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Education is essential to reducing poverty and promoting sustainable economic growth: each additional year of education is associated with 13%-35% more GDP per capital¹.  But not everyone has access to quality education. More than 262 million school-age young people don’t attend school, six out of 10 children are not acquiring basic literacy and numeracy after several years in school, and 750 million adults are illiterate². This is why the United Nations’ Sustainable Development Goals (SDGs) include “quality education” as one of the 17 highest priorities – and it points to the critical role that investors can play.

Around the world, there is a wide disparity in education levels 

Source: Our World in Data/Lee-Lee (2016), Barro-Lee (2018) and UNDP, HDR (2018). Graphic shows average number of years of total schooling across all education levels, for the population age 25+.

Investors can help expand educational opportunities for all
Annual spending on education globally was estimated at USD 5.9 trillion in 2018 and could reach USD 10 trillion by 2030³.  Within this market, several sub-segments show promising growth potential: 

• Spending on digital education – where lessons are delivered online – is expected to grow at 12.5% per year from now to 2025⁴.  
  
• In China, vocational schools (also known as trade or technical schools) could see double-digit growth in the next years⁵. 
  
• The revenue of global online degree providers is set to reach USD 7.7 billion by 2025 – a significant step up from the figure of USD 3.3 billion in 2019⁶. 
  

Still, there are a few education-related topics that are relevant across multiple regions – in particular, education access and education technology. Investors who allocate funds to these areas can contribute towards several UN SDGs – including SDG 4 (Quality Education), SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth) and SDG 10 (Reduced Inequalities) – while seeking attractive financial returns.

For example, China’s private sector is playing a significant role in improving the country’s education access. Although China has lifted its population’s average education level in recent years, it’s not yet able to accommodate all who seek post-secondary education. This can be measured by a statistic called the gross enrolment ratio of tertiary education – which was only 48% in China in 2018, compared with 88% in the US⁷.  Since public funding for education is constrained in China, private providers of higher education services are helping to fill the gap. Tuition fees are regulated but companies are given ample room to generate reasonable profits. This helps keep the cost of both public and private higher education in China relatively low. 

There are also exciting developments in the field of education technology, which can help address pressing challenges such as affordability and accessibility. But currently less than 3% of overall education expenditure worldwide is allocated to digital⁸.  To fill this gap, private education companies are stepping in – for example, by working with universities to help them develop and deliver degree programmes online. This growing field of “online programme management” reduces the cost of learning while making it easier to access. Other educational technology companies are improving the efficiency and effectiveness of learning with artificial intelligence – including with new software solutions that can analyse a student’s homework and automatically adjust the next assignments to tackle specific problems. 

A growing number of publicly traded education companies

Achieving any of the UN SDGs will be a challenge that requires heavy participation from the public and private sector – and SDG 4 (Quality Education) is no different. Fortunately, private industry is stepping up, providing investors with an increasing number of ways to participate. Consider the number of publicly traded education companies worth over USD 1 billion: there were approximately 10 such companies in 2015, but this number grew to 30 in 2018 – and it’s expected to exceed 100 by 2025⁹.  

Venture capital (VC) is playing a large role as well: in 2018 and 2019, global VC investments into education were USD 8.2 billion and USD 7 billion, respectively, up significantly from USD 4.4 billion in 2017¹⁰.  With VC the driving force behind many new initial public offerings, a growing number of education companies are coming to the public market, providing investors with a broader opportunity set.

There are many important lessons for investors to learn about investing in education – from improving access to education to exploring new technologies – but the most valuable may also be the simplest: investing in education allows investors to seek attractive financial results while aligning with the SDGs. 

Shibo Wang
Associate Portfolio Manager, Global Thematic Equity

About the United Nations Sustainable Development Goals The United Nations Sustainable Development Goals are 17 goals that were adopted by all United Nations Member States in 2015 as part of the 2030 Agenda for Sustainable Development, which set out a 15-year plan to achieve the goals. The UN SDGs address a range of social needs, including education, health, social protection and job opportunities, while tackling climate change and environmental protection. They serve as a framework to promote prosperity while protecting the planet to achieve a better and more sustainable future for all.