Sustainable Development Goals: Investing With A Purpose
To reduce extreme poverty, fight inequality, protect the planet and ensure prosperity for all, the United Nations has set up the 2030 sustainable development agenda with 17 Sustainable Development Goals (SDGs) calling for action to all countries.
Consider the following statistics which have been published by the United Nations in 20171:
- 767 million people lived below the extreme poverty line in 2013 and 793 million people were undernourished in 2014-2016.
- 9 per cent of primary-school-aged children worldwide were out of school in 2014 and 1 in 10 children worldwide were engaged in child labour in 2012.
- More than 3 billion people, most of them in Asia and sub-Saharan Africa, lack access to clean cooking fuels and technologies.
- The proportion of the urban population living in slums worldwide is still 23 per cent in 2014.
- In 2013, nearly a third of marine stocks were overfished.
- Gender inequality persists worldwide, women face structural disadvantages in escaping poverty.
Source: United Nations
To achieve the SDGs, increased collaboration from the public sector, private sector, and individuals is necessary. It will require an estimated USD 5 to 7 trillion over the next 12 to 15 years2. Unfortunately, progress is still slow.
SDGs are a rallying theme for asset managers, corporates and other institutions to align their business so capital is allocated towards positive impact investments.
Mapping SDGs to Investments
Asset managers are increasingly adopting the SDGs as a framework to measure the positive impact from their investments. This is particularly important for liquid asset classes in public markets, as the impact investing is traditionally done through private equity or private debt with limited liquidity.
The purpose is to attract more capital to companies which are committed to align their business, environmental and social objectives in their corporate strategy.
We increasingly see that asset owners and investors are also starting to analyse their investments from a 3 dimensions perspective: in addition to the traditional approach of risk and return, they are now looking at the impact and contribution to the various SDGs.
How do asset owners link the investable solutions to the SDGs?
The 2 major Dutch pension funds (APG and PPGM with total assets of 600 billion EUR) have defined a comprehensive decision tree to find “Sustainable Development Investments”, i.e. investments that meet the financial risk and return requirements and support positive social and/or environment impacts through their products and services, or at times through acknowledged transformational leadership3. For example, in the decision tree, to each SDG will correspond to specific investment sectors.
To illustrate, investing in marine products and services, water pollution prevention and sustainable fishing will support SDG #14, to protect life below water.
Source: APG & PPGM Sustainable Development Investments
How do asset managers map their portfolios to SDGs? Here are some examples:
1/ Impax, the environment fund specialist of BNP Paribas Asset Management is mapping its 29 different investment sectors to the specific SDG4: e.g. investment in water infrastructure & technology, water treatment equipment or utilities will be aligned to SDG # 6 – Clean Water and Sanitation.
2/ An UK Asset Management company has defined 8 investable pillars corresponding to different SDGs for its Impact Investing Fund: e.g. Investment in health and social care businesses is aligned to SDG # 1 (No Poverty), SDG# 2 (Zero hunger) and SDG# 3 (Good Health and Well Being).
3/ BNP Paribas Wealth Management uses an SDG mapping framework to identify Sustainable and Impact Investing products. For example, for the sustainable portfolios managed by the Discretionary Portfolio management team, companies (to which the Sustainable and Impact Investing products relate) are mapped according to their SDGs’ engagement and reporting:
Source: Data from various companies
As major corporates have started to do reporting on SDGs, it has now become possible to map the whole portfolio to the UN SDGs and be able to measure and report on its sustainable impact.
Even though there is not yet a standardized framework to do the SDGs reporting, many initiatives have been taken. KPMG has defined a set of criteria for SDG reporting: the company needs to understand the business case of the SDGs, identify priority SDGs relevant to its business and set up performance goals that are measurable5.
To quote Larry Fink, CEO of Blackrock, “society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society”6.
It is encouraging to see a growing number of corporates and institutions align their strategies and investments to the SDGs. We expect private investors, and in particular the millennials to follow the lead of institutional investors.
BNP Paribas has put up an Engagement Manifesto for 2020 to strengthen our commitment to society in line with the United Nations’ 17 SDGs. At BNP Paribas Wealth Management, we will continue to identify investment opportunities for clients aligned with SDGs. This approach is part of our Impact Driven solutions for our clients.
1 Sustainable Development Goals Report 2017 (United Nations)
2 United Nations Development Programme – Impact Investment to close the SDG funding gap (July 2017)
3 Sustainable Development Investments – Taxonomies (APG & PPGM May 2017)
4 Impax Environmental Impact Report 2017 – SDG mapping methodology
5 KPMG – How to report on SDGs – Feb 2018
6 Larry Fink- CEO of Blackrock 2018 letter to CEOs – a sense of purpose