united kingdomen
Translating universal goals into SDG impact

Translating universal goals into SDG impact

22-09-2021 | Insight
With the SDGs, the UN has framed the need and drawn the blueprints to advance sustainable development in society. With its SDG Framework, Robeco has created an SDG scoring tool and a suite of SDG-linked strategies that advance sustainable impact exposure in investment portfolios.
  • Jan Anton van Zanten
    Jan Anton
    van Zanten
    SDG Strategist
  • Taeke  Wiersma
    Taeke
    Wiersma
    Head of Credit Research

Speed read

  • ESG and SDG are acronyms not synonyms, ESG integration does not equal SDG impact 
  • Robeco employs a rigorous and systemic approach to measuring SDG impact 
  • The SDG Framework forms the backbone of a suite of SDG-focused investment strategies

For the first time in history, the world has a shared plan for promoting sustainable economic growth, advancing social inclusion and safeguarding the natural environment. The UN SDGs represent a workable blueprint to creating a better world for ourselves and future generations. 

Universal good-will and global progress are not only noble, they are also necessary to fully optimize global assets and achieve economic growth that is truly sustainable for all. But how can investors translate lofty goals of supranational bodies into specific actionable steps that inform portfolio investment decisions? How can investors be sure their invested capital is moving the world in the right direction? 

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

ESG and SDG, acronyms not synonyms

The rise in investor interest in ESG investing raises awareness and mobilizes financing for sustainability issues, both of which significantly enhance the ability to achieve the SDGs.

But many investors conflate ESG integration with SDG impact. Though ESG integration helps investors avoid companies that are not adequately managing environmental, social, and governance risks, it does not measure a company’s positive SDG impact. This is further supported by the fact that some notoriously harmful companies in industries such as tobacco or sugared beverages often perform well in ESG rankings.

ESG ratings can be useful for determining many aspects of a company’s sustainability performance, but they are insufficient for measuring whether companies are positively influencing the SDGs. A much deeper analysis and more thorough metrics are needed to better understand companies’ SDG performance.

How can investors translate lofty goals of supranational bodies into specific actionable steps that inform portfolio investment decisions?

Impact ingredients

Impact investing is a broad term that can be misapplied. Robeco differentiates between impact-aligned investing and impact-generating investing1. The former puts assets to work in companies that are moving towards (and not against) sustainable goals and impact. The latter induces investors to positively impact a status quo that would otherwise have remained unchanged without their investment and/or influence, for instance through active ownership. Both are useful as investors are a diverse group and some will prefer one type of impact over the other. 

Despite these distinctions, all impact investing strategies should contain some essential ingredients. Impact should be measurable, it should be aligned with generating a financial return, and it should be additional, meaning investors’ actions make an appreciable difference to changing the status quo.

Attracting attention

In short, impact investing takes sustainable investing to the next level. It not only requires that the right inputs and actions are present but also that the right outputs and outcomes are produced. Surveys indicate that creating positive impact is important for many market segments and particularly for women and millennials. Given that these groups will be in charge of trillions of assets in the coming decades, there is tremendous opportunity/potential to put their assets and motivation to work in creating positive impact and sustainable progress.  

However, it is becoming increasingly important for asset managers to ensure the quality and rigor of their impact claims as more investors move into impact investment strategies and financial regulators tighten impact-labeling standards.

A rigorous approach

The Robeco SDG Framework rigorously measures and scores companies based on their SDG contributions. It is a systematic approach to capturing SDG impact of equity and credit issuers that is objective, disciplined and replicable. It consists of a three-step sequence that starts with an assessment of the impact of a company’s products and services. Step two consists of an in-depth analysis of the impact of its operations, internal policies and structures. The process ends with a screening and review of corporate controversies that could negatively influence SDG progress, and hence a company’s SDG impact. The final results of this three-step analysis are quantified in an SDG score. 

SDG scores, together with the macroeconomic outlook, fundamental analysis, sustainability research and ongoing risk management help investment teams reduce downside risk and select the most promising stocks for investment portfolios.

Empirical evidence supports our view that screening credit and equity holdings for their SDG impact and sustainability characteristics is positive for performance

Empirical evidence supports our view that screening credit and equity holdings for their SDG impact and sustainability characteristics is positive for performance. The SDG Framework and resulting SDG scores strengthen the ability of our investment teams to screen out poor performers and does not impede their capacity to generate alpha through issuer and stock selection. 

Moreover, tracking the SDG contributions of companies provides investors assurance that they have diversified exposure to SDGs as well as diversified exposure to quality companies across the economy with vision and commitment towards a sustainable future. 

Pioneering tradition, leading position

Robeco’s SDG Framework is characteristic of our pioneering spirit, investment acumen and disciplined rigor in developing advanced investment tools and strategies. It enabled us to be among the first to bring an SDG-focused credits product to the market and forms the backbone of Robeco’s suite of SDG-linked fixed income and equity investment strategies. It also underscores our ability and commitment to translating complicated concepts into actionable steps within the investment process. 

The SDG Framework along with our SDG-linked products help investors steer capital towards companies that are generating positive impact, meaningful returns and continued progress in the right direction.

1Busch, T., Bruce-Clark, P., Derwall, J., Eccles, R., Hebb, T., Hoepner, A., ... & Weber, O. (2021). “Impact investments: a call for (re) orientation”, SN Business & Economics, 1(2), 1-13.

Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. 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.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree