Despite data gaps, existing tools and frameworks can support impact, says EDM Council.
A new report has outlined near-term guidance for asset owners struggling to find “consistent and meaningful ways” of measuring the contribution of their investments to the UN Sustainable Development Goals (SDGs).
Published by the EDM Council ESG working group, the report outlined 15 ESG-related data obstacles and their recommendations to help asset owners overcome them and improve their overall ESG data management capabilities.
As there is no common taxonomy to aid the measurement of the real-world impacts of investments geared towards contributing to the UN SDGs, asset owners are struggling to source reliable, accurate and standardised data to determine their degree of alignment, the report said.
“The UN SDGs are a usefully broad and globalised system outlining the key sustainability challenges we all face, and therefore most efforts to improve the sustainability of the world we live in should be somewhat aligned with these targets – but this isn’t easy for investors,” Charles de Segundo, Partner at advisory firm Impact Delta and one of the authors of the report, told ESG Investor.
This is because the SDGs are “guiding concepts” but are not designed to be investment factors, “or at least not yet”, the report noted.
To achieve the SDGs by 2030, between US$5-US$7 trillion of investment is needed a year, according to the World Bank.
The EDM Council is a global association working to promote data management as a business and operational priority, advocating for the development and implementation of data standards, best practices and training programmes.
Wrestling with the SDGs
The challenge of SDG-related measurement and reporting is rising due to the increasing number of asset owners looking to drive real-world impact through their investments.
In 2021, 85% of 440 assessed impact investors said their impact investment strategies focus on SDG-alignment, according to a Global Impact Investing Network (GIIN) report.
But SDG-aligned methodologies that have been implemented by asset owners are diverse, with some choosing to be revenue-based while others are sentiment-based, the EDM Council working group said.
It advised asset owners to collaborate with one another to establish best practice and develop more consistent methodologies.
Further, in the absence of a globally recognised SDG taxonomy, the report noted that asset owners should turn to existing SDG-alignment guidance.
There are a number of “existing tools and frameworks” asset owners can use to begin assessing their degree of alignment and impact, said Eric Bigelsen, Global Head of Industry Engagement at EDM Council.
The five-part SDG-alignment framework published by the UN-convened Principles for Responsible Investment outlines how asset owners can identify and shape outcomes, set policies and targets and collaborate with other global stakeholders to increase contributions to the SDGs.
To improve the quality of disclosures from investee companies, asset owners can also encourage companies to report on their degree of alignment with relevant SDGs, using frameworks such as the Global Reporting Initiative’s (GRI) three-step practical guide.
GRI published a 2020-21 study which analysed 200 companies’ approaches to SDGs. It found that, while four in five firms committed to the SDGs within their sustainability reports, less than half had set measurable targets that would sufficiently indicate to asset owners how their actions are contributing to the goals.
Efforts have been made to introduce a global set of standards to support finance flows to support SDGs. In September 2020, the World Economic Forum collaborated with the Bank of America and the Big Four accountancy firms to launch a series of “universal” ESG metrics, disclosures and existing standards that can be used to determine the degree of SDG-alignment and ensure a “coherent and comprehensive global reporting system”.
The Impact Taskforce has also called for the Group of 7 nations to lead multilateral efforts to improve the transparency and consistency of investment disclosures and mandate impact accounting to support the flow of private capital needed to achieve both the SDGs and the goals of the Paris Agreement.
“The SDGs undoubtedly have the potential to become a source of common language for policymakers, regulators, members of the public, NGOs, companies and asset owners,” said de Segundo.
The report also outlined recommendations for overcoming other ESG data challenges facing asset owners. These issues include struggling to meet the data demands of multiple emerging sustainability standards, incorporating ESG data into risk and performance calculation systems, and overcoming a lack of historical ESG-related data.
There are other frameworks and initiatives asset owners can use to measure the impact of their SDG-aligned investments.
GIIN’s COMPASS methodology gives practical examples of how investors can measure their SDG-aligned impact.
Further, the Sustainable Development Investments (SDI) platform is run by asset owners. It is powered by AI-driven technology and analyses 8,000 companies globally on their existing contributions to the SDGs, further identifying which SDGs are sufficiently covered by the asset owner’s portfolios. Asset owners involved include PGGM, APG and AustralianSuper.
The UN has also published an SDGs Impact Standards framework for listed equities, private equity funds, bonds and enterprises, outlining best practice and self-assessment tools to help align internal processes and practices with contributions to the global goals.