While the concept of Investment Migration is very valuable for both participating countries as well as the potential immigrants, it is often criticized. Could embracing the SDG change opinions and emotions?
What is Investment Migration?
Investment Migration is both Residence- and Citizenship by Investment. In its most general form, it means that countries grant residence permits or naturalization to foreigners investing significant resources into the country. There might be additional benefits to the investor, such as owning a company or property in the respective country. And there are additional requirements by the country, foremost the clean reputation of the foreigner, ensured by in-depth due diligence including criminal record and sanction list checks.
Countries with active investment migration programs such as St. Kitts and Nevis, Malta or Portugal, have long recognized the economic benefits of making investment migration a part of both their overall immigration and economic policy. The concept mainly helps smaller, comparingly disadvantaged countries (e.g., due to their geographic location or history) that have stable legal systems, open societies, and a high regard for human rights. These last three points are often the key reason for foreigners to migrate to the respective country, for example because they fear current or future discrimination in their home country or country of residence.
What do the critics say about Citizenship by Investment or Residence by Investment?
Despite the positive nature of Investment Migration described in the previous paragraph, critics often base their opinion on morals, ethics and values. Nationalistic arguments are sometimes supported by the way the programs are marketed and referred to as “Golden Visa” or “Golden Passport”. “Portugal Golden Visa” or “St. Kitts Citizenship Golden Passport” does indeed imply that these statuses can simply be bought. By some of the most aggressive salespeople even the Montenegro Citizenship is occasionally advertised as “cheapest citizenship in Europe”. Although unintended, these kind of sale statements can be a provocation. They also do not reflect reality. Neither citizenship nor residence can simply be bought anywhere, many other steps need to be taken and various conditions need to be met.
To mitigate security concerns (another frequent argument of critics) it is of utmost importance that applicants to Residence- or Citizenship by Investment programs are thoroughly background checked. The relevant due diligence methods are well established. Government entities together with private sector companies do have the means to screen/select applicants based on adverse information. Unwanted/undesired applicants can effectively be rejected, if the screening and approval process is structured appropriately and includes a strict separation of competences (e.g., to avoid conflicts of interest).
Finally, there is the social justice argument, i.e., that simply investing a little money by buying a house is not a sufficient contribution when compared with the requirements that need to be fulfilled by non-investors applying for residence or even naturalization in the corresponding country.
How to ensure that the required investment is indeed of great value to the country?
This is where the United Nations Sustainable Development Goals (UN SDG) come in. The 17 SDG were adopted by the UN in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. In order to make a meaningful contribution to achieving the UN SDG, many investors have signed the UN Principles for Responsible Investment (UNPRI), an initiative that was founded in 2006 as a partnership between investors and the UN. The UNPRI lay out a framework for investors to understand the investment implications of environmental, social and governance (ESG) factors. As such it could be used by countries to select investments that adhere to their values and culture and contribute to the SDGs most relevant to them. It could also be used to score and rank investments, with dependable required minimum investment amounts (i.e., a lower scoring investment requires a higher investment amount than a higher scoring investment). These approaches could further increase public trust in investment migration programs and improve their reputation as a positive force of development.
The most significant caveat to this idea is the quantifiability of ESG criteria. Obviously, they are mostly non-financial factors in the sense of that they are outside budgets or profit and loss statements or balance sheets:
Environmental relates to the conservation of the natural world and includes renewable energy sources, waste management programs, pollution/emissions, biodiversity practices, and raw material sourcing.
Social considers people and their relationships across stakeholders. Any investment migration project would include many stakeholders (employees, communities, government, competitors, third party investors, etc.). The criteria therefore cover a large range of possible issues.
Governance is about how the project is run by the people in charge. Executive compensation, lobbying, whistleblowing, bribery and corruption as well as political contributions come to mind.
This brief description creates a sense for the issues involved with including ESG criteria into investment analysis. While the factors can sometimes be measured (e.g., how much an engine pollutes the air or what the employee turnover for a company is), it is hard to quantify the consequences in monetary terms or other easily comparable data points or composite scores.
This is being addressed by practitioners and academics alike. Rating agencies and index providers created ESG scores based on a wide range of data points, benchmarking and peer practices databases, etc. On the academic side, the MIT Sloan School of Management initiated the humorously named “The Aggregate Confusion Project”. In a recent study they found the correlation among prominent agencies’ ESG ratings was on average 0.61; by comparison, credit ratings from Moody’s and Standard & Poor’s are correlated at 0.92.
But this ambiguity is more problematic for investors than for countries who want to create opportunities for investment migration that fulfil ESG criteria to the highest level. Such countries have intimate knowledge of their people, environment, culture and possible challenges. Still, the support of an established, specialized ESG rating agency might be necessary, both for their technical expertise and to ensure objectivity. Such an approach would greatly enhance the credibility and reputation of a country’s investment migration program. It might even lead to entirely new programs for countries that have not yet considered including the approach in their policies.
 See https://www.cfainstitute.org/en/research/esg-investing and https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/ and https://iby.imd.org/sustainability/an-esg-primer-for-business-leaders/
 Berg, Koelbel, Rigobon: Aggregate Confusion: The Divergence of ESG Ratings, 2022
The investment required by the migrant is one of the key factors with regards to the usefulness, impact, reputation and credibility of an investment migration program. It would therefore make sense for countries to apply ESG criteria to these investments. While this is challenging due to the nature of the criteria, countries could look for help and support both from the business side (rating agencies and consultants) and from the academic side (for example from the business schools of their universities).
Wishing you all the Best and until next time,
Daniel & Mirabello Consultancy Team