What we’ve learned from three years of SDG credit investing

28-07-2021 | Insight

It’s possible to pursue both wealth and well-being. Robeco SDG Credit strategies, which now have a three-year track record, are clear examples of this.

Jan Anton

van Zanten

SDG Strategist
Erik

Keller

Client Portfolio Manager Global Credits

Speed read

Investors are essential to achieving the SDGs
Robeco’s SDG Credit strategies now have a three-year track record
We continue to innovate our SDG investing framework

Global progress in meeting the 17 Sustainable Development Goals (SDGs) has been mixed, and many lessons have been learned since their adoption by United Nations member states in 2015.

A key lesson is that investors are essential to meeting the goals.¹ Allocating investment capital to companies that contribute to this global to-do list, as well as avoiding financing those whose practices or products are not aligned with them, helps ensure progress.

We’ve also seen that the universal nature and relevance of the SDGs, and their detailed outlining of the world’s most urgent sustainable development issues in a concrete set of goals with underlying targets, make them a useful blueprint for sustainable investing. The SDGs enable investors to clearly show how they allocate clients’ capital to companies that provide solutions to sustainability challenges.

Robeco was one of the first asset managers to formally develop an investment framework focused on the SDGs. Offering a solid and measurable sustainability profile, together with a three-year track record, the SDG Credit strategies have attracted significant interest since being launched in May 2018.

Learnings of three years of SDG credit investing

Watch the replay of our webinar

Valuable lessons for credit investors

So, what have investors learned since the launch of the SDGs?

Lesson 1: There has been some progress, but it’s far from enough

The SDGs have spurred some progress, with examples being an increased number of women elected to parliaments, a higher share of energy consumption being sourced from renewables and more of the world’s oceans now being legally protected.

Yet at the same time, the challenges are – unfortunately – alarming. Reports on the first phase of the SDG agenda (2015–2020) show unequivocally that progress towards achieving the SDGs has been slow in all parts of the world. Meanwhile, the Covid-19 pandemic is an unparalleled health challenge with dire economic consequences.

View our webinar and event calendar

Lesson 2: Covid-19 has laid bare the relevance and importance of the SDGs

Covid-19 has proven to be an excellent stress test for the SDG approach. In our view, it lays bare the relevance and importance of the SDG agenda: the shared SDG agenda presents the best possible approach to managing Covid-19 with the objective of ensuring that, now and in the future, we nurture human well-being while safeguarding environmental and economic sustainability.

Moreover, achieving the SDGs will create a more stable world in which the likelihood of future crises is lower and the ability of societies to cope with hazards is stronger.

Lesson 3: The SDGs are good for business

The 17 SDGs present an opportunity to invest in the sustainable future of people and the planet. The opportunities cover a wide array of areas such as infrastructure, housing, food and medicine, renewable energy, providing finance and insurance to those that need it, and finding means to cut waste. One estimate ²suggests that the SDGs present market opportunities of as much as USD 12 trillion per year. They also provide a means of identifying and then mitigating risks. For example, businesses and investors who fail to recognize the implications of the transition to a lower-carbon economy face the risk of a business rendered unviable by changing consumer demand or regulation.

Lesson 4: The SDGs need investors

At Robeco, we believe that investors make a difference. One way they do so is by allocating capital to companies that can help achieve the goals. This can mean buying the bonds of companies that contribute to one or more of the SDGs, and avoiding financing the companies that are not in line with them. The SDG Credit strategies allow investors to do just that. A second way in which investors can make a difference is through active ownership. By using our position as active owners, we can use voting and engagement to effect changes.

Lesson 5: It’s time to shift from inputs to impacts

Investment focuses on putting money into a company. Sustainable investing requires an assessment of the impact of the capital invested. While we can – and do – quantify the value of our investments to determine the impact on the SDGs, we also look further to assess whether our investments improve lives and promote environmental sustainability. For example, we find that the carbon footprint for each EUR 100 million invested in the Robeco Global SDG Credit strategy is significantly lower than the carbon footprint of a similar-sized investment in the Bloomberg Barclays Global Aggregate Corporate Bond Index. In fact, we estimated this difference to be equivalent to the annual CO₂ emissions produced by 1,513 cars.

Robeco’s proprietary SDG framework and SDG Credits range

In order to integrate SDGs into investment strategies, one needs to know what impact companies have on the SDGs. The Robeco SDG framework provides an objective, consistent and replicable approach to assessing positive and negative SDG contributions in an investment portfolio.

Robeco currently offers three solutions that apply the Robeco SDG investment framework: RobecoSAM Euro SDG Credits,³ RobecoSAM Global SDG Credits and RobecoSAM SDG Credits Income.⁴ Only bonds with an SDG score of 0 (neutral) or higher are eligible for inclusion in the portfolios; the strategies do not invest in companies that detract from these goals. As such, the strategies are designed to make a clear contribution to the SDGs while also aiming to outperform a mainstream corporate bond index (Euro SDG Credits and Global SDG Credits) or optimize yield and income (SDG Credits Income).

Robeco’s future work with the SDGs

Robeco continues to develop its approach to SDG investing, with the aim of ensuring financial results and impact. Now that a solid track record for its SDG Credit strategies is established, the next frontier is integrating the SDGs into sovereign strategies, for macro fixed income portfolios. In particular, we are developing a framework that uses more than 90 metrics to identify which countries are the best investment targets based on their progress on the SDGs.

In addition, Robeco’s engagement work is expanding from company level to country level. Together with other investors, Robeco has been in discussions with the governments of Brazil and Indonesia in an effort to halt deforestation in those countries. Because this is a novel approach to sustainable investing, we have been studying how sovereign debt investors might engage with governments on the SDGs.

¹This article is an extract from a more detailed paper, “What we’ve learned from three years of SDG credit investing”, June 2021
²“Valuing the SDG prize”, January 2017; Business and Sustainable Development Commission
³The strategy started using the SDG framework in January 2019. It was previously named Robeco Euro Sustainable Credits and was renamed in June 2019.
⁴The strategy started using the SDG framework in January 2019. It was previously named Robeco Credits Income and was renamed in June 2019.

Go to the webinar overview

Subjects related to this article are:

SI Dilemmas: Is ‘E’ or ‘S’ more important?

See all

Our outlook for SI and engagement themes for 2022

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or 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 U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

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 who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer 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 on behalf of yourself and any underlying investment advisory client, (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 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, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, 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 and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. 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. 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 by the general public.

I Disagree