There is a 70% overlap between the 980 financially material sustainability indicators identified by the Sustainability Accounting Standards Board (SASB) and the 242 Sustainable Development Goals (SDG) country indicators, according to new research by BlackRock Sustainable Investing.
In the report, Sustainable Investing: Integrating the UN SDGs in Investments, the asset management heavyweight highlights that the “SDGs can help investors build strategies that seek to invest in the transition to a more sustainable and equitable world”.
BlackRock said it decided to focus SASB indicators in the context of SDGs to explore the financial materiality of the SDGs with a sector-differentiated lens. Carole Crozat, Head of Fundamental Research at BlackRock Sustainable Investing, said: “We believe that the UN SDGs have the potential to deliver value not only through impact investments, but also through wider ESG-focused strategies.”
Honing in on the areas where the matching level was especially high, the SASB categories that had a high correspondence to the SDGs included: Environment, Business Model & Innovation, and Human Capital categories.
This is unsurprising according to the report as the above are “directly relevant to the climate change, responsible production and consumption, sustainable construction, and waste management goals”.
Indeed, on the SDG side, goals 6 (clean water and sanitation), 8 (decent work and economic growth), 7 (affordable and clean energy), and 12 (responsible consumption and production) accounted for the majority of all SASB materiality indicators.
“The integration of material ESG risks and externalities in portfolios can provide critical acceleration of the UN SDGs and can open up the opportunity to magnify the overall contribution of private actors, beyond just impact investment strategies” – Carole Crozat, Head of Fundamental Research, BlackRock Sustainable Investing
And yet there was a low correspondence between the SDGs and SASB’s categories on Company Leadership and Governance, and to some extent Social Capital. “In this instance, while these issues are material to company long-term performance, they do not tie back directly to the advancement of the UN SDGs”, claimed the report.
SDGs 14 (life below water), 9 (industry, innovation, and infrastructure), and 4 (quality education) accounted for the least of all SASB indicators. This is because they tend to be sector-specific and only apply to a limited number of industries. For example, SDG 4 is only relevant to the education sector out of the 77 identified by SASB.
On sectors, the research also found the SDGs were highly material for the Extractives Infrastructure, Minerals Processing, and Food and Beverage industries.
However, Financial and Service sectors had a very low match of under 50% as “the majority of material indicators sit under the Social Capital, Human Capital and Leadership & Governance categories which have a low correspondence to the UN SDGs”, concluded the report.
And despite the potential benefits the SDGs can offer investors, the report acknowledged barriers to incorporating them into investment strategies, including: measuring the alignment of investments to the goals as well as remaining misconceptions that the SDGs are at odds with long-term financial performance.
Last year, to mark the five year anniversary of the SDGs, RI conducted a series on each of the 17 goals.