How do the UN SDGs fit into the investment landscape?
The UN Sustainable Development Goals (SDGs) agreed in September 2015 are causing a stir in the world of responsible investment. Here we examine how the UN SDGs might be changing the playing field in impact investing.
What are the UN Sustainable Development Goals?
The 17 SDGs are part of the 2030 Agenda for Sustainable Development that was agreed by world leaders to mobilise efforts to end poverty, fight inequality in all its guises and protect and preserve the natural environment including combating climate change. While the goals are not legally binding, governments, businesses and civil society, with the United Nations, are working together to put in place specific frameworks for their achievement.
The 17 goals are shown below:
What are the implications for asset owners and investors?
There are three broad themes: ending poverty, protecting the planet and prosperity for all, with specific targets to be achieved up to 2030. Some of these goals are more investible than others and for those that are, a growing number of investors have committed to an investment agenda focused around the investment-relevant SDGs. These leading investors are broadening their responsible investment (RI) strategy beyond ESG risk mitigation to encompass positive contributions they can make through their investments to the challenges highlighted by the SDGs.
Who is driving uptake?
The 2017 United Nations Environment Programme’s Positive Impact Initiative provided a stamp of approval in terms of framing investments around these important social and environmental issues. We have also seen Dutch asset owners, convening under the auspices of the Dutch Central Bank, committing to increasing their allocation to SDG-aligned investments.
How easily can the UN SDGs be implemented? What are the pitfalls to be wary of?
This endorsement by major global investors and the business community is laudable. It represents another example of the mainstreaming of ESG (environmental, social and governance) factors and impact investing. However, it also presents a direct risk for cynicism if investors dilute the SDGs in order to link their investments to the SDGs without being able to evidence how the investments contribute in meaningful and measurable ways to alleviating the developmental challenges addressed therein.
Impact investing, where investors focus on financing businesses and projects that are designed to produce positive and measurable social and environmental outcomes is a tried and tested investment strategy aligned with the objectives of the SDGs. This has traditionally been done using alternative assets. However the SDGs and the scale of capital needed to meet the UN's objectives has opened the door to greater consideration of impact investing using listed investment strategies.
The growth in the green bond markets demonstrates how companies and investors can work together to contribute to the environmental objectives of the SDGs particularly in the areas of Clean Energy (SDG 7) and Climate Action (SDG 13). Investors in public markets can contribute by investing in companies addressing relevant aspects of the SDGs through their products, services and the way they manage their operations; and use their influence as investors to engage with companies to align with the broader objectives of the Sustainable Development Goals.
Together, the providers of capital, the managers of capital and the investee companies we invest capital in, can work together today to meet the 2030 Agenda for Sustainable Development.