We find ourselves at a dramatic and transformative moment in history. The multiple disruptions and crises that define these challenging times—often referred to as a “polycrisis”—have reached tipping points that challenge our ability to respond effectively.

Unfortunately, we are living in an era marked by major conflicts and heightened geopolitical risks, which are reshaping the global financial landscape. These dynamics pose significant threats to sustainable investing and to advancing the broader Sustainable Development Goals (SDGs) agenda, particularly in the Global South, where such investments are critically needed.

Recent data is alarming. According to the United Nations, the world is severely off track in implementing the SDGs, with 35 per cent of the targets stagnating or even regressing. The recent geopolitical events have widened the financial gap needed to meet the SDGs by 2030 to nearly USD 5 trillion annually. The context for SDG investment has deteriorated also as a result of the decline of Foreign Direct Investments (FDIs) into emerging and developing economies, caused by the slowing down of globalization, also driven by geopolitical rivalries.

Sustainable investments have lost momentum in public and private markets. Global net inflows into ESG funds have been shrinking since 2021, entering negative territory in Q4 2023, reflecting growing investor skepticism and waning enthusiasm for sustainable investments. A similar trend is observed this year in private markets, with an 18 per cent decline in the number of ESG-aligned funds managed across asset classes including private equity, infrastructure, and real estate.
Amid the current geopolitical disruptions, how can academia, companies, investors, and policymakers restore credibility, effectiveness, and predictability in sustainable investment, and encourage large-scale capital deployment to close the SDG investment gap?

In this third edition of TIL’s annual report, our readers will find some tentative answers to this fundamental question, along with the results of our most recent research efforts, a balanced mix of articles containing original data, qualitative analyses laying down the foundations of our agenda, and relevant case studies from our target geographies.

We believe that in the face of these challenges all key stakeholders should join forces and embrace Transition Investment as a new investment philosophy. Transition Investment combines the unique capabilities of large institutional investors with the additionality of private markets investments in Middle East, Africa, and Southern Asia (MEASA). Transition Investment is not another moniker in the “alphabet soup” of sustainable finance. Rather, it implies aligning capital commitment with long-term value creation and positive contribution towards the SDGs, while generating acceptable financial returns. In a nutshell, Transition Investment aims to help investors seize opportunities created by the structural changes required to tackle global challenges outlined by the SDGs, guided by the North Star of measurable impact.

But why should Transition Investment make the difference in the face of the current polycrisis? In his article, Bernardo Bortolotti argues that it could offer a powerful solution for advancing the sustainability agenda amidst geopolitical conflicts.

First, Transition Investment is led by large asset owners and universal investors with globally diversified portfolios, who have a financial stake in promoting sustainable, inclusive global economic growth and addressing global externalities. The true beneficiaries of these institutions are individuals—pensioners, policyholders, taxpayers—whose interests as global citizens align with solving the coordination challenges arising from a fragmented geopolitical landscape. While these beneficiaries may be widely dispersed, large financial institutions often hold significant, concentrated stakes, creating a governance framework that empowers them to accomplish the desired transition.

Furthermore, in contrast to the politicization of ESG investing, which has been criticized for unclear definitions and unreliable methodologies, Transition Investments are grounded in credible, measurable impact frameworks that ensure both social and financial returns.

Finally, these investments also focus on the MEASA region, where they support economic diversification, sustainable development, and social stability. Flowing along the North-South axis, these investments avoid the geopolitical tensions prevalent in the East-West axis, making them relatively more viable in the current global landscape.

Transition Investment opportunities have thus a great potential to put the sustainable investment agenda back on track. But how can this great reallocation of institutional capital take place and work in practice? The article by Robert van Zwieten and Harald Walkate proposes a framework, the Mobilizing Private Capital Equation, which identifies four key factors needed to scale up private investments: the supply of bankable projects, the use of risk mitigation capital, the links between development banks and the private sector, and the orientation of private investors towards blended finance.

First, the lack of bankable projects, especially in low- and middle-income countries, is a major obstacle and the authors recommend development banks to take a more proactive role in identifying and helping create such projects. Second, concessional capital—public or philanthropic funds used to reduce risks for private investors—must be deployed more efficiently. Development banks often prioritize capital deployment over mobilizing private sector investments, but better incentives could increase private capital involvement. The third factor, creating a more organized “marketplace” for blended finance, is hindered by a lack of standardization, transparency, and liquidity. Lastly, private investors are slowly shifting from traditional sustainable finance (ESG) towards financing sustainability through blended finance, which has the potential for greater real-world impact. However, this shift faces significant technical and behavioral challenges. Key technical issues include unclear pricing, lack of ratings, and limited access to risk data, while behavioral constraints stem from misalignment within organizations, unclear mandates, debate over prioritizing impact or returns, and ESG staff being overloaded with regulatory tasks. These barriers slow down the mobilization of private capital into impactful, blended finance initiatives despite increasing interest in such investments.

The authors stress the importance of government intervention to facilitate this process, noting that governments can influence all four factors in the framework. They also highlight the specific role that Sovereign Wealth Funds (SFWs) can play in advancing this agenda, a consideration which leads naturally to Bernardo Bortolotti and Abhinav Mangat’s article of the report tracking global SWF’s sustainable investments.

This piece is one of the results of a research partnership that TIL has established with the International Forum of Sovereign Funds (IFSWF), a voluntary organization of SWFs committed to fostering good governance and transparency, on the sustainability footprint of sovereign investors.

The authors have classified according to a widely used categorization for SDG alignment (the IRIS+ taxonomy) direct equity investments by 77 SWFs over the 2020-2023 period and their results offer a glimmer of hope amid the alarming data presented earlier. The latest trend indicates a significant increase in sustainable investment value in 2023, up about 50 per cent, spread across fewer deals (in spite of an 8 per cent decline in deal count). The investment value has been gaining momentum recently, along with an increase in ticket size, signaling a consolidation of sustainable investment opportunities. Interestingly, the most recent data suggests that SWFs adapt their investment strategies to geopolitical events, leading to a significant reallocation towards domestic and regional investments. This underscores the significance of what are commonly referred to as “de-globalization risks”. From this standpoint, emerging markets and developing economies of the Global South could represent interesting diversification opportunities. Overall, while geopolitical turmoil can pose challenges for all investors, it also presents opportunities for strategic adaptation and innovation in portfolio management approaches.

One of TIL’s primary focus areas is the broad region comprising Middle East, Africa, and Southern Asia (MEASA). We firmly believe that the “Global South” is the region with the highest potential in terms of economic growth, but at the same time the one facing the most severe socioeconomic and environmental challenges. Indeed, a successful transition in MEASA will have a tremendous impact on the global economy. For this reason, the report devotes a special section to the MEASA, with analyses covering each sub-region.

This special section of the report entitled Spotlight on MEASA features an article on the rising relevance of the so-called “blue economy” in the United Arab Emirates (UAE) by Joywin Mathew and Maja Kent. Indeed, the UAE’s economy and cultural heritage are deeply tied to its marine environment. Positioned at a strategic maritime crossroads, the UAE’s ports, shipping industry, and coastal tourism contribute significantly to its economy while influencing its marine ecosystem. Recognizing the critical role oceans play in climate mitigation, the UAE has prioritized sustainable ocean management through national strategies, demarcating protected marine areas, and developing initiatives such as the Sustainable Blue Economy Strategy 2031. The UAE is also a proponent of blue finance, which includes innovative tools like blue bonds to attract private investment in marine sustainability. However, substantial funding gaps remain for achieving Sustainable Development Goal (SDG) 14. At COP 28, the UAE advocated for a “New Blue Deal,” emphasizing the need for accessible finance to foster growth in sectors like sustainable shipping, ports, and nature-based solutions, thereby driving a resilient, low-carbon, and ocean-positive future for the UAE and the region.

In a highly provocative article, Sanjeev Gupta highlights Africa’s pivotal transformation from a historically exploited continent to a critical global player in solving some of the world’s most pressing challenges. HE argues that Africa, with its vast natural resources, young labor force, and strategic geopolitical position, holds the key to global food security, renewable energy transition, and supply chain diversification. As traditional powers grapple with internal issues, new alliances with emerging economies like China, India, and the GCC are reshaping Africa’s economic landscape, providing investment and development opportunities beyond mere extraction. Africa now has the agency to shape its own destiny, transitioning from being an object of desire to a strategic partner capable of driving global prosperity. The time has come for Africa to harness its potential, add value locally, and redefine its role from passive resource provider to proactive global leader.

The MEASA section closes with an interesting case study by Marat Zapparov on Pentagreen Capital, a debt financing platform dedicated to accelerating sustainable infrastructure development in Southeast Asia, aiming to mobilize over $1 billion in loans within five years. The key challenge addressed by Pentagreen Capital is the limited access to private capital and the marginal bankability of many sustainable infrastructure projects in Southeast Asia. Despite the urgency to fund climate-related initiatives, investors face barriers such as high capital costs, insufficient investment returns, and uncertainty about policy directions. Pentagreen aims to bridge this gap by structuring innovative financing solutions that align the interests of various capital providers—commercial, public sector, and philanthropic—while reducing the barriers to investment for clean infrastructure projects.

We hope our readers enjoy this issue of the report. The second edition of the Transition Investment Workshop, where this publication will be officially launched, represents a significant milestone for us, building on the success of the kickoff event in May 2023 and the workshop hosted by the Mubadala Pavilion at COP28, where TIL’s Signature Impact Framework on food security was unveiled.

TIL’s work is rooted in collaboration. Rather than presenting a singular solution, TIL serves as a convener, bringing people together to explore how Transition Investment can generate both financial returns and positive social impact, and can help create sustainable, resilient economies that benefit both present and future generations.

We will continue to conduct further research and analysis, and we invite you to stay tuned for updates. We extend our heartfelt thanks to our sponsors, Mubadala Investment Company and MEASA Partners, as well as to the TIL Steering Committee for their ongoing support. We also want to express our gratitude to our fellows and students for their passion and invaluable contributions to our research.