The United Nations-supported Principles for Responsible Investment (PRI) has published a new report on investing with Sustainable Development Goals (SDGs), providing its signatories - investors that collectively have US$100 trillion in assets under management - with a new high-level framework of investor actions to shape outcomes in line with the SDGs.
The release of the framework marks another step in the march of environmental, social and governance (ESG)-conscious investing within the global asset management community and an ever-rising level of rigorous investment discipline calibrated to specific long-term goals. ESG ratings and their increased use alongside traditional credit ratings are part of this dynamic; aligning investment behaviour with the SDGs represents another.
The PRI report details the dynamics by which investors’ actions produce both positive and negative outcomes in relation to pressing global issues such as environmental degradation, human rights abuses, climate change, social inequality, and water security.
The report argues that investors should look beyond financially material ESG issues and consider tackling societal and environmental issues at a systemic level as part of their investment strategies, and wider collaborative actions as part of the global effort to achieve the SDGs by 2030.
“Even before the incredible market shocks precipitated by the Covid-19 pandemic, the investment world had been committing to actionable steps to achieve the Sustainable Development Goals,” says PRI CEO Fiona Reynolds.
“With the release of this report, the PRI will continue to support its signatories to create mutually beneficial outcomes for their investors and key stakeholders, and [it] marks a step forward in moving investors towards greater accountability to the SDGs.”
This new framework from the PRI highlights key levers that investors can use, including investment decisions, investee stewardship and engagement with key stakeholders, to shape outcomes in line with the SDGs and the critical role of collective action.
“It is clear that large asset managers have a crucial role to play in supporting outcomes in line with the SDGs through both investment in equities and engagement with publicly listed companies. Whilst we recognize the difficulties associated with pursuing impact through public investing for certain SDGs targets, large public companies are among the most important stakeholders for achieving success,” says Junko Nakagawa, President & CEO at Nomura Asset Management, a PRI signatory.
“These companies have the resources, scale and investment power to bridge the huge funding gaps, while major asset managers are uniquely positioned to engage with these companies and help to enhance their impact. Nomura Asset Management is committed to finding solutions that maximize our contribution to outcomes in line with the SDGs.”
A rising focus on the SDGs among asset managers is borne out by the numbers: the report details a spike in the total number of PRI signatories that have mentioned SDGs in their reporting to the PRI, with 31% of signatories (650) now mentioning the SDGs in 2020, up from 24% last year and 16% in 2018.
The report provides case studies of PRI signatories who seek to provide outcomes in line with the SDGs. For example, investment manager Actis in the United Kingdom has developed in-house tools to identify, measure and monitor the positive social and environmental outcomes of their investments.
And UK-based Aviva Investors applies an ESG-balanced scorecard approach to analyze proposed real asset transactions, complemented by an impact overlay to consider a project’s potential contribution to the SDGs.
The PRI will officially update its reporting framework in January 2021 to include initial questions about policies on shaping real-world outcomes and processes used for identifying outcomes related to the SDGs. The next step for the PRI will include working with those signatories that are seeking to shape outcomes in line with the SDGs to support the sharing of best practices and to develop consensus on how to address common challenges.
“As long-term investors, we believe infrastructure – and real assets more broadly – has a critical role to play in moving towards a truly sustainable future. As such, the UN’s Sustainability Development Goals are an essential layer of our investment framework in assessing whether an asset will have a positive environmental and social impact,” says Darryl Murphy, managing director, infrastructure, at Aviva Investors, a PRI signatory.
“They help us to define objectives for a project, and shape terms and conditions of an investment agreement, ensuring that borrowers adhere to certain practices and standards over the long-term. Whilst infrastructure development is itself one of the 17 SDGs, almost half of all SDGs will not be met without infrastructure playing a critical role. As investors in the asset class, we feel it’s critical to be fully-aligned with them and to use them as a point of reference to determine how our investments contribute to outcomes that are consistent with those goals.”
“We welcome the Investing with SDG Outcomes paper and hope that it will both inspire and contribute to a more comprehensive dialogue about the SDGs and on human rights issues in the finance industry,” says Eva Halvarsson, CEO of AP2, also a PRI signatory.
“In the report, you may read about AP2’s work on assessing human rights risks and the challenges we encountered. By sharing insights and providing tools, the paper becomes a handy framework for investors looking to address SDG issues.”