The UN Sustainable Development Goals (commonly abbreviated to the UN SDGs or just SDGs) were developed as an ambitious blueprint for achieving peace and prosperity for all nations while also protecting the planet. At the heart of the framework is addressing global environmental and social challenges to achieve a more sustainable future for everyone.
How did the UN SDGs come about?
The SDGs are the key focus of the UN’s 2030 Agenda for Sustainable Development, which was adopted by members in 2015. The SDGs are deliberately interconnected – ending poverty, protecting the environment, and spurring economic growth must go hand-in-hand to future-proof the Earth. Each goal has a number of sub-targets that needs to be achieved by 2030. There are a total of 174 targets.
The United Nations Development Programme (UNDP), an agency of the UN, works in 170 countries focusing on the complex systems and root causes of issues to build high-level solutions on a national and international level. The SDGs however, were designed to be used by anyone – companies and investors alike – as guidance for a more sustainable future. Businesses can align themselves by identifying which goals are most relevant to their operations, as well as improving their reporting and monitoring of their contribution. Investors can use them as guides to identify and evaluate companies that are future-proofing and contributing meaningfully to that future, thus putting them in a position of competitive strength. Finally, policymakers can use them as an overarching goal when drafting and implementing policies and regulation.
What are the SDGs?
The SDGs are a mix of environmental, social and governance goals. The goals are:
- No poverty
- Zero hunger
- Good health and well-being
- Quality education
- Gender equality
- Clean water and sanitation
- Affordable and clean energy
- Decent work and economic growth
- Industry, innovation and infrastructure
- Reduced inequality
- Sustainable cities and communities
- Responsible consumption and production
- Climate action
- Life below water
- Life on land
- Peace and justice strong institutions
- Partnerships to achieve the goal
ESG (Environmental, Social & Governance) is a familiar abbreviation to those working in finance and investment. Since 2006, the growth of assets managed by PRI signatories (Those agreeing to invest under the UN’s Principles for Responsible Investment) has gone from $6.5 trillion to $103.4 trillion in 2020*. What was once a niche investment style is now widespread practice, sparking many new ESG-focused funds coming to market. Existing funds now commonly implement ESG scoring and monitoring into their investment process, regardless of their mandate.
Part of this incredible growth is due to a shift in responsibility. What was once perceived as exclusively a governmental or supranational duty now has a large and varied base of stakeholders. The SDG framework includes asset owners, businesses and all kinds of investors as part of those stakeholders who now have an increased role in advancing sustainable economic development.
Below are some of the ways that investors can use the SDGs as a tool when evaluating funds, companies, and portfolios.
*About the PRI, UNPRI.org, [accessed 19 July 2022]
It’s unlikely a company can tackle all 17 SDGs as part of its business model. However, there are almost certainly multiple goals that a company can address either by:
- Actively contributing to a goal as part of its operations – for example, an electricity utility company can make shifting entirely to renewable energy sources part of its long-term strategy (SDG 7), or a drinks manufacturer can commit to using recycled plastic (SDG 12)
- Shifting its business away from detrimental activities. Equally important to the above is businesses and economies becoming less reliant on socially harmful or environmentally damaging practices. An example is oil and gas companies reducing their reliance on fossil fuels by investing more in their renewable energy portfolios
Some companies, such as French food manufacturer Danone, already have active and engaged policies and reporting in place to monitor their SDG contributions and impact**. This includes monitoring environmental and social performance alongside financial performance in annual reports, using measurable targets that allows investors to observe progress.
Not all companies currently provide such information, but the recommendations from the Taskforce for Climate-related Financial Disclosures (TCFDs) are being adopted as an international disclosure framework by many governments (and it's now mandatory for many companies in the UK), and it is still useful for an investor to evaluate companies within the context of the SDGs even where information is lacking.
The SDGs are not just a nice thing to have for corporate responsibility, but also a template of what 150+ nations are intending the future to look like. Is a business’ operations resilient within the SDG framework? Can this company continue or improve its growth projections in a sustainable way? Will this company still have, gain, or lose a competitive edge versus its peers? As 2030 grows closer, policymakers will accelerate the implementation of regulation and policies that support the UN SDGs, so it’s important for companies to at least address future-proofing, if not actively contribute to the UN SDGs.
**Impact, Commitments, Policies & Positions papers, Danone.com, [accessed 19 July 2022]
Engagement with the SDGs
As stakeholders, investors can use the SDGs as a basis for engagement with companies. Where investors are trying to engage on a specific issue, the 17 SDGs can provide:
- An easily communicated overarching goal e.g. how a company’s internal policies incorporate SDG 5, gender equality, and SDG 10, reduced inequalities
- Specifically tailored and targeted suggestions and goals for a company to address. An example could be asking how food producers that rely on beef and cattle rearing address target SDG 15.2, under ‘Life on Land’, in promoting the sustainable management of all types of forests and halt deforestation. Do they engage with suppliers that use deforested land for cattle rearing? Do they only do business with suppliers who have sustainable cattle practices? Do they have supply chain auditors in place to regularly monitor suppliers?
The ambition of the SDGs and their sub-targets can be overwhelming to both companies and investors, especially with increasing amounts of data being both made available and demanded. However, they can be useful in identifying a particular cause of concern or weakness in a company’s operations and positively engaging with the company over it. There are also a number of investor initiatives that allow investors to collaborate with each other, raise awareness or learn about potential issues that merit engagement – e.g. Climate Action 100+.
A company’s response to this kind of engagement is significant in itself. Some may have very good reasons why they have been unable to measure a particular impact, or implement a particular strategy, that may be indicative of problems that need policymakers or governments to address. However, some companies may resist engagement and change without sufficient reason, or reason at all. Investors in these cases must monitor the situation carefully and evaluate their investment case in a scenario where engagement has no impact.
How effective are the UN SDGs?
Concretely measuring the global impact the SDGs have had since their adoption in 2015 is a nebulous and improbably difficult task, and it has to be based on more than just a company’s own disclosure to be robust. However, in the seven years they have existed they have provided a common language for businesses, investors and policymakers, as well as unifying goals to achieve. They stress the importance of all stakeholders working together to a 2030 sustainable future. They highlight the significance of the challenges that need to be actively addressed. Most importantly, they provide clear guidance on where we need to go from here and thus where to look for new investment opportunities.
For investors, evaluating companies within an SDG framework helps affirm whether a company is operationally and financially aligned to address specific SDG targets and achieve a positive impact. It is also useful to use the SDGs alongside scientifically based and measurable goals to ensure progress is actually made (a percentage reduction in water usage in an audited annual report is more material progress than ‘we plan to consume less water in the future’ in a press statement). Policymakers will continue to implement rules and regulation around a sustainable future, so the SDGs provide metrics by which investors can evaluate whether companies can adapt and thrive, or get left behind.
This article is solely for information purposes and is not intended to be and should not be construed as investment advice. Whilst considerable care has been taken to ensure the information contained within this article is accurate and up to date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information. The opinions expressed are made in good faith but are subject to change without notice.
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