Sustainable development goals, or SDGs, must be deployed in a practical way if they are to contribute meaningfully to a decarbonised economy and generate investment returns, experts say. 

A panel at Investment Magazine’s Fiduciary Investors Symposium agreed climate change is already having a material impact on investment returns, and that there is widespread work done on integrating SDGs into company charters. 

But given some goals are more material from an investment point of view, and some were designed for governments, there is a risk these ‘sustainable frameworks’ only offer superficial incentive for company change.

“There is a danger if investors try to tackle all the goals at once,” Christopher Greenwald, head of sustainable and impact investing research at UBS Asset Management, said. 

“There are many benefits of going in deep on a few SDGs to address them fundamentally, and developing metrics to assess whether companies are changing their programs, but it’s important we are aware that some SDGs are relatively more or less material.” Watch a brief excerpt of the interview below.

 

Nick Grant, head of asset management, infrastructure investments at First Sentier Investors, agreed, adding topline frameworks often skim over the detail of how the goals are achieved. 

“It’s dangerous when SDGs become an end in themselves because investors just tick the box and move on,” he said.
“Counting the number of policies you have is meaningless, we need to focus on outputs and changing the behaviour in portfolio companies.”

Looking at a company’s behaviour from the board level is a trap investors often fall into, where large decisions sound positive but don’t take into account how they are put into action, said Grant.

“When you ignore the millions of smaller decisions that must be made on the front line, your well-meaning policy might not work in the real world and the whole goal is then compromised and you get nowhere,” he said. 

Metrics to measure the performance of sustainable goals have improved in the last ten years, said Greenwald. 

From companies disclosing their own carbon footprint to human capital performance, there is now a growing focus on finding the real impact of the products and services themselves on society. 

“The opportunity to see the holistic picture of the net impact by companies is a key thing for investors,” Greenwald said. 

“That said, companies often complain they get different types of data requests from different investors, so we need to consolidate that.” 

The enormous growth of passive investment strategies have often flown under the radar when it comes to sustainable investing, given their automated rebalancing mechanisms, but the panel agreed this is a misconception.

“A lot can be done when passive strategies are overweight companies that are on the glide path towards the Paris Agreement,” said Greenwald. 

“It’s just as powerful, if not more powerful with passive strategies, when investors bring assets together that meet expectations for positive change.”

Grant said sustainable development goals can only be achieved through clear, simple minimum standards that are non-negotiable. 

“You need to focus your actions, set those minimum standards, and make sure you encourage front line engagement,” he said. 

“It’s much better to have less policies that are communicated clearly in language everyone can understand.” 

When it comes to measuring performance towards those goals, Grant said investors with the power to move the needle on a company’s behaviour must stay practical about what a business is achieving or changing.

“We measure against historical performance,” he said. “Don’t try to compare to anything other than genuine improvements in the business.

“There’s a difference between setting a long term goal with a plan and getting caught up in management gobbledigook,” he said. 

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