Since their adoption, the 17 Sustainable Development Goals (SDGs) have been a mixed bag with a long list of lessons learned by United Nations member states and private market investors alike.
The 17 SDGs present an opportunity to invest in the sustainable future of people and the planet. The opportunities cover a wide array of areas such as infrastructure, housing, food and medicine, renewable energy, providing finance and insurance to those that need it, and finding means to cut waste. One estimate 2 suggests that the SDGs present market opportunities of as much as USD 12 trillion per year.
They also provide a means of identifying and then mitigating risks. For example, businesses and investors who fail to recognize the implications of the transition to a lower-carbon economy face the risk of a business rendered unviable by changing consumer demand or regulation.
Robeco was one of the first asset managers to formally develop an investment framework focused on the SDGs. Offering a solid and measurable sustainability profile, together with a three-year track record, the SDG Credit strategies have attracted significant interest since being launched in May 2018.
Commenting on the humble beginnings and significant growth, Robeco says it has “seen that the universal nature and relevance of the SDGs, and their detailed outlining of the world’s most urgent sustainable development issues in a concrete set of goals with underlying targets, make them a useful blueprint for sustainable investing.”
The SDGs they suggest “enable investors to clearly show how they allocate clients’ capital to companies that provide solutions to sustainability challenges.”
So, what have investors learned since the launch of the SDGs amid broadening acceptance of the individual goals as reporting tools?
The SDGs have spurred some progress according to Robeco, with examples being an increased number of women elected to parliaments, a higher share of energy consumption being sourced from renewables and more of the world’s oceans now being legally protected. Yet at the same time, the challenges are – unfortunately – alarming.
Reports on the first phase of the SDG agenda (2015–2020) show unequivocally that progress towards achieving the SDGs has been slow in all parts of the world. Meanwhile, the Covid-19 pandemic is an unparalleled health challenge with dire economic consequences.
The process of investing is about providing capital to a company. The key difference with sustainable investing is that it “requires an assessment of the impact of the capital invested”. This isn’t always easy. The team at Robeco seek to look further beyond basic measures to assess whether our investments improve lives and promote environmental sustainability.
For example, they found that the carbon footprint for each EUR 100 million invested in the Robeco Global SDG Credit strategy is significantly lower than the carbon footprint of a similar-sized investment in the Bloomberg Barclays Global Aggregate Corporate Bond Index. In fact, we estimated this difference to be equivalent to the annual CO2 emissions produced by 1,513 cars.
Robeco says that, “In order to integrate SDGs into investment strategies, one needs to know what impact companies have on the SDGs. The Robeco SDG framework provides an objective, consistent and replicable approach to assessing positive and negative SDG contributions in an investment portfolio.”
In Australia, Robeco currently offers a global credit solution that applies the Robeco SDG investment framework: Robeco SDG Credit Income strategy. Only bonds with an SDG score of zero (neutral) or higher are eligible for inclusion in the portfolio; the strategy does not invest in companies that detract from these goals. As such, the strategy is designed to make a clear contribution to the SDGs while also aiming to optimize yield and income.