Half a Chance

The SDGs are way behind schedule, but a September summit offers new hope for public-private sector alignment and progress.   

2023 marks the halfway point in the world’s endeavours to achieve the 17 Sustainable Development Goals (SDGs) – and their underpinning 169 targets – considered pivotal to ensuring a healthy, just and equitable planet. 

They have served as a shared blueprint for state and non-state actors to frame environmental, social and economic development.   

“Failing to achieve this levelling up [i.e. reaching the SDGs] will likely result in the world levelling down, driven by increasing climate impacts, displacement and migration, economic dislocations, and rising security risks,” says Christian Hansmeyer, Head of Research at Force for Good, an impact-driven institution for a sustainable future. 

In September, the UN will convene for the SDG Summit in New York to review progress made over the past seven years and consider new guidance to jump-start accelerated action toward the 2030 Agenda for Sustainable Development 

“The Summit is an opportunity for a reality check for all actors in the equation – governments, financial institutions, corporations, non-profits, academia, and consumers,” says Saumya Mehrotra, Associate Principal of Sustainability Product Management at Qontigo, a provider of risk, analytics and index solutions.  

For investors, the SDGs have helped to hone their sustainable investment strategies, according to Patricia Pina, Head of Innovation and Research at global sustainability technology provider Clarity AI.  

“By aligning with the SDGs, investors ensure that their capital is directed towards impactful, measurable change in regions that need it most,” she tells ESG Investor 

Eighty-five percent of 440 impact investors assessed by the Global Impact Investing Network (GIIN) in 2021 said their impact investment strategies focus on SDG alignment. 

But the impact of private-sector investors is largely only latent. The SDG funding gap is estimated by the Organisation for Economic Cooperation and Development (OECD) at around US$3.7 trillion a year.  

“Everybody talks about the SDG funding gap, which of course is real and growing, but meeting the goals is about more than money,” notes Hansmeyer. While the SDGs are a multi-stakeholder issue, he says, stakeholders’ incentives are not aligned for coordinated action. 

“States pursue geopolitics, the private sector pursues profits, and households pursue increasing consumption,” says Hansmeyer. 

“It’s not clear what it will take for the world to reconsider its priorities, given that the global pandemic, economic turmoil, a war in Europe, and string of natural catastrophes don’t appear to have had an effect yet.” 

One step forward, two steps back 

When evaluating progress made on the SDGs thus far it’s clear the UN will have its work cut out in deciding next steps. 

According to ‘The Sustainable Development Goals Report 2023’, published by the UN in July, of the 140 targets evaluated, half show moderate or severe deviations from their desired trajectories. Further, more than 30% of these targets have experienced no progress or regression below their 2015 baseline.  

Fifty-six percent of countries still lack laws that prohibit direct and indirect discrimination against women, while global temperatures have already reached 1.2°C above pre-industrial levels, increasing the chances of a 1.5°C overshoot by 2050. Around 2.3 billion people (nearly one in three) were moderately or severely food insecure in 2021, the report added.  

Only a third of countries are expected to have halved their national poverty rates by 2030 from 2015 levels, the UN estimated, adding that, if lack of progress on social-related SDGs persists, 575 million people will remain trapped in poverty and 84 million children and young people will miss out on education.  

The report noted that progress on the SDGs in recent years has largely been stalled by a multi-faceted crisis, including the repercussions of the Covid-19 pandemic, Russia’s invasion of Ukraine, and a global increase in natural disasters prompted by climate change.  

While lack of progress is widespread, the world’s poorest and most vulnerable are experiencing the worst effects of these global challenges, the UN said. 

Earlier this year, Adam Elkiraika, Director of the Macroeconomic Policy Division at the UN’s Economic Commission for Africa, warned there has been a regression in SDG-related progress across the continent, such as access to clean and safe drinking water and upscaling manufacturing capabilities. He cited challenges around finance, poor planning, and a lack of commitment to fulfilling the SDGs. 

The UN report did note some progress, however, which illustrates the potential for advancement between now and 2030.  

The share of global population with access to electricity increased from 87% in 2015 to 91% in 2021, the report said; developing countries installed 268 watts per capita of renewable energy-generating capacity in 2021. 

There has also been an increase in access to safely managed drinking water, safely managed sanitation, and basic hygiene between 2015-22, with 687 million, 911 million, and 637 million more people gaining access to these services respectively. 

Nonetheless, progress is not where it needs to be, and the consequences are far-reaching.  

“These issues can lead to financial risks and increased market volatility for investors,” says Mehrotra from Qontigo. 

“Investors may face disruptions in supply chains, increased regulatory pressures, and shifts in consumer preferences, all of which could impact the financial performance of companies and sectors. 

“Failure to achieve these goals could also lead to increased social unrest and political volatility, which in turn could impact investment environments in various regions.” 

She says it is “crucial” for investors to continue to align their investment strategies with these global goals, “even if the deadline is not fully met”.  

Countries in need 

The positive contribution of SDG-aligned impact investments is limited by investors’ fiduciary duty to maintain strong financial returns, says Hansmeyer from Force for Good. 

This has led to most SDG-aligned private investment being deployed in advanced industrialised countries and in areas like clean energy, where there is a clear business case for investment,” he says. 

“A significant portion of total SDG funding need is in countries that exceed private investors’ appetite for financial, political and governance risk and in areas like basic services where the private sector often only has a very limited role to play.” 

Recent research by Clarity AI identified a significant gap between the intentions of SDG-aligned funds and their actual impact in countries with the greatest need for sustainable development. 

On average, just 1% of companies in SDG funds sell their products and services in countries where they could make the most difference. In contrast, companies in the assessed SDG funds derive an average 75% of their revenues from the world’s most well-performing nations, the report noted.  

“Investors must adopt a more strategic approach,” says Pina.  

“They need to gain visibility into the geographical areas where these companies sell their products and services to ascertain whether their investments align with countries that require progress towards selected SDGs the most.”  

She uses Spanish education organisation Proeduca as an example, noting that it derives 85% of its revenues from high-income countries with “very high educational attainment” and small SDG 4 achievement gaps.  

“Meanwhile, 15% of its revenues are derived from low- and middle-income countries in which educational attainment is significantly lower and in which there exists a much more significant gap towards achieving SDG 4,” she says. 

Mishmash of tools  

To ascertain that an SDG-related investment opportunity is credible and impactful, investors need to implement a “rigorous bottom-up assessment of a company’s environmental and social performance and an examination of whether its core products and services are beneficial or harmful to society”, says Sophie Lawrence, Stewardship and Engagement Lead at Rathbone Greenbank Investments.  

Ben Constable-Maxwell, Head of Impact Investing at M&G Investments, says the SDGs and their underlying targets are simply “too broad” for an investor to effectively track a company’s performance across the whole SDG universe.  

“It’s nonetheless useful and important for investors to conduct their own analysis and develop their own methodology to track the SDGs and investee companies’ contributions to them,” he adds.  

M&G tracks one quantitative indicator for each of the 17 SDGs to get a broad picture of whether, and to what extent, progress is being made annually toward each goal and where investment opportunities lie. For SDG 9, the firm tracks the percentage of the global population that has access to the internet, for example. 

Based on these indicators, it gives each SDG a score on a scale from one to ten. If it has a score of five or more, then it is on track towards delivering that goal.  

The asset manager’s latest annual report on the SDGs noted that SDG 7’s score decreased from six to five over the assessment period, whereas SDG 10 dropped from three to two, marking them as areas of opportunity for investors. 

ABN AMRO Investment Solutions also proposes sustainable investment solutions using the SDGs as a metric. 

“We recognise that the goals may interact with each other and bring complexity in [our] assessment,” says Françoise Martino, ABN AMRO’s Senior Manager in Sustainable Investment, adding that other SDGs are more “holistic themes” that investment markets can’t fully address, such as SDG 16 (peace and justice).  

As they develop their in-house capabilities, investors can access a growing number of tools.  

The Sustainable Development Investments Asset Owner Platform (SDI AOP) was launched in 2020 to work with investors to embed the SDGs into their investment processes, enabling target-setting and progress monitoring. In April, SDI AOP and Qontigo launched the SDI Dashboard, which allows investors to upload their investment portfolios and analyse them across a range of SDG-related parameters. 

“For investors to make the right investment decisions, it’s important that the private sector tracks and reports their contributions in a rigorous and comparable way,” says Peter Paul van de Wijs, Chief Policy Officer at the Global Reporting Initiative (GRI).  

He points out that the standards-setter offers firms guidance on how GRI Standards disclosures can be used to report on specific SDGs and their targets.  

GRI has also collaborated with the National Planning Department of Colombia and UN Development Programme’s Business Call to Action to launch the SDG Corporate Tracker, a multi-stakeholder initiative that measures and reports the contribution of the business sector to the SDGs via an online platform.  

Deeper collaboration  

The main outcome experts would like to see from the SDG Summit is increased private-public sector collaboration. 

“Opening the [SDGs] up to private investors requires governments to create the policy space for broader and deeper private-public partnerships and also create the incentives that make these attractive to the market,” says Force for Good’s Hansmeyer.  

In February, UN Secretary-General António Guterres published the ‘SDG Stimulus’ report, which outlined three areas of immediate action for state and non-state actors to bolster progress towards the 17 global goals by reforming the global financial system: tackling the high cost of debt and rising risks of debt distress; massively scaling up affordable long-term financing for development; and expanding contingency financing to countries in need.  

In his report, Guterres outlined recommended national commitments that could be made at the Summit. These include priority transitions and areas for investment that will maximise progress across the SDGs, a national benchmark for reducing poverty and inequality by 2027, and time-bound global and regional commitments to strengthen international cooperation and support for developing countries. 

The SDG Summit programme will include the adoption of the UN’s political declaration, an opportunity to hear the actions and commitments of attending countries thus far, and the announcement of concrete national commitments to SDG transformation. 

Such action will also require bringing the private sector onboard, as well as a substantial shift in policy and practice both from governments and public-sector finance institutions. 

“The SDG Summit could serve as an opportunity to highlight what the role of the private sector and investors needs to be leading up to 2030,” Constable-Maxwell tells ESG Investor, emphasising the importance of clarity from governments for investors framing their impact investing strategies. 

Key barriers preventing widescale and effective private-public collaboration include lack of policy alignment and political will, as well as gaps in data and technology, Pina from Clarity AI adds. 

We would like to see concrete strategies on financing the SDGs, collaborations between nations and the private sector, and innovative solutions to these barriers,” Pina says.  

“For private investors, insights on emerging markets, sectors and technologies, coupled with clear guidelines on impact measurement, would also be beneficial,” she notes. 

Further, there is currently no “unified global entity” in place to authenticate and validate corporates’ assertions about their alignment with the SDGs through products, services and investments, Mehrotra points out, highlighting that investors would benefit from being able to evaluate performance against official underlying targets, rather than the broad SDGs.  

“At the SDG Summit, it would be good to see countries discussing and sharing best practices for mobilising private investment,” says Hansmeyer.  

As attention turns to New York as the SDG Summit gets underway, both policymakers and investors will be in the spotlight. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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