A New Generation of Sustainable Investment, Trade and Development

Sustainability wasn't always a hot theme, particularly in the world of finance. But looking at the new UNCTAD World Investment Report, that's quickly changing

Every year, the United Nations Conference on Trade and Development (UNCTAD) publishes the World Investment Report, which looks at "non-equity modes of international production and development." And in this year's report, the theme of sustainability was front and center.

Even though the Brundtland Commission defined the term "sustainability" in 1983, its principles had barely been integrated into the world of investment and enterprise development even a decade later. In 1992, representatives from 172 governments met in Rio de Janeiro for the United Nations Conference on Environment and Development (UNCED), also known as the Rio Summit, to discuss such pressing problems as climate change, toxic production systems, vehicle emissions and water scarcity. But the UNCTAD World Investment Report from the same year only mentioned the word "sustainable" four times.

Fast forward another ten years, to 2002. The surface of sustainability was still barely scratched, as the UNCTAD report only mentions the word "sustainable" eight times. Then last year, that number jumped to 62. And now, the recently released UNCTAD World Investment Report 2012 mentions "sustainable" a whopping 274 times. Of course, there is a strong connection between that and the fact that the United Nations Conference on Sustainable Development (UNCSD), also known as "Rio+20" to honor its roots in the original Rio Summit, was held last month.

SUSTAINABILITY: THE NEW CORE OF DEVELOPMENT POLICY

It's a long time coming. The subtitle of the new report brandishes the change in focus regarding international trade and development: "Toward a New Generation of Investment Policies."

"A broader development policy agenda is emerging that has inclusive and sustainable development goals at its core," writes U.N. Secretary-General Ban Ki-Moon in the report's preface. "For investment policy, this new paradigm poses specific challenges. At the national level they include integrating investment policy into development strategy, incorporating sustainable development objectives, and ensuring relevance and effectiveness. At the international level it is necessary to strengthen the development dimension of international investment agreements, manage their complexity, and balance the rights and obligations of States and investors."

COME HITHER: FDI ATTRACTION INDEX

Despite continuing uncertainty across the world markets, global foreign direct investment (FDI) flows in 2011 rose 16 percent to reach USD 1.5 trillion, exceeding the average before the 2005-2007 pre-financial crisis level for the first time—but still more than 20 percent below the 2007 high.

One of the report's findings that stands out is the fact that half of the global FDI total will flow to developing countries and transition economies, something that Ban says, "underli the important development role that FDI can play, including in least developed countries."

The top 10 ranked economies on UNCTAD's 2011 FDI Attraction Index are (from 1 to 10): Hong Kong (China), Belgium, Singapore, Luxembourg, Ireland, Chile, Kazakhstan, Mongolia, Turkmenistan, Lebanon and Congo (the last two tied for 10th place). The index's top four performers—Hong Kong, Belgium, Singapore and Luxembourg—are perennially at the top of the list because of their attractive investment climates for foreign capital. Ireland, Mongolia and Congo are newcomers to the top 10, while Saudi Arabia fell out of the top group and is now ranked 12th.

A NEW GENERATION OF INVESTMENT POLICIES

The report highlights the importance of mobilizing sustainable finance and sustainable investment to further the goals of sustainable development not just for developing and transitional economies, but for all countries, noting a "new generation" of investment polices on both the national and international levels that places "inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment."

These "new generation" investment policies are marked by a synergistic integration within broad economic development goals, responsible investor behavior that incorporates the principles of corporate social responsibility (CSR) and policy effectiveness.

USE IT OR LOSE IT: NEW OPEN-SOURCE FRAMEWORK

To help policymakers formulate sustainable investment strategies, UNCTAD has developed the Investment Policy Framework for Sustainable Development (IPFSD), which consists of core sustainable investment principles, guidelines for national investment policies and options for the use of international investment agreements (IIAs). Designed as a "living document," the IPFSD includes an interactive open-source online version that encourages the exchange of views, experiences, suggestions and opinions among the international investment community.

Considering the complex labyrinth that is international investment policy, the IPFSD is a welcome tool. Policymakers should take advantage of it and share their ideas to make it better.

After all, as Secretary-General Ban said, "Mobilizing investment for sustainable development is essential in this era of persistent crises and pressing social and environmental challenges."

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NOTES

United Nations Conference on Trade and Development. UNCTAD World Investment Report 1992. August 1992. Accessed July 9, 2012.
United Nations Conference on Trade and Development. UNCTAD World Investment Report 2002. June 12, 2003. Accessed July 9, 2012.
United Nations Conference on Trade and Development. UNCTAD World Investment Report 2011. July 26, 2011. Accessed July 9, 2012.
United Nations Conference on Trade and Development. UNCTAD World Investment Report 2012. July 6, 2012. Accessed July 9, 2012.
Ban Ki-Moon. Preface to UNCTAD World Investment Report 2012. July 6, 2012. Accessed July 9, 2012.
Ibid.
Ibid., 4.
Ibid., 6.

image: FDI Attraction Index: top 10 ranked economies, 2011 (source: UNCTAD World Investment Report 2012)