- The UN’s Sustainable Development Goals (SDGs) outline the most pressing economic, social and environmental issues that face our society
- The financial services sector increasingly view the SDGs as a potential framework for measuring, managing and reporting on social impact
- The Goals create a common language with which to shape and articulate an investment strategy centred around solutions to global development challenges
- Asset managers are incorporating the SDGs both internally to enhance their investment selection process, and externally to communicate the impact of their investments
- Ongoing adoption of the SDG framework by asset managers has the potential to drive impact investing out of the niche and into the mainstream.
RECAP: The Sustainable Development Goals (SDGs) are a collection of 17 global goals set by the UN in 2015. They are a universal call to action to protect our planet, achieve equality, end poverty and ensure peace and prosperity. So far in our blog series on the SDGs, we have introduced the Goals and explored how they can be used in client conversations. The next critical questions are why and how do asset managers use the SDGs in practice, and what is the wider effect on the financial advisory community as a whole?
Following on from the terms ‘CSR’ and ‘ESG’, ‘SDG’ is the latest acronym to become commonplace. Business interest in the SDGs is evident given that less than three years after their launch, 40% of the G250 (the world’s largest companies) are reporting on how their business activities align with the Goals[1].
Given that KPMG[2] found that “the reporting behaviour of larger companies often predicts trends subsequently adopted by businesses worldwide”, it is therefore unsurprising that the asset management industry has followed suit and begun to incorporate the SDGs in their investment processes. Not only this but shifting societal attitudes towards greater social responsibility has led to the development of a new class of investor – the ‘conscious investor’ – and asset managers have been quick to respond.
Why do asset managers track against the SDGs?
1. It can act as a framework
When surveyed by the Global Impact Investing Network (GIIN)[3], many of the leading asset managers emphasised the usefulness of the SDGs as a framework to:
- Allow investors to set investment priorities
- Develop impact strategies and goals
- Guide impact measurement and reporting
2. It can unite language
They also recognised the power of the SDGs to unite the investment community through a common language. RobecoSAM emphasise the usefulness of the SDGs as a means of communicating impact, as the goals help to unify the language used among impact investors and simplify their dialogue with clients. The Goals, therefore, provide a communications toolkit to clearly articulate the relationship between investments and impact goals.
How are asset managers implementing an SDG-aligned strategy?
PGGM reports that they are using the SDGs to strengthen their internal investment selection process by mapping them to their own impact objectives.
RobecoSAM uses them to review the impact measurement of their investments and communicate this to the wider investment community. LGT Impact Ventures directly map the impact achieved through its investments against the SDG framework.
Building on this, several fund managers, such as Triodos, are looking to incorporate the SDG framework to better support their fund reporting. This is so they are able to articulate the impact of investments to clients and facilitate broader discussion around impact investing.
This trend is set to continue as according to a 2018 GIIN survey[4], 55% of impact investors track their investment performance to the SDGs and another 21% plan to do so in the future.
What is the wider effect on the financial advisory community?
The SDGs have the potential to transform investors’ attitudes, and as Triodos[5] predicts, could be “the impetus that shifts the whole financial sector to consider the impact of its investments”. Increased awareness and adoption of the framework may help bring capital into impact investing, evolving it from a niche market into a more mainstream investment standard.
SDG-aligned strategies are rapidly becoming ‘must have’ rather than ‘nice to have’.
For investors, the SDGs are an inevitable consideration given personal values and that sustainability challenges present an economic risk; poor future economic growth will undoubtedly impact long term financial returns.
For advisers, with appetite for responsible investment on the rise, the framework is an effective way to shape, articulate and report on an investment strategy that is aligned with clients’ personal goals.
It’s clear that the whole financial community needs to recognise the SDG’s catalytic potential and take note of the global agenda.
[1] https://www.iau-hesd.net/sites/default/files/documents/how-to-report-on-sdgs.pdf
[2] Ibid
[3] https://thegiin.org/assets/GIIN_Impact%20InvestingSDGs_Finalprofiles_webfile.pdf
[4] https://thegiin.org/assets/2018_GIIN_AnnualSurvey_ExecutiveSummary_webfile.pdf
[5] https://thegiin.org/research/publication/annualsurvey2017
Authored by Sarah Ison, edited by Megan Lawrence.