switzerlanden
Impact investing and Sustainable Development Goals

Impact investing and Sustainable Development Goals

05-12-2017 | Column

If you are in (sustainability) investing and you have not yet heard of the Sustainable Development Goals (SDGs), you probably have taken a sabbatical for the last year and a half. The goals are everywhere.

  • Masja Zandbergen - Albers
    Masja
    Zandbergen - Albers
    Head of sustainability integration

Big pension funds have already set pretty steep targets, and asset managers are developing products relating to the goals. This is moving impact investing to the next level. It is going from niche to mainstream, from illiquid to liquid investments, and from direct impact projects and investments to understanding the impact of all companies and countries. So it’s time to elaborate on the basics of impact investing.

The definition of impact investing is: “Investments made in companies, organizations and funds, with the intention of generating a social and environmental impact, alongside a financial return.” There are three key elements to it:

  • Intentionality: the investment should intend to create a positive social and/or environmental impact

  • Financial return: the investment is expected to generate a financial return

  • Impact measurement: the intended and non-intended impacts need to be measured and reported on.

So before investing, it needs to be clearly defined what is the fund’s intended impact, and what is the expected return (and risk). Based on this intent, measures for impact can be defined and monitored.

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates
Subscribe

SDGs provide a good framework

The SDGs provide a good framework with which to determine the intended social and environmental impact of an investment or project. They were launched in September 2015 as a successor to the Millennium Development Goals, which consisted of eight targets. A lot of progress was made, but many global issues still need to be resolved.

With the launch of the SDGs, the UN specifically invited corporates and financial institutions to contribute towards achieving the goals. Some of the largest pension funds and asset managers have taken up this challenge. The 17 goals are shown in the chart below. Not all of them are equally investable, and not all of them are relevant to all organizations. So, some investors have decided to focus on a few of them, while others have grouped them into higher level goals to be targeted. These goals have though proven to be a convenient framework with which to define the impact that an investor aims to have.

Source: UN

For each goal, the UN gave guidance as to what the intended impact of each goal was. For example, SDG 3 aims to promote good health and well-being, including long-term targets for the elimination of serious diseases such as malaria. On a more functional day-to-day level, it promotes the attainment of affordable and universal health coverage for all, but also aims for a halving of the number of global deaths and injuries from road traffic accidents.

This is where corporates can become directly involved. Taking a closer look at these specific aims, it is clear that assessing the impact of a company on this SDG is less straightforward than you might think. For example, not all healthcare companies automatically contribute to achieving SDG 3: there should be a greater focus on activity that combats certain diseases, and regionally more on targeting developing countries.

And it is not only healthcare companies that can contribute to this goal; those involved in transport and finance, for example, can also help. Meanwhile, companies can also contribute negatively to the goal such as through pollution or unhealthy products. This negative formulation is needed, because in measuring the overall contribution, the difficulty often lies in balancing the positive product contributions with the sometimes negative process contribution.

Financial returns still needed

Most institutional investors require a competitive financial return for their impact investments. However, as the field is moving from traditional impact investing initiatives to a more mainstream approach, and the field is fairly new, investors might also consider making investments with unproven returns. In my opinion, investing in companies that provide solutions to global problems just sounds like a solid investment strategy!

And as the goal of impact investing is making a clear difference in a social or environmental context, we also need to measure this impact of our investments. Currently, what is measured is generally outcomes (CO2 emissions, employee engagement results etc.). Impact measurements is about outcomes like the increase of biodiversity, a reduced impact on climate change, and the economic growth created. Traditional impact funds have already developed methodologies to measure their results: in microfinance, for example, outreach to women and rural areas, and the jobs created are measured.

In the corporate space, another interesting example is how the food ingredients maker Christian Hanssen targets SDGs. It makes food cultures & enzymes, health and nutrition products, and natural coloring ingredients. It has determined that 81% of its products actually directly positively contribute to the SDG goals 2, 3 and 12 by promoting sustainable agriculture, improving global health and reducing food waste.

And in academia, many scientific frameworks have been established to measure impact. Scientists and the financial industry need to work together to come up with practical solutions to this measurement challenge.

So, even though the challenges and hurdles are plenty, taking impact investing from niche to mainstream will be the way forward. The financial industry needs to take on these challenges in order to really show that impact investing can be implemented on a large scale to bring change, where change is needed.

If you interested in Robeco's approach to the SDGs, please read: Investing to advance Sustainable Development Goals

This is our monthly column on sustainable investing by Head of ESG integration Masja Zandbergen.

Logo

Disclaimer Robeco Switzerland Ltd.

The information contained on these pages is for marketing purposes and solely intended for Qualified Investors in accordance with the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”) domiciled in Switzerland, Professional Clients in accordance with Annex II of the Markets in Financial Instruments Directive II (“MiFID II”) domiciled in the European Union und European Economic Area with a license to distribute / promote financial instruments in such capacity or herewith requesting respective information on products and services in their capacity as Professional Clients. 

The Funds are domiciled in Luxembourg and The Netherlands. ACOLIN Fund Services AG, postal address: Affolternstrasse 56, 8050 Zürich, acts as the Swiss representative of the Fund(s). UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, acts as the Swiss paying agent. The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual reports of the Fund(s) may be obtained, on simple request and free of charge, at the office of the Swiss representative ACOLIN Fund Services AG. The prospectuses are also available via the website www.robeco.ch. Some funds about which information is shown on these pages may fall outside the scope of the Swiss Collective Investment Schemes Act of 26 June 2006 (“CISA”) and therefore do not (need to) have a license from or registration with the Swiss Financial Market Supervisory Authority (FINMA). 

Some funds about which information is shown on this website may not be available in your domicile country. Please check the registration status in your respective domicile country. To view the RobecoSwitzerland Ltd. products that are registered/available in your country, please go to the respective Fund Selector, which can be found on this website and select your country of domicile. 

Neither information nor any opinion expressed on this website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco Switzerland Ltd. product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports. 

By clicking “I agree” you confirm that you/the company you represent falls under one of the above-mentioned categories of addressees and that you have read, understood and accept the terms of use for this website.

I Disagree