In 2015, members of the United Nations came to an agreement to pursue a worldwide sustainable development agenda for 2030. To help accomplish this, the member nations defined 17 Sustainable Development Goals (SDGs), covering topics ranging from healthcare, education and environmental protection, to equality. Furthermore, each SDG was assigned a sub-list of targets to help guide achievement of the Goals.
The UN also formed a global indicator framework (available here), which provides 232 metrics to quantify progress. These are to be reviewed annually by the UN, and will help to focus public and private investment in areas most urgently required to achieve sustainable development outcomes.
Institutional investors are increasingly looking to allocate funds in a way that has a positive environmental or social impact. The UN SDGs have been adopted by some of these investors as a useful framework to help guide these allocations, and they are asking their investment managers to report on their alignment to these Goals.
Not all SDGs are created equally
When considering the SDGs, it is important to appreciate that they represent an intergovernmental agreement with a development focus, and as such, some are specifically designed with government action in mind. We believe it is important to differentiate these from the Goals to which the private sector may contribute.
One example is SDG 13, ‘Climate Action’. On the face of it, this sounds like a meaningful SDG for an environmentally focused investor. However, a detailed look at the specific targets within this Goal reveals that they include items such as climate policies at the national level, awareness-raising of climate adaptation and mitigation, and national climate finance targets. This focus on government action renders SDG 13 unsuitable for strong alignment to our listed equity strategies.
In contrast, SDG 9, ‘Industry, Innovation and Infrastructure’, is an example of a Goal that is much more relevant to the private sector. It targets mainly private investment. Companies that implement resource efficiencies in factory environments are one example of investment opportunities that align with this Goal.
Impax’s SDG mapping methodology
In 2017, we identified the SDGs that are most relevant to the products, services, and long-term strategies of our investee companies. These consist of seven environmental SDGs, which we then mapped to the 29 FTSE Environmental Market sub-sectors (available here). Because each of our investee companies is classified under one of these sub-sectors, we only considered their primary activity when mapping.
Mapping is only the beginning
Mapping investment strategies to SDGs is a good start, and certainly useful for asset owners seeking to align investments with global sustainable development objectives. However, this high level approach to impact reporting may lead to concerns of ‘greenwashing’ if not backed up with more detailed evidence of positive outcomes.
Impax’s recent report, ‘Impact @ Impax’ (available here), quantifies the environmental impact of two of our listed equity strategies: Specialists (a global portfolio focused on pure play, small- and mid-cap companies) and Leaders (a global portfolio of larger-cap companies). We continue to refine our impact reporting alongside emerging industry reporting frameworks, such as the SDGs, to assist clients in better understanding the outcomes of their investment choices.