The Sustainable Development Goals (SDGs) have been taking sustainable investing to the next level. Since their adoption by all United Nations member states in 2015, the 17 SDGs, with their 169 targets and 232 indicators, have crystallized an understanding of sustainable development. Together they provide a blueprint for investors seeking to harvest alpha while contributing to societal well-being and environmental sustainability. Looking ahead, how can we expect the SDGs to further shape the sustainable investing market?
To date, there has been some progress on the SDGs.1 Today, 25% on average of parliamentarians are women, up from 19% in 2010. The share of the population using safely managed drinking water grew from 61% in 2017to 71% in 2000. And as of 2019, 17% of oceans are protected, a doubling since 2011.
Yet the world is not on track to achieve the SDGs. We are losing biodiversity at an alarming rate, inequality within and between countries is widening, and climate change is affecting more people every day.2 Moreover, the Covid-19 pandemic is not only an unprecedented health challenge: the ensuing economic crisis is expected to push 400 million people into poverty3 and cause food shortages affecting 265 million people.4 And as the virus affects people living in poverty and those with underlying health conditions in particular, Covid-19 is exacerbating inequality.5
Faced with this bleak outlook, scientists and policymakers have started to debate whether the SDGs should be revised. A recent article in Nature, a leading scientific journal, suggested that in a pandemic, countries would do well to focus on a few strategic goals rather than all 17 SDGs.6 The journal’s editors followed up by arguing that the SDGs should be revised to make them more achievable.7 However, others quickly responded that “great feats are rarely a product of lowered ambition” and that Covid-19 only reinforces why the goals were established in the first place: “to chart a better course towards common economic, social and environmental ambitions that will guarantee humanity’s long-term future”.8
Indeed, despite that bleak outlook, there is good reason to add momentum to achieving the SDGs. They present a valuable approach to managing Covid-19 while simultaneously helping us navigate towards more sustainable societies.9 The SDGs unite all governments, but also businesses, academics, and NGOs, in a shared agenda with common goals – which is precisely what is needed in times of crisis. Moreover, achieving the SDGs will create a more stable world in which the likelihood of future crises will be lowered, and the ability of societies to cope with hazards will be strengthened.
It is not surprising that the United Nations itself asserts that the SDGs are “vital for a [Covid-19] recovery that leads to greener, more inclusive economies, and stronger, more resilient societies”. Hence, rather than revising the goals, there is an urgent need to double down on them.
Consequently, in 2021 we expect the investment community to increasingly engage with the SDGs. Two forces – scaling earlier investments and aligning with public policy – will drive this trend, while one consequence – the need for impact measurement – will become more urgent.
The past years witnessed various asset owners, managers, and data providers develop solutions for taking action on the SDGs. This shows that the SDGs are gaining traction within the investment community.
For instance, the UN Principles for Responsible Investment, a global initiative that aims to create a “more sustainable global financial system”, is calling on its more than 3,000 subscribers with USD 103.4 trillion in AuM to advance the SDGs. To help them do so, it has developed a five-part framework that enables investors to improve the outcomes of their investment decisions on the SDGs.10
Another example involves APG, AustralianSuper, British Columbia Investment Management Corporation (BCI) and PGGM, which have joined forces to develop a platform for investing in solutions that contribute to the SDGs. Their Sustainable Development Investments (SDI) Asset Owner Platform was launched in July 2020. In turn, we at Robeco have created a proprietary three-step framework for assessing how companies impact the SDGs, which serves as a backbone to our SDG Credits and SDG Equity strategies. And data providers such as MSCI and S&P have recently started to distribute SDG-related data.
Now the groundwork has been done, it is time to scale the created solutions. As the fruits of this earlier labor are being picked, we will undoubtedly see more investments into companies helping to attain the global goals.
Various governments are in the midst of launching ambitious regulations governing sustainable investing. At the same time, many governments are using public investments to dampen the socio-economic blows of Covid-19 and simultaneously advance sustainable development. Both can catalyze investor action for the SDGs.
First, the European Commission (EC) is spearheading the regulation of sustainable investing by launching its “EU Taxonomy” and the “Sustainable Finance Disclosure Regulation”. The taxonomy establishes detailed performance thresholds that measure whether companies (i) substantially contribute to one of six environmental objectives11; (ii) do no significant harm to the other environmental objectives; and (iii) comply with minimum social safeguards. The EC brands its taxonomy as: “one of the most significant developments in sustainable finance” that “will have wide ranging implications for investors and issuers working in the EU, and beyond.”12 It is also launching its SFDR, which requires investors to report on standardized sustainability indicators. The aims are to provide more transparency on sustainability by promoting comparability and preventing greenwashing.
Both types of regulations will come into force in 2021 and will set a high bar for sustainable investing. If investors rise to the challenge, significantly more capital will be allocated to truly innovative companies, leading the transition towards achieving the SDGs. This might mean channeling funds from existing ‘mainstream’ ESG funds to stricter ‘dedicated’ SDG or climate strategies. And while Europe is taking the lead, there are signs that other countries are following. Japan, Canada, and Malaysia appear to be developing their own taxonomies13, while rumors are surfacing that China and Europe might form a taskforce on their sustainable finance taxonomies.14
Secondly, various countries are using their investment programs meant to dampen the socioeconomic blows of the pandemic as an opportunity for sustainability. For instance, the EC’s EUR 1.85 trillion recovery instrument links to the European Green Deal – the continent’s growth strategy that strives to make the EU climate-neutral by 2050 – and looks to invest in sustainable, future-oriented activities that link to the SDGs. Priority sectors for such public investments include food production and biodiversity, mobility, energy, and buildings.
On introducing the EU recovery instrument, EC President Ursula von der Leyen said: “The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalization will boost jobs and growth, the resilience of our societies and the health of our environment. This is Europe’s moment.”. And with the election of Joe Biden as incoming president, the United States is also expected to make public investments in sustainable solutions.
Although it remains to be seen to what extent such investments truly benefit sustainability – governments also appear to still be spending vast sums bailing out ‘dirty’ industries such as airlines in this pandemic – it is clear that recovery instruments will help advance the SDGs. Such public investments will support the business models of companies providing solutions for the goals, presenting real opportunities for investors.
As the SDGs continue to gain influence in the investment community, investors using the SDGs will increasingly need to prove what the impact of these strategies is.
Investors that use the SDGs in their investment process tend to promise to deliver financial results alongside supporting real world impact: contributions to the development of societies or to environmental objectives. The logic is that, because the SDGs delineate the intended development pathways of all countries around the world, companies that help achieve the SDGs are likely to be the future winners while companies that erode progress are likely to lose. Aligning investments with the ambitions of the goals then is a good way to deliver financial returns. It also ensures that money flows towards companies providing solutions to the challenges the world faces. Measuring what the societal and environmental impact is of companies helps fulfill both promises.
Impact measurement allows us to select companies that are best aligned with the SDGs – and thus expected to be future winners. It also enables us to select companies that generate the biggest impacts at the lowest costs. And, importantly, it helps investors explain to clients how their money is invested in companies that improve the lives of people and enhance the sustainability of our planet.
Overall, 2021 will be an important year for sustainable investing. The SDGs help societies navigate through and beyond the Covid-19 pandemic. They also serve as a blueprint for sustainable investing strategies. Investors will expand on their earlier investments in the SDGs to integrate these goals into their strategies, and they will increasingly align with public policies for sustainable development. They will thereby stand to not only create wealth, but also real world impact.
1 E.g. UN (2019; 2020).
2 E.g. Sachs et al. (2019; 2020); UN (2019).
3 Sumner et al. (2020).
4 FAO & WFP (2020).
5 Ahmed et al. (2020).
6 Nature (2020).
7 Naidoo et al. (2020).
8 Bhattacharya et al. (2020)
9 Van Zanten & Van Tulder (2020)
11 The six environmental objectives are: (1) Climate change mitigation; (2) Climate change adaptation; (3) Sustainable and protection of water and marine resources; (4) Transition to a circular economy; (5) Pollution prevention and control; (6) Protection and restoration of biodiversity and ecosystems.
12 EC (2020).
15 Combining the EUR 750 billion recovery fund and reinforcements from the EU’s long-term 2021–2027 budget.
16 EC (2020b).
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商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会