Despite good words and intentions, corporate and government support for the UN’s Sustainable Development Goals is falling behind.
- The flow of capital and tangible action needed to deliver on the United Nations’ (UN) Sustainable Development Goals (SDGs) has fallen well below target.
- The UN estimates that the successful delivery of the SDGs could ultimately add US$12 trillion to the global economy, alongside 380 million new jobs.
- The latest report from the World Business Council for Sustainable Development reveals that while 84% of member companies referenced specific goals in their sustainability reports, only 15% had aligned their business strategy to specific target-level SDG criteria
- The money currently raised for SDG delivery goes largely to existing activities or entities, rather than bringing together new entities designed to deal with a specific issue.
Despite the near ubiquitous presence of the United Nations’ (UN) Sustainable Development Goals (SDGs) in the latest investment and corporate reports, the flow of capital and tangible action needed to deliver on them is behind target, with an estimated US$5 to 7 trillion of annual expenditure needed if pledges are to be fulfilled.
Our view is that the SDGs clearly make enormous economic sense, with the UN estimating that their successful delivery could ultimately add US$12 trillion to the global economy, alongside 380 million new jobs. In a world beset by the challenge of recovering from the Covid-19 crisis, this would represent a much welcome growth opportunity.
Action Not Words
Increasing enthusiasm for sustainable investment has led to a greater awareness of the role of the SDGs in potentially identifying exciting new areas for growth and mitigating risk, as well as opportunities for corporate engagement. While the SDGs have captured the imagination of many in the investment and corporate worlds, actions have often belied good words.
For us, achieving a sustainable future is as much about minimizing harm as it is about delivering solutions. Investors keen to burnish their sustainability credentials have often been too ready to use the SDGs as a convenient label that focuses on existing activities, and only then on positive associations. The same charge can be levelled at companies that rarely get beyond the headline goal in the relevant SDG. A simple test to see if many of these references are simply a case of ‘SDG washing’ is to see if there is any mention of the 169 underlying SDG targets – the granular opportunities backed by research – or the 231 unique key performance indicators used to guide measurement of whether the better outcome has been delivered.
The latest report by the World Business Council for Sustainable Development illustrated the inconsistency across the corporate world when reporting on SDGs. While 84% of member companies referenced specific goals in their sustainability reports, only 15% had aligned their business strategy to specific target-level SDG criteria, and only 6% used the key performance indicators for measurement purposes. More concerning was that only 1 to 2% made reference to human rights in relation to the goals. This goes to show the extent to which the SDGs are used as a communicative tool rather than as a broader framework to support capital-allocation decisions.
Cementing Public and Private Sectors
In our view, using the SDGs as a simple mapping exercise renders them no more than a simple relabeling tool, replacing existing index or sector classifications. However, used well, the SDGs can selectively identify the areas of social and environmental deficit that investors and companies can address. The UN is aware that despite the growing adornment in reports making reference to the SDGs, more urgent action is needed over the next decade as we recover from the Covid-19 crisis. Partnership is a key element of the SDGs and, for the first time in living memory, we have an opportunity to cement an alliance between public and private sectors to mobilize capital given that reservations over government intervention in the economy appear to have been swept aside for now.
The UN Conference on Trade and Development (UNCTAD) set out six policy packages to help address the shortfall in sustainable finance that will only be exacerbated by the pandemic. In a world awash with liquidity, but short of attractively priced risk assets, this represents an opportunity for the financial sector to work in partnership with civil society to find innovative solutions to tackle some of the major issues in the global system.
Avoiding Past Mistakes
One mistake of the past has been to assume that the launch of a strategy aligned to delivering on the SDGs or ‘impact’ is what is needed to tackle an area of deficit. As we have discovered through the shortfall in funding the goals, the money currently raised goes largely instead to existing activities or entities, without delivering additional funding.
Our view is that a better approach is to acknowledge these global challenges that the SDGs seek to address, to develop solutions to them, and, subsequently, determine how these solutions can be funded. Once that is done, there will be investors – public or private or a combination – who can buy the instruments to support the delivery of the solution to a particular problem. The best impact strategies work on this basis, often in partnership with communities, local government or not-for-profit organizations.
Newton manages a variety of investment strategies. How ESG considerations are assessed or integrated into Newton’s strategies depends on the asset classes and/or the particular strategy involved. ESG may not be considered for each individual investment and, where ESG is considered, other attributes of an investment may outweigh ESG considerations when making investment decisions. ESG considerations do not form part of the research process for Newton's small cap and multi-asset solutions strategies.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that strategy holdings and positioning are subject to change without notice.
This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Newton Investment Management Limited is authorized and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. 'Newton' and/or 'Newton Investment Management' brand refers to Newton Investment Management Limited. Newton is registered in England No. 01371973. VAT registration number GB: 577 7181 95. Newton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.
Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including Newton and (iv) representatives of Newton Americas, a Division of BNY Mellon Securities Corporation, U.S. Distributor of Newton Investment Management Limited.
Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2020 The Bank of New York Company, Inc. All rights reserved.
In Canada, Newton Investment Management Limited is availing itself of the International Adviser Exemption (IAE) in the following Provinces: Alberta, British Columbia, Ontario and Quebec and the foreign commodity trading advisor exemption in Ontario. The IAE is in compliance with National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations.