The SDGs: a compass for investors with the future in mind
By Carly Hammond
Impact Investment Forum Program Manager, Responsible Investment Association Australasia.
Not quite three years ago, the 193 UN Members adopted the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), hailed by the then Secretary-General Ban Ki-moon as a ‘universal, integrated and transformative vision for a better world’.
Distinct from the earlier Millennium Development Goals, the SDGs incorporate a strong call to action for the private sector, recognising the critical contribution of finance and business inending poverty, combatting climate change and promoting sustainable economic growth.
The UN Commission on Trade and Development has estimated that achieving the SDGs will require US$5-7 trillion in investment annually from 2015-2030, the vast majority needing to come from private capital. At the same time, a report by the Business and Sustainable Development Commission estimated that achieving the SDGs could open up US$12 trillion of market opportunities in food and agriculture, cities, energy and materials, health and wellbeing.
Buoyed by BlackRock founder Larry Fink’s recent proclamation that every company must demonstrate how it makes a positive contribution to society, a chorus is emerging within big business for companies to embrace a social purpose that extends beyond financial profits.
The SDGs provide a timely platform and roadmap for understanding global needs and translating these into business strategy. Integration of the SDGs offers many benefits for companies including identifying future business opportunities; enhancing the value of corporate sustainability; strengthening stakeholder relations and keeping the pace with policy developments; stabilising societies and markets; and using a common language and shared purpose.
In Australia, business engagement around the SDGs is emerging, including incorporating the SDGs into corporate strategy and reporting on progress. However awareness remains a challenge and it is questionable the extent to which the SDG framework is driving more sustainable company behaviour.
Research conducted by Think Impact found that while 49% of the ASX20 demonstrated a commitment to the SDGs, only 19% were found to be measuring and reporting on their business’ impact on the SDGs. Oxfam has also warned against the current trend of companies to approach the SDGs superficially, ‘making only marginal improvements and uncritically assuming that business and sustainable development agendas will align.’
The finance and investment community is also demonstrating increasing interest and activity relating to the SDGs.
Impact investing, with its focus on investments that deliver measurable social and environmental outcomes alongside financial returns, is naturally well placed to lead efforts to align investment strategy and impact management with the SDGs. However for the entire investment community, there is a strong case for integration of the SDGs into business strategy, with benefits mirroring those offered to the wider corporate sector.
For institutional investors, theSDGs represent the globally agreed world’s most pressing environmental, social and economic issues and as such, serve as a list of the material ESG factors that should be considered as part of an investor’s fiduciary duty. In many cases, the solutions that target the SDGs offer attractive investment opportunities, and the SDGs provide a common language with which to shape and articulate such an investment strategy.
The rise in responsible investment in Australia – where almost one in every two dollars is invested using a responsible investment strategy – is drawing attention to the role that responsible capital can play in delivering on a more sustainable future, and the SDGs are rapidly becoming a framework through which this impact can be measured. RIAA has now seen the beginning of a shift by responsible investors – super funds and fund managers in particular – to start assessing their portfolios against the SDGs and we expect this trend to continue.
In Australia investors are exploring integration of the SDGs into their work through asset allocation, product development, engaging with investee companies on ESG issues incorporated in the SDG framework, and lending support to regulatory reform that will contribute to the SDGs, such as the foreshadowed Modern Slavery Act.
Examples include Cbus identifying priority SDGs for the organisation to contribute positively to through its investment and business strategies; ANZ’s 2017 SDG-themed bond, which uses bond proceeds to finance businesses or projects that promote one or more of the SDGs; and the MSCI ACWI Sustainable Impact Index, which identifies companies that derive at least 50% of their revenues from products and services that address social and environmental challenges inspired by the SDGs.
In Europe, a number of institutional investors are pioneering approaches to the integration of the SDGs across their work. Dutch pension funds, insurance firms, and banks have committed to a shared SDG investment agenda, recommending priorities for maximizing ‘SDG investing’ (SDGI).Dutch pension funds PGGM and APG have also developed a series of criteria for assessing whether an investment can be categorised as a Sustainable Development Investment (SDI)[i]. PGGM is in the process of assessing the positive impacts its investment portfolio has on the various SDGs, including collaborating with the Impact Management Project to unpack how an asset manager can map its portfolio by the effects it has on people and the planet [ii].
Despite willingness and some early engagement from pockets of the Australian business and finance community around the SDGs, notable challenges remain.
Even for those businesses aware of the SDGs, many are finding it hard to embed the SDGs within their organisation’s decision-making, strategies and business model. There are useful guides for doing this, including the SDG Compass and the <IR> Framework. Similarly for investors, there are emerging tools and conventions for incorporating the SDGs into investment management practices, and moving SDG engagement beyond a mapping exercise. However the need for a global system of SDG reporting standards remains.
Robust measurement of companies’ and investors’ impacts against the SDG targets and indicators is key and is mutually reinforcing. This includes understanding the potential trade-offs between different SDGs and the positive and negative impacts of an investment or business activity.
Development of the market for impact investing in Australia will help boost our contribution towards achievement of the SDGs. However the nascent market requires support, most notably with government playing a role as both a market enabler and participant.
None of these challenges are insurmountable, and the success of the SDGs ultimately rests on their prioritisation across all sectors, each with a commitment to partnerships and a stake in building a more sustainable future with prosperity for all.
On Tuesday 10 July, RIAA’s Impact Investment Forum will host a webinar ‘Investing to achieve the SDGs’ where investment, banking and corporate leaders will explore their integration of the SDGs, including the benefits of engaging with them, and different approaches for embedding the SDGs within business and investment frameworks.
Piet Klop, Senior Adviser Responsible Investment, PGGM (The Netherlands)
Katherine Tapley, Head of Sustainable Finance Solutions, ANZ
Nicole Bradford, Portfolio Head, Responsible Investment, Cbus Super
Matthew Brennan, Head of Sustainability, Transurban
Ross Wyatt, Managing Director, Think Impact