Managers must deliver and measure impact aligned to UN Sustainability Development Goals, says Aberdeen Standard Investments.
Increased public awareness of the world’s most urgent social and environmental risks has upped the pressure on asset managers to align their fund solutions with the United Nations Sustainable Development Goals (SDGs), according to Sarah Norris, Investment Director at Aberdeen Standard Investments (£535 billion AUM). Norris shared her insights as part of a panel discussion at The Ethical Finance Summit 2021 today.
First published in 2016, the UN’s SDGs cover the most prevalent global sustainability issues and are increasingly used as a reference point for ESG-related impacts by investors, managers and investee companies.
“Because of the growing urgency, there’s an increased agitation from consumers and an increased political will from our regulators for investors and corporates to deliver targets and investments in line with the SDGs, which I call the ‘David Attenborough Effect’,” Norris said. “Asset managers should be focusing on investments that deliver according to the SDGs.”
David Attenborough’s natural history documentaries have been widely credited with raising the profile of the negative impacts of pollution and climate change on the natural world.
ASI has categorised the 17 SDGs into eight key impact investing themes, including the circular economy, education and employment, water and sanitation, and sustainable energy. If a corporate is aligned with one of these themes, they are therefore aligned with more than one specific SDG goal, Norris said.
“We’re investing in corporates that fit into one of our eight SDG-aligned themes. To qualify, these companies should also be investing in products and services that are going to drive a measurable impact across a number of SDGs and tap into unmet need and unmet demand,” she explained.
Typically, these corporates must be able to demonstrate that a minimum of 20% of their revenue, capital or operating expenditure is linked to fulfilling the UN SDGs.
By being more focused on impact, rather than investing in specific green projects, this strategy allows ASI a wider spectrum of investment opportunities across listed and unlisted equities.
Norris added that there’s a strong business case for “allocating capital towards sustainability priority areas without risking financial returns”.
“ASI has seen a 12% annual increase in capital allocated to impact strategies and a 33% increase in equity strategies,” Norris said.
However, there is still a way to go before all ESG-related investments and products are contributing to the SDGs, she acknowledged.
The complexity of matching companies and investments to SDGs and their underlying targets, there is little market consensus on methodologies. In January 2021, the Global Reporting Initiative (GRI) updated its guidelines for corporates to align their sustainability disclosures with the UN’s SDGs. The ‘Linking the SDGs and the GRI Standards’ report also provides investors with insight into the current status of SDG targets within corporate reporting.
Furthermore, the ESG Observatory platform identified that only 207 of 549 ESG-labelled ETFs are aligned with any one of the SDGs. The platform was launched by research firm TrackInsight, with the backing of the United Nations Conference on Trade and Development (UNCTAD).
“One of the key ways we’ll achieve worldwide SDG-alignment is through buy-in from every actor in society. We can’t just wait for regulators and we can’t just rely on NGOs. This is something that must transcend every level of society. Everyone has a role to play, whether it’s a corporate, the public, an individual, investor or development bank,” Norris said.