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

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
    Jan Anton
    van Zanten
    SDG Strategist
  • Erik  Keller
    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
Learnings of three years of SDG credit investing
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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. 

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 suggests 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.

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