SDGs not a silver bullet: Schroders
March 9, 2018

Sustainable development goals (SDGs) set by the United Nations (UN) are not a silver bullet for long-term investors. This is one of the points made by Andrew Howard, Head of Sustainable Research, and Seema Suchak, Sustainable Investment Analyst, at investment house Schroders.

While SDGs have captured the finance industry's attention, they say that they think it is important that investors recognise the challenges in applying them to investment analysis. 

"The UN Sustainable Development Goals (SDGs) represent a comprehensive agenda for addressing the world's societal challenges. The 17 goals, developed by an Open Working Group of governments, academics and civil society members, were adopted by the UN General Assembly in 2014, giving them a prominent position in the global development agenda albeit without binding international or national commitments to adopt them. 

"The goals reflect the biggest challenges facing global societies, environments and economies today. If realised they will radically alter the shape of the planet in 2030 by helping to end poverty, build peaceful, just societies and enable sustainable resource use.

"Although the goals are aimed more at policy makers than investors or companies, the private sector has responded enthusiastically. Large institutional asset owners have already made commitments, with the two largest Dutch pension funds targeting EUR 80 billion in SDG investments by 2020. 

"The business case for corporate SDG alignment has also been discussed at length and an analysis of 100 major companies by the UN's Global Sustainability Index Institute found that 82 percent reported some commitment to the SDGs in 2016.

"The SDGs are popular in communication materials, but it is less clear that they influence strategy as much as they provide a lens through which to present it. PwC has looked at references to the goals in corporate sustainability reports, work we have used to identify areas receiving most attention. 

"80 percent of references are to the five most common SDGs, all of which are already established elements of Corporate Social Responsibility (CSR) strategies (Figure 1). We see a similar focus on a few SDGs in investment products which reference the goals.

"The challenge is understandable; the SDGs were not designed to provide the basis of an investment process or corporate strategy. Of the 17 goals, the UN has designed 169 indicators to measure progress. 

"Most of these measures are directed at systemic challenges that investors and companies have no direct mechanism to address. We have estimated that only 15-20 percent of the 169 metrics could reasonably be measured at a company level and only 6-8 percent using data currently available

"SDGs were not designed for investors. We are concerned they are being misappropriated and misused. Our own analysis, combined with broader research, suggests several issues. Established CSR activities are being squeezed into ill-fitting SDG categories. 

"Companies tend to report on obvious goals such as ‘economic growth' or ‘climate action' despite the indicators underpinning those goals lacking company-focus or materiality. As our research shows, only a minority can even be reported on by corporates, and the focus on businesses' exposure to and management of broader sustainability issues may suffer as a result."





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Sustainable development goals (SDGs) set by the United Nations (UN) are not a silver bullet for long-term investors. This is one of the points made by Andrew Howard, Head of Sustainable Research, and Seema Suchak, Sustainable Investment Analyst, at investment house Schroders.

While SDGs have captured the finance industry's attention, they say that they think it is important that investors recognise the challenges in applying them to investment analysis. 

"The UN Sustainable Development Goals (SDGs) represent a comprehensive agenda for addressing the world's societal challenges. The 17 goals, developed by an Open Working Group of governments, academics and civil society members, were adopted by the UN General Assembly in 2014, giving them a prominent position in the global development agenda albeit without binding international or national commitments to adopt them. 

"The goals reflect the biggest challenges facing global societies, environments and economies today. If realised they will radically alter the shape of the planet in 2030 by helping to end poverty, build peaceful, just societies and enable sustainable resource use.

"Although the goals are aimed more at policy makers than investors or companies, the private sector has responded enthusiastically. Large institutional asset owners have already made commitments, with the two largest Dutch pension funds targeting EUR 80 billion in SDG investments by 2020. 

"The business case for corporate SDG alignment has also been discussed at length and an analysis of 100 major companies by the UN's Global Sustainability Index Institute found that 82 percent reported some commitment to the SDGs in 2016.

"The SDGs are popular in communication materials, but it is less clear that they influence strategy as much as they provide a lens through which to present it. PwC has looked at references to the goals in corporate sustainability reports, work we have used to identify areas receiving most attention. 

"80 percent of references are to the five most common SDGs, all of which are already established elements of Corporate Social Responsibility (CSR) strategies (Figure 1). We see a similar focus on a few SDGs in investment products which reference the goals.

"The challenge is understandable; the SDGs were not designed to provide the basis of an investment process or corporate strategy. Of the 17 goals, the UN has designed 169 indicators to measure progress. 

"Most of these measures are directed at systemic challenges that investors and companies have no direct mechanism to address. We have estimated that only 15-20 percent of the 169 metrics could reasonably be measured at a company level and only 6-8 percent using data currently available

"SDGs were not designed for investors. We are concerned they are being misappropriated and misused. Our own analysis, combined with broader research, suggests several issues. Established CSR activities are being squeezed into ill-fitting SDG categories. 

"Companies tend to report on obvious goals such as ‘economic growth' or ‘climate action' despite the indicators underpinning those goals lacking company-focus or materiality. As our research shows, only a minority can even be reported on by corporates, and the focus on businesses' exposure to and management of broader sustainability issues may suffer as a result."



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