Aligning Sustainable Development Goals With Investment Objectives: the Next ESG Challenge

S&P Dow Jones Indices
Written By: Martina Macpherson, Daniel Ung, Eric Zwickel and Dmitri Sedov
S&P Dow Jones Indices
Written By: Martina Macpherson, Daniel Ung, Eric Zwickel and Dmitri Sedov

The Sustainable Development Goals (SDGs) are 17 social, environmental, and economic goals that frame the global agenda for sustainable development. The aim is for all countries to achieve the goals and their targets by 2030.

They were adopted by the international community in September 2015 and cover a diverse range of issues including gender equality, sustainable cities, access to clean water, decent work and economic growth, and good governance.

The SDGs’ focus is broader than the preceding Millennium Development Goals (MDGs), as the MDGs were largely determined by OECD countries and international donor agencies. In contrast, the SDGs have been produced by detailed international negotiations that have involved high-, middle-, and low-income countries.

Progress toward the MDGs also varied sharply along two key dimensions: the rural-urban divide and demographic features. People living in cities saw far more development progress than those in rural areas, reflecting the importance of scaling economies in urban centers and the challenges of providing services in more sparsely populated rural localities.

Moreover, the SDGs are universal—they apply to all countries and actors, and they recognize that businesses and investors must play a pivotal role in their achievement. Major agreements reached in Addis Ababa in 2015 and the Paris Agreement in 2016 further strengthen the SDG framework.

The Sustainable Development Goals are the greatest growth opportunity in a generation.

Paul Polman, CEO, Unilever (2016)

Exhibit 1: Use Cases for the MDGs Versus the SDGs

Mainly for developing countries Universal - for all countries
8 siloed goals for development 17 goals, 19 targets, integrating 3 dimensions of sustainable development
From U.N. Secretariat Negotiated by member states with stronger country ownership
Means of Implementation (MoI) monitoring and follow-up not defined in advance MoI intergovernmentally negotiated, global architecture and monitoring system being shaped

Source:S&P Dow Jones Indices LLC. Data as of 2017. Table is provided for illustrative purposes.

The U.N. estimates the annual cost to meet the SDGs globally to be between USD 5 and 7 trillion for the next 12-15 years and that actual funding is estimated to fall short of that—leaving an annual funding gap of USD 2.5 trillion. Hence, it is up to market participants to fill this funding gap. Progress has been made, with the SDGs being adopted as a new framework and language that investors, corporates, policy makers, and others can use to communicate about and report on impact.

Meanwhile, the upside potential for businesses across initiatives around “food and agriculture, cities, energy and materials, and health and well-being” is enormous—with the potential for USD 12 trillion in revenues and savings alone, according to a recent report by the Business Commission (2017).

Through the alignment of goals, the international, corporate, and financial communities finally grasp that all is connected—but exactly how is everything connected in the context of the SDGs? What role can mega trends and risks play in providing a broader perspective on interconnectedness? Also, which connections are material and provide investable options?

In this article, we explore the role of the SDGs across the investment value chain and aim to address some of these questions.

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