ESG: A stepping stone to a direct contribution to the SDGs

Feb 8, 2017 | Blogs

Written by Natalia Rajewska

Business has been involved in the development of the UN Sustainable Development Goals (SDGs) from the outset. Indeed, a number of corporates have now announced commitments in line with the SDGs and formed various memberships and coalitions to help achieve the aims. SDG 17 even highlights this need for cross sector partnerships on an unprecedented scale. While there is a general consensus on companies’ critical role in realising the goals, however, their actions often fall short of embedding them into corporate strategy. Most businesses seem to feel more comfortable in mapping them retrospectively to their corporate responsibility practises.

This could be a missed opportunity, as investors themselves increasingly look to incorporate SDGs into their investment decision-making. In its 2017 ESG trends webinar, MSCI noted that Swedish and Dutch pension funds were the first to commit to using SDGs as an investing framework, global investors such as UBS have since followed suit. The ability of asset managers to direct capital towards sectors and companies that contribute to the SDGs offers unique potential to deliver on the far-reaching ambition of the goals.

This momentum keeps growing from corporates and the investment community. Recently, over 630 companies and 100 investors in the US called on the Trump administration and the new Congress to continue supporting policies speeding up the transition towards a low-carbon economy. In the meantime, 18 Dutch financial institutions collectively managing over €2,800 bn in assets have launched the SDG Investing Initiative. Next to their commitment to the SDGs, they recommended that the Dutch government and the Central Bank take steps to accelerate investments on the Goals.

There is still some confusion about how these commitments to channel flows of capital to solve big societal challenges will work in practice. According to ShareAction’s report more than half of surveyed investors worth $5.9trn remain undecided on how to proceed on the SDGs, although, at least 61% of those surveyed intend to integrate the SDGs over the next 15 years. Research further indicates various barriers hindering investors’ ability to contribute to the SDGs achievement.

The most cited barrier is lack of data and insufficient investee company transparency on Environmental, Social, Governance (ESG) performance. This, in turn, leads to what we refer to in our report on demonstrating the value of sustainable business to investors as the ‘Catch 22 of sustainable investing’, where companies and investors are deadlocked. Most companies provide inadequate ESG information for investors to use in their investment decisions, preventing investors from asking targeted questions to help spotlight risks and, ultimately, drive performance.

Effective ESG engagement and strong management can help channel finance to where it’s needed in order to achieve the SDGs. While the SDGs are more comprehensive than ESG issues alone there are still many overlaps, such as climate change, gender equality or water stewardship. Hence, well-managed ESG issues on the corporate side act as a bellwether to investors, who can then link them to broader SDG-investing aims.

Recognising this willingness among both investors and companies, Corporate Citizenship focuses on helping companies and ESG stakeholders overcome the existing ESG barriers.

If you are interested to hear from ESG experts from BlackRock and MSCI on how companies can better engage shareholders on sustainability performance, register here for our exclusive webinar on 23rd February.

This blog was originally posted onto 2degrees.