latamen
It’s not all black and white when it comes to SDGs

It’s not all black and white when it comes to SDGs

12-12-2018 | Insight

Measuring a company’s contribution to the UN SDGs is not that straightforward. In an earlier article, we outlined Robeco’s three-step approach, in this article we look more closely at some of the difficulties associated with the first step, which links products and services offered by companies to the SDGs and assesses their contribution.

  • Taeke  Wiersma
    Taeke
    Wiersma
    Co-head Credit Research

Speed read

  • Broad range of issues means SDGs can have conflicting effects
  • Weaker SDG sectors still contain issuers with positive impact
  • SDG investment strategy requires consistent approach

There are 17 main SDGs and 169 sub targets which address a very broad range of issues and which sometimes have conflicting impacts on each other. This means implementing this first step is not so straightforward. Those companies that make a more indirect contribution to achieving the goals, could be eliminated from the selection process prematurely in an approach that does not look beyond their core activities.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Gray areas

Although the goals themselves appear to be fairly clear cut, it is perhaps surprising how many gray areas there are when it comes to assessing sectors and individual companies. The agrochemical industry is a good case in point. On the one hand, crop-protection products improve agricultural yields significantly, which is very beneficial for SDG 2 (zero hunger). But pesticides are increasingly criticized for contaminating the environment and so also have a negative association when it comes to other SDGs. Firms manufacturing plastic food packaging are another example. They help prolong the shelf life of products – again beneficial for SDG 2 (zero hunger), but also create waste products that have a negative impact on the environment.

The list goes on. How should firms be dealt with that engage in heavily polluting activities (extracting oil, shale gas) but take issues like gender equality (SDG 5) and health and safety (one of the sub goals of SDG 8) extremely seriously? Moves to shut down or wind up coal mines or nuclear power generators are very beneficial for SDG 7 (clean energy) but cause unemployment, something that can have a material negative impact on SDG 1 (zero poverty), especially in developing economies.

There is more to creating an SDG-linked investment universe than simply looking at what companies do

A sector approach?

Although there are a few sectors that make an outright negative contribution to the SDGs (tobacco, gaming, aerospace/defense), in most cases, it is not so clear cut. The electric utilities sector contains both coal fired generators and electricity producers that rely heavily on renewables. Firms in the latter category should receive high SDG rankings, while those that depend more heavily on fossil fuels and nuclear power are likely to be assigned negative SDG scores.

The automotive sector is another good example. Most car manufacturers still have a negative/medium SDG ranking because they have not yet attained the electric vehicle/hybrid production thresholds. But this sector also includes trucks which play an essential role when it comes to the distribution of food and other basic materials, while some car-parts suppliers also positively contribute to SDGS, depending on their products (efficiency enhancing, safety supporting, for example). A sub-goal of SDG 3 (good health & well-being) targets a 50% reduction in traffic-related deaths and injuries globally in 2020.

By taking a black and white sector approach, companies within a ‘negative’ sector that handle other aspects of their business well – environmental impact, labor relations, supply chain considerations, for example – are automatically eliminated too.

Robeco’s SDG framework

There is more to creating an SDG-linked investment universe than simply looking at what companies do. RobecoSAM’s proprietary SDG framework looks beyond this to evaluate how they do it. This ensures that companies operating in sectors that may not appear to contribute to realizing the SDGs are not excluded and can be evaluated on the basis of other aspects of their business, resulting in an SDG score for an individual company that reflects its true contribution to the goals and a well-balanced investment universe. Robeco’s credit analysts and RobecoSAM’s SI specialists have used their framework to assess a diversified credit universe of almost 600 names – in investment grade, high yield, and emerging segments across a broad range of sectors.

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person.

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)) who are professional investors. By clicking “I Agree” below and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States (within the meaning of Regulation S under the Securities Act) and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States (within the meaning of Regulation S under the Securities Act) and (v) you are a professional non-retail investor.

Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States.

Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction.

We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco Institutional Asset Management B.V. (Robeco). The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use with the general public.
I Disagree