How can investors integrate the SDGs into their strategies?

How can investors integrate the SDGs into their decision-making process?

2020 has been filled with wake-up calls. The coronavirus pandemic highlighted the flaws in our systems and exacerbated global issues that require immediate action. Hunger, poverty, inequality, and social injustice continue to plague our societies as global warming threatens our planet. The wildfires ravaging the West Coast of the United States are just the latest manifestation of an impending climate catastrophe. 

First, we must do everything in our power to rebuild the world on stronger foundations, using the SDGs as our compass and investing framework. 

In turn, we must also recognize that the participation of the financial market is indispensable to achieving the UN’s 2030 agenda. 

Finally, we must act. Environmental and Societal factors must be integrated into financial risk and reporting. It is crucial that investors understand their role in shaping the world we want. Investment strategies that specifically target SDG goals and impacts need to scale and system-wide initiatives should be mainstreamed. 

Investors’ attitudes toward the SDGs

In 2015, ShareAction surveyed 52 institutional investors from across the world to gauge their attitudes and intentions around the SDGs. 

They found that:

  • 95% of respondents plan to engage with investee companies about issues covered by the SDGs
  • 84% will allocate capital to investments supporting the SDGs
  • 89% will support regulatory reforms that promote the SDGs
  • 75% of respondents are already taking action on three or more of the Goals

These findings paint an optimistic picture. However, in 2020 the same firm published a follow-up report that didn’t show quite as encouraging results. 

The new report found that:

  • 48% of investors are developing an approach to the SDGs
  • 33% have matched some of their existing funds and mandates against the Goals
  • 12% had developed a strategy to measure their impact in line the SDGs across all asset classes

This shows that investors are still facing challenges when it comes to mapping SDG metrics. 

How can investors integrate the SDGs into their decision-making process?

The availability of transparent data and standardized benchmarks is key to successfully directing capital flow towards the SDGs. 

Investors can approach the SDGs and analyze their impact in a few ways: 

  • Investing at a country level requires looking at macroeconomic databases that allow investors to understand how specific countries are performing against SDG outcomes. To help investors make data-based decisions, Refinitiv has mapped a segment of its macroeconomic database to the SDG indicators. Refinitiv’s ESG data now includes Country SDG Scores, which cover 210 countries, all 17 SDGs, and 148 metrics matched to them. 
  • Investing at a company level, on the other hand, requires mapping ESG metrics against SDG indicators. This approach helps investors get more clarity on how the companies in their portfolio are aligning against SDG outcomes. It can also help inform their future investment decisions.

Investors can also benefit from Refinitiv’s use of proceeds data within the fixed income database to understand which fixed income instruments would align best with various SDG outcomes.

To learn more about analyzing data to measure the impact of an investment from an SDG perspective, listen to the podcast recording below.

What’s needed to promote the financial development of the SDGs

The SDGs offer investors the opportunity to use a different lens through which to filter future investment decisions. Private investors increasingly appreciate the power of sustainable investment to satisfy their financial and societal goals simultaneously.  Readiness and the ability to support sustainable development are high. However, supply side inefficiencies prevent more meaningful flows of money into purposeful investment. For example sustainable development finance markets must be:

  • Rationalized. Social and environmental outcomes must be measured consistently, in a standardized way and with the same consistency that corporate financial metrics apply to financial outcomes.
  • Industrialized. Networks and platforms need to be built in order to match buyers and sellers and optimize investment processes for impact.
  • Democratized. The financial system needs to evolve to allow for sustainable financial markets to be open to all, and enable citizen centric financing.

Systemic policy change is needed. The financial system needs to be reorientated toward sustainable development. While this may sound like a stretch, it’s already starting to happen, and it is what’s needed to create a significant change. 

The Future of Sustainable Data Alliance is one of the organizations aiming to facilitate this change. It’s goal is to drive sustainable finance through collaboration, addressing the open gaps and challenges in data need to align us with a more sustainable future. 

The bottom line

While the attitudes of investors toward the SDGs are overwhelmingly positive, there is still confusion around how to measure SDG impact. This can be resolved by providing investors access to powerful data that incentivizes the adoption of SDG indicators into investment strategies.

Considering the amount of financing that must be poured into the SDGs by 2030, it’s essential that investors start to consciously target SDG outcomes as early as possible. If we manage to increase the funds flowing into the UN’s 2030 agenda, our chances for building a better future will drastically increase.