Adopted by the heads of government from 193 UN member states in 2015, the Sustainable Development Goals (SDGs) cover every facet of life globally—social, environmental, and economic—between 2015 and 2030.
According to Brookings, the eight Millennium Development Goals, which preceded the SDGs (by spanning 2000 to 2015); lifted at least 471 million additional people out of extreme poverty, enabled at least an incremental 111 million more people attending primary school and saved more than 21 million lives. Unlike the Millennium Development Goals, the SDGs are focused on sustainability globally, not just in developing countries.
The 17 SDGs, supported by 169 targets and 230 indicators, are the “closest thing earth has to a strategy.” They also represent a substantial investable opportunity given their global focus and sectoral breadth. The International Finance Corporation (IFC), the private sector arm of the World Bank, estimates that achieving the SDGs would require an annual investment of $4 trillion (versus a $2.5 trillion annual shortfall). According to the Business & Sustainable Development Commission, achieving the SDGs could generate $12 trillion in market opportunities in four economic systems that represent 60% of the real economy: cities, energy and materials, food and agriculture, and health and well-being.
Navigating the plethora of information and products to choose from can be daunting for institutional or individual investors that would like to align their portfolios with the SDGs. This article aims to provide an overview with some examples for such investors.
Resources For SDG Alignment
Reports. Domini, which manages a family of sustainable mutual funds, published a report this fall on how investors can understand their systemic effects and intentionally create positive influence on systems. This Domini report builds on the Investment Integration Project (TIIP)’s and the Investor Responsibility Research Center Institute’s (IRRC Institute’s) roadmap for assessing SDG investing and system-level outcomes. Both reports teem with interesting tools and frameworks, some of which are highlighted in this article.
Tools. The Global Impact Investment Network (GIIN) mapped IRIS, a catalog of broadly accepted performance metrics that impact investors use, to SDG indicators. IRIS metrics assess transactions’ social, environmental and financial success. The UN Global Reporting Initiative (GRI), which manages the other set of broadly accepted impact investment metrics, and the World Business Council for Sustainable Development partnered to launch the SDG Compass, which helps investors and companies identify their value chains’ and operations’ contributions to the SDGs. By helping investors understand how company activities promote the SDGs, such tools could facilitate investors construct SDG-aligned portfolios.
Tools in the design phase include the World Benchmarking Alliance’s efforts to establish benchmarks that compare the most influential companies’ performance on the SDGs. The first batch of benchmarks are expected to be complete in 2020.
Former NatureVest Managing Director Marc Diaz sees significant value in a potential tool that buckets the SDG’s 169 targets and 230 indicators by whether they are investable. Entrepreneurs, data scientists and graduate students, please take note!
Investor Coalitions. Investor collective initiatives pool resources and amplify system-level influence. As the Domini report notes, investor coalitions are proliferating. For example, Climate Action 100+ represents investors with an aggregate $30 trillion in assets under management that committed to engage with the 100 largest corporate greenhouse gas emitters. Such engagement increases investee advancement of the SDGs and facilitates construction of SDG-aligned portfolios.
SDG-Aligned Investment Products
Demand for SDG-aligned investment products outstrips supply. The current landscape runs the gamut from indices of public companies that make a significant contribution to the SDGs to hybrid commercial and concessional investment vehicles that target multilateral development bank pipelines. Please note that nothing in this article should be construed as investment advice.
On the mainstream public equity end of the spectrum, BNP Paribas offers a share index that provides private and institutional investors with exposure to companies that further the SDGs.
Pivoting toward deeper impact, UBS launched an index of multilateral development bank bonds and supported the development of Align 17, a private digital marketplace that presents impact investments based on the SDG framework to private investors. Created by multiple sovereign governments, multilateral development banks issue bonds in the international capital markets and use the proceeds to finance projects with positive social and economic impact in developing countries. As one might expect, development bank projects advance the SDGs.
Blended finance. Blended finance is the strategic use of development finance to share risks or reduce costs to enhance private investor returns. Such enhancement attracts private capital to SDG investments, which can drive both commercial replication and flourishing local markets. According to a recent IFC report, because of the SDGs, blended finance is attracting substantial interest, and substantially more funding for blended finance has become available. To illustrate, blended finance platform Convergence has catalyzed $327 million toward the SDGs. In addition, this week at Fordham’s first impact investing conference, United Nations Capital Development Fund (“UNCDF”) and boutique impact investment firm Bamboo Capital Partners announced their partnership on blended finance investment vehicle to fund UNCDF’s investment pipeline in the poorest 47 nations globally.