The Sustainable Development Goals are now five years old and are starting to make a real impact in the world of institutional investment as a way to help frame responsible investment, with growing numbers of investors such as the New York Common Retirement Fund and Denmark’s PKA committing 10% or more of their portfolios to SDG investing.
The United Nations has committed to achieving the SDGs – eradicating extreme poverty, hunger, and lots more – by 2030.
But to many the overriding issue of our time remains climate change. In this interview, Michael Baldinger, Global Head of Sustainable and Impact Investing at UBS Asset Management, explains why climate change and the SDGs are intimately connected and that investors need to think about them in tandem and not as independent issues. Indeed, with the global community now really turning its attention to climate, not least incoming US President Joe Biden’s pledge to return to the Paris accord, the SDGs need to be centre stage as we move forward on climate.
Q. Surely climate change, as an issue, dwarfs the SDGs?
A. Climate change is a huge issue that will impact the world in so many different ways. And the world really is latching on to its threats – even the Federal Reserve and voices within the SEC are seeing it as a risk. With initiatives like the TCFD and many others the issue is now rightly at the top of the agenda and getting the attention it deserves. The next step is developing real frameworks for approaching its effects. In our view, the SDGs can contribute to that framework.
The United Nations Development Programme’s online shop sells a range of SDG T-shirts: my favourite is ‘Gender Equality Before Flying Cars’. They make the point that the SDGs itemise fundamental issues and make them deliverable with goals and targets; i.e. they are not some abstract vision of the future. So the SDGs are a concrete framework for thinking about the future, which is something that investors should welcome.
Q. Why now? Hasn't the global pandemic put the SDGs on the backburner?
A. Looking at ESG generally, it certainly hasn’t been relegated to the backburner, as this year’s record flows into SI focus funds have demonstrated. But there’s no denying that if we want to ‘build back better’ post-pandemic – and all the evidence is that we do – then the SDGs are fundamental. As investors we need to look forward, so if we want to look at what life might be like in 10 years time, the SDGs provide the template for a better planet, not pie-in-the-sky dreams but realisable, quantifiable objectives. I would echo the words of the UN: “The 2030 Agenda is our roadmap for the world we all want. The Global Goals are our best hope—for people, for planet, for prosperity, for peace and for partnerships.”
The UN designated 2020 as marking the start of the Decade of Action to deliver the SDGs by 2030. The pandemic then intervened but this is, also in the words of the UN, a “critical period to advance a shared vision and accelerate responses to the world's gravest challenges – from eliminating poverty and hunger to reversing climate change”.
Q. So where does climate change fit in with the SDGs?
A. It should not be forgotten that climate change is one of the 17 SDGs (it’s SDG13): Take Urgent Action to Combat Climate Change and its Impacts. All the SDGs are intertwined, so poverty and inequality are hand in hand for example. Likewise with climate change. It will probably impact all of the SDGs, so in reality it’s difficult to separate the issues . If we don’t halt global warming, not only does it amplify the challenges of the SDGs, it also lessens the amount of available capital making it harder to meet the Goals
Q. How can I allocate to the SDGs?
A. It’s about finding asset managers who are in alignment with the goals themselves in a holistic way. The SDGs are not an ‘asset class’ that can be allocated to, at least not yet. But what they do provide are a set of concrete objectives against which investors can report outcomes at a portfolio level. I’d also highlight various asset owner initiatives; for example a group of 20+ Dutch financial institutions in 2016 coined the term SDG Investing (SDGi) in 2016: “All investment strategies whereby sustainability and/or the SDGs form a ‘material’ factor in investment decisions.” And the UN has identified the delivery of the SDGs as a US$ 60 trillion investment opportunity.
The World Pensions Council says the pandemic crisis has accelerated the mainstreaming of SDG-driven investment, with pension board members/trustees “playing an increasingly active role across all asset classes, from Sacramento to Sydney”.
Investors are the anchor of the investment chain and a recent survey of investors found that 28% of them currently have targets regarding SDG alignment. And 42% said they plan to align to the SDGs but 30% had no plans.
Q. What tools can I use to align with the SDGs?
A. A good starting point is our SDG roadmap which we presented at the World Economic Forum in 2019. We called for simplifying and standardizing definitions and measurements, and customizing investments to appeal to people's personal passions. As our Chairman Axel Weber put it: "At UBS, we believe that only by offering solutions that raise awareness and channel personal preferences for investing sustainably can the global community achieve the UN SDGs."
But also take a look at the Principles for Responsible Investment’s five-point plan for SDG investing. This also offers a starting point for thinking about investing in alignment with the SDGs. The PRI recognises, as we do, that no one set of actors will achieve the SDGs in isolation, and we think that Goal 17 (Partnership) is as important as all the others. We will not achieve any of the other goals without it.
Q. How do the SDGs fit in with my fiduciary duty?
A. The goals go out to 2030 and that still seems a long way away. But it’s only 10 years (and getting shorter as 2020 draws to a close). But fiduciary duty is all about looking ahead over these kinds of timeframes. It’s all about investing with a new set of eyes.
The future seems to dawn on us ever more rapidly: just think about the way the world has changed in the past decade – this pace will only accelerate in the coming decade and it is vital that we have some sort of guide. So if fulfilling your fiduciary duty means looking ahead with clarity, the SDGs need to be part of it.
Q. What is UBS doing?
A. The imperative to do this sits with us all and we are determined to do our share, not only as a company active in society but as a provider of investment solutions to clients.
In 2019 UBS became an inaugural member of the UN Global Investors for Sustainable Development Alliance, which is committed to scaling up and accelerating efforts to align business with the SDGs. We will focus on delivering concrete long-term finance and investment solutions, including through our $5bn commitment to SDG-related impact investing, which we delivered on a full year ahead of schedule
UBS launched the first 100% sustainable multi-asset portfolio for private clients, which includes innovative SDG-related impact investments in equities and bonds. And of course there is our Climate Aware strategy.
Q. What do you mean by the term “climate smart future”?
A. We know we need to stop the uncontrolled rise in global temperatures and the capital markets are one of the most powerful ways of making that happen. When we talk about helping our clients invest for a ‘climate smart future’’, we’re talking about one where GHG emissions are kept in check and the rates of warming are slowed.
How do we do that? By lowering a portfolio’s investment exposure to climate risk, while increasing its exposure to climate-related innovation and solutions. At the same time, we actively engage with corporates and encourage them to transition their business models away from carbon intensive activities. We think this approach offers the right mix of pragmatism and flexibility, with the needs of the investor front and the centre.
At UBS we have been using global scenario-based approaches since 2014 to assess our exposure to physical and transition risks associated with climate change. We have an internal Portfolio Optimization Platform, whereby carbon emissions data is also made available to all equity portfolio managers, who can download carbon and carbon intensity data on over 6,000 companies.
Q. Are you optimistic about the future?
A. The world is facing huge challenges but I am optimistic that we can meet them collectively and with the correct allocation of resources and capital. We at UBS are committed to doing what we can to bring about the changes that are necessary, for the sake of the planet and the wellbeing of our clients.