FDI) in the coming post-pandemic years, given the potential it offers when it comes to both building back better and generating higher profits.

The UN itself states that the Covid-19 pandemic “offers an opportunity to develop recovery plans that will reverse current trends and shift our consumption and production patterns to a more sustainable course. A successful transition will mean improvements in resource efficiency, consideration of the entire life cycle of economic activities, and active engagement in multilateral environmental agreements”.

Glenn Barklie, chief economist at Investment Monitor and head of FDI services at GlobalData, explains that the pandemic has caused companies and governments, including investment promotion agencies (IPAs), to rethink their strategies. “In doing so, sustainable investment has moved up the priority list,” he says.

However, ensuring sustainable consumption and production patterns faces numerous challenges, not least the inequality gap between the developed and developing world. Indeed, an analysis by Investment Monitor finds that 33% of the world’s population is facing what are considered ‘high’ risks in terms of achieving sustainable consumption and production, while 45% are facing ‘medium’ risks.

The Responsible Consumption and Production Risk Index 2021 shows that the countries facing the biggest challenges are in Africa, with the scores based on food waste, domestic material consumption, waste management policies and e-waste recycling.

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Turning setbacks into opportunities

Consumption and production is a key driver of the global economy; however, it is known to have a negative impact on the environment. Data from the Global E-waste Monitor 2020 report shows that the e-waste (discarded electrical or electronic devices) generated globally is way smaller than the e-waste that it is being recycled, with Asia accounting for more e-waste than any other global region.

However, the situation regarding consumption and production has worsened since the outbreak of the Covid-19 pandemic, largely because of the increased need for personal protective equipment (PPE) and medical devices.

Anna Itkin, co-founder and managing director at consultancy the Inceptery, says that while this demand for PPE and medical devices provided a business opportunity for some, the overwhelming volume of waste arising from the increased consumption of single-use products put additional pressure on already struggling waste management infrastructures, highlighting numerous shortcomings.

Indeed, waste management as well as water management are areas that provide interesting opportunities for foreign investors in a post-pandemic world. This is because investments in this sector can provide strong returns, deliver societal impact, and help to meet the targets of SDG12 by the 2030 deadline.

Data from the UN Conference on Trade and Development (UNCTAD) shows that FDI in waste and water management projects has been increasing since 2017, although it recorded a sharp decline in 2020. The data also reveals that the value of foreign investment in waste and water management is more volatile than the level of project numbers.

How can FDI help to achieve SDG12?

When it comes to the role FDI can play in hitting the SDG12 targets, Itkin says: “Supporting the achievement of SDG12 would mean investing in initiatives and projects that would provide sustainable infrastructure that guarantees quality services that support good quality of life for local populations, whether it is electricity from renewables, water and sanitation or access to healthy and nutritious food, healthcare and education, while making sure business models are aligned with local realities such as the lack of proper waste management and respect environmental boundaries.”

Other investment opportunities that could help to reach the targets of SDG12 fall in:

  • affordable irrigation systems for farmers
  • artificial intelligence and technology solutions for the agricultural sector
  • cold storage and transportation
  • biodiesel production plants
  • distributed community solar generation technology
  • energy transmission infrastructure
  • ecotourism models
  • food processing and collection services
  • rail infrastructure on top of decayed roads
  • technologies that promote sustainable dyeing in the textile sector.

However, achieving SDG12 is not only about investing in key sectors, it also concerns how multinational companies (MNCs) invest in these sectors.

Itkin states that in order to support sustainable production and consumption, MNCs should invest in local capacity development, nurturing local talent, knowledge and technology transfer to provide good quality jobs. More specifically, she explains that there should be focus on investing in local sustainable supply chains and collaborations with local businesses.

Whether or not FDI can move the world closer to hitting the SDG12 by 2030, there are still several challenges that need to be addressed at an international level. This comes as “improvements in resource efficiency in some countries are offset by increases in material intensity in others”, according to the UN’s website, meaning there needs to be more collaboration within and across countries if this goal is to be achieved.

As a result, MNCs should consider joining forces with governments and IPAs to address some of the issues that are hindering the achievement of SDG12, such as fossil fuel subsidies, the high levels of food lost along the supply chain, and the increasing global material footprint.

Ensuring responsible consumption and production could be a game changer in the post-pandemic world. Investing in sectors that promote SDG12 could improve resource efficiency, increase active engagement, and help to foster sustainable industries. It makes sense, therefore, for investors to enter into greenfield projects in SDG12-friendly sectors to play their part in reversing the setbacks caused by Covid-19, supporting sustainable development, and building back better.

This is the 11th in Investment Monitor’s SDG Focus series. The other articles can be found here: 

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