I was pleased to read this week about the alignment of the New York Common Retirement Fund’s investment goals to the United Nations 17 Sustainable Development Goals (SDGs).[1] Even more encouraging was the reference to other funds using the SDGs: Denmark’s PKA and Netherland’s APG. Less pleasing, however, is the fact that SDGs are not used as the common framework across all institutional investors, particularly at a time where there is growing acceptance of the need for a better intersection of capital with a sustainable future.
Over the past decade there has been greater recognition of the role of capital in bringing about change. Initially the focus was about depriving capital flow to those activities or actors that were deemed socially irresponsible. More recently the emphasis has changed to using capital to encourage better behaviours and to fund innovation of technologies that are sustainable and minimise harm to the environment and/or society. Whilst this trend is to be welcomed, it has also generated an industry of data providers, indices, regulatory standards as well as multiple different acronyms! This proliferation of different but overlapping ideas and approaches has brought about ambiguity and confusion which is, I believe, to the detriment of an important and worthy objective. Perhaps more concerning is the low correlation across the different data providers for Environmental, Social and Governance (ESG) metrics. This presumably means that each data provider focuses on different criteria when assessing ESG, which again provides additional uncertainty and potential unreliability into the system.
One organisation charged with encouraging the use of capital in a manner supporting ESG is the UN Principles for Responsible Investment (UN PRI). The UNPRI has over 500 asset owner signatories with combined capital of $90 trillion and requires its membership to commit incorporating ESG factors into decision-making and ownership. As the name of one of its papers suggests, ‘The SDG Investment Case’[2] argues for the adoption of the SDGs as a framework for investors. This paper makes five core arguments for the use of SDGs by institutional investors, the first being that the SDGs are the global agreed sustainability framework: “The SDGs are an articulation of the world’s most pressing sustainability issues and as such act as the globally agreed sustainability framework. The SDGs can support investors in understanding the sustainability trends relevant to investment activity and their fiduciary duties.” The authors go on to argue that the SDGs make sense from macro and micro; risk and return perspectives.
A compelling argument in favour of using SDGs as a framework is their universal application and acceptance. They were not formed with investment in mind but are embraced by governments, companies and investors. Moreover, they have scope to be mapped in terms of relevant themes and materiality to sectors, so can be linked to the effective management of investment portfolios.
According to the United Nations Conference on Trade and Development (UNCTAD) SDG Investment Trends Monitor[3] there is plenty of work to do to achieve the objectives of the SDGs: “it is clear that the transition towards sustainable-development-oriented investment is so far not happening at the necessary scale or pace. This calls for transformative initiatives to mobilize and channel investment towards the SDGs.” The report goes on to highlight significant gaps in investment across many sectors and recommends 6 action packages as part of its ‘big push’ to mobilise action; the first of which calls for a ‘new generation of investment promotion and facilitation’.
In these times of growing protectionism it is rare for cross government agreement on policy, which surely means should embrace an idea that was universally agreed? The Sustainable Development Goals were adopted by all UN Member States in 2015 and given its general approval should we not place it at the heart of the sustainable investment agenda?
I hope to see more articles referencing institutions using the SDGs as the starting point for their strategic investment policy, to the extent that these important objectives become the norm rather than the exception.
[1] https://www.top1000funds.com/2020/08/investors-continue-to-align-with-sdgs [2] The SDG Investment Case, 2017 – Douma, Scott, Bulzomi [3] https://unctad.org/en/PublicationsLibrary/diaemisc2019d4_en.pdf
