3 Reasons Why the SDG's are Important for Institutional Investors
Recently there have been a number of articles highlighting the growing need to get investors on board to help achieve the UN Sustainable Development Goals by 2030.
But to do so, investors will want to know how contributing to the SDGs will help them fulfil their clients’ expectations about risk-adjusted returns. They want to know how the SDG’s are relevant to their investment strategy, asset allocation and active ownership? I have listed below three compelling reasons why the SDG’s are important to institutional investors:
1. The SDG’s are a Globally Agreed Sustainability Framework
The SDGs were adopted by all United Nations Member States in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. They are a blueprint of the world’s most pressing sustainability issues and, as such, act as a globally agreed sustainability framework.
Furthermore, by providing a common language and set of targets, they allow for better comparison between countries and industries, resulting in a more meaningful conversation when communicating the positive impact of a particular investment portfolio.
2. The SDGs will drive global economic growth
Achieving the SDGs is a key driver of global economic growth. According to the Better Business Better World report companies have the potential to unlock at least $12 trillion in market opportunities by 2030 and create up to 380 million jobs by implementing a few key development goals. Furthermore, the World Bank has estimated that it will take about $4tn of annual investment to create the infrastructure needed to achieve the goals.
By some estimates, though, governments are only able to account for approx 65 percent of the SDG-funding. This leaves a gap which will have to be funded by the private sector.
It has been suggested that this is where a massive opportunity exists for the trillions of dollars sitting in pension funds, insurance groups, endowments and family offices to back investment projects that both produce returns and support the SDGs.
Larry Fink, CEO of Blackrock, predicts that the volume of exchange traded funds with a social and environmental mission will explode from $25bn currently to $400bn in a few years.
3. The SDGs as a capital allocation guide
In the last 10 years, responsible investment has evolved from being a primarily exclusionary approach to one focused on identifying companies who are making a positive social or environmental impact.
If investors consider that providing solutions to sustainability challenges can offer attractive investment opportunities, they can implement investment strategies that explicitly target SDG themes and sectors. Opportunities are available in most asset classes, for example: clean technology stocks in listed equity, private equity and venture capital; low-carbon infrastructure; green bonds; green real estate, sustainable forestry and agriculture.
In many cases, investors are implicitly taking these factors into account already, but not articulating it: the SDGs give a common language with which to shape and articulate such an investment strategy. There are some great tools currently available that can help to demonstrate an investment’s SDG contribution. Contact me for more information.