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Sustainable Development Goals: Unlocking value in ESG investing?

17 sustainable development goals
Source: Global Goals for Sustainable Development

The UN’s Sustainable Development Goals (SDGs) align the interests of investors, companies and society on sustainability matters. But are these 17 Global Goals able to unlock value in impact investing?

From tackling poverty through to gender equality and the creation of sustainable cities and communities, the SDGs are 17 aspirational global goals, launched in 2015, that are gaining traction among investors, companies and policymakers.

Listen to the webinar — Sustainable Development Goals: A new tool for putting value on values? 

Some of the world’s leading investors have already started to allocate capital to the SDGs, recognizing that this is a new way to identify and unlock value in sustainable investing.

New products such as funds and indices themed around the SDGs are also in the pipeline or in development.

This means it’s essential that those who are serious about playing their part in getting more out of responsible investing know and understand the 17 Sustainable Development Goals.

The UN’s Global Goals agenda

The UN recognizes that the SDGs must go hand-in-hand with strategies that build economic growth and address social needs.

The SDG agenda is enormous. To succeed in meeting the goals, the total required investment over the next 15 years is US$90 trillion with over 80 percent of that investment coming from private capital.

At the recent webinar sponsored by Thomson Reuters, we asked a panel of Environmental, Social and Governance (ESG) experts for their thoughts.

Xander den Uyl, who is on the board of trustees at Europe’s largest pension fund, outlined the Global Goals in terms of risk and opportunity.

He said achieving the SDGs could be a key driver of future global economic growth and financial returns for investors who follow a sustainable mandate.

Xander den Uyl quote

The Global Goals investment case

Christopher Greenwald, Head of Sustainable Investment Research at UBS Asset Management, said there was already significant interest in SDGs among investors for two reasons. Firstly, companies with strategies orientated around the SDGs will experience a long-term competitive advantage against their industry peers.

Secondly, SDGs focus the attention of both companies and investors on the wider impact of a company’s products and services on the environment and society.

This is one of the most important factors driving client interest in sustainable investing.

Listen to the webinar — Sustainable Development Goals: A new tool for putting value on values? 

Greenwald added that more work is needed to be done to implement investment strategies based around the SDGs, as most are driven by the internal performance metrics of companies rather than their external impact.

Christopher Greenwald quote

Establishing new and innovative metrics to monitor and measure companies is one of the most important tasks required for developing investment strategies based around the SDGs.

A science-based approach

The argument from Xander den Uyl was that a transformation in thinking was required for the majority of investors to get on board with the UN’s vision.

But since investments have an effect on individual companies, markets, the planet and those who live on it, it’s clear that the momentum behind impact investing is growing.

Greenwald thinks there needs to be a shift from analysis based on company reporting to one that is based on the insights of environmental and health sciences.

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There is growing belief that developing models that draw upon the impacts of science can provide a more sound basis for the metrics required for establishing SDG-related investment strategies.

Greenwald added that a science-based approach brought a third dimension to the screening process by examining the sustainability of a company’s own operations, financial attractiveness, and an assessment of the external impact of companies on the environment and society.

Helpful investment criteria

Carly Greenberg, Senior ESG Analyst at Walden Asset Management, pointed out that the SDGs served as an indicator of the future direction of regulation as companies began to align themselves with the goals.

The SDGs may also serve as helpful criteria for investors to identify leaders and laggers.

Carly Greenberg quote

In addition, Greenberg said that companies who met the goals will be more sustainable investments in the long term relative to companies whose operations and products are not aligned with the goals.

As companies have external impacts relating to the SDGs throughout their entire supply chain, Greenberg pointed to several studies estimating the wide scale portfolio losses associated with climate change.

Tim Nixon supported this point with reference to the Global 250 Greenhouse Gas Emitters report which was published by Thomson Reuters and the United Nations.

Read the webinar report — The Sustainable Development Goals: A new tool for putting value on values? 

Tim Nixon quote

The Global 250 Greenhouse Gas Emitters report asks whether there any potential advantages when analyzing the business models of the 250 highest greenhouse gas emitters who are decarbonizing.

Are they differentiating themselves in any way, in terms of total return or cost of capital?

Climate change factors

The report found that as companies begin to reach maturity on decarbonization, they appear to be positioning themselves for significant growth opportunities in climate change value-driving factors.

So as extreme climate events continue, regulatory changes accelerate, consumer preference evolve and early adopters enter into the decarbonization business model transformation, we will see increasing economic opportunity for these firms.

The Global 250 report showed that we cannot lump all high carbon emitting companies together.

Nixon concluded that some of the Global 250 will present interesting investment opportunities as climate change unfolds, and some are already delivering important positive impacts on their markets and communities.

Importance of the Sustainable Development Goals

Den Uyl warned that if there is a failure to achieve the SDGs, it will affect all countries and sectors, creating a macroeconomic financial risk – a belief held by all of the panelists.

As increasing numbers of investors are incorporating sustainability in their investment decisions and companies work to align to the SDGs, how will this affect your investment process?

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