Are the SDGs truly investable?

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By:
Helen Avery
Published on:

Natixis surveys large institutional investors and produces framework to avoid ‘SDG-washing’.

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Last month Natixis released research from a survey of 42 investors – with $14 trillion under management – which have a framework for how to invest in line with SDGs that is more than just lip service.

Half of the investors surveyed, which included BlackRock, UBS Asset Management, LGIM and Robeco, said they have formal commitments to the SDGs, although those commitments varied widely.

“SDGs have become a ‘must-have’ for companies and investors, and in almost every green bond or social bond issue we will find SDG references and stickers,” says Cédric Merle of Natixis’ Center of Expertise and co-author of the research. “There are even now SDG-specific bonds. But investors were increasingly asking us about the reliability of these claims and how to measure whether the SDGs were really being targeted in an impactful and consistent way.  We were also sceptical about whether a lot of the usage of SDG labelling is simply ‘washing’.”

Over seven months, Merle and his team developed a methodology to help investors and companies best consider each SDG with regards to expectations and assessment and reporting.

Investability

Some of the SDGs are certainly deemed more investable than others at present. Survey participants listed 7, 13, 3, 9 and 6 as the most investable respectively (Renewable Energy, Climate Action, Good Health, Innovation and Infrastructure, and Clean Water and Sanitation). Least investable were 4, 10, 5, 1 and 2 (Quality Education, Reduced Inequalities, Gender Equality, No Poverty and No Hunger).

Moreover, adds Merle, “despite strong interest for SDG15 (Life on Land), few investment opportunities seem to exist. The report cites land restoration and organic farming as two potential options.

Ensuring that all the SDGs become investable means better assessment of each SDG and the gaps that are most needed. “Where the gaps are will differ geographically, and some SDGs, such as SDG 6 (Clean Water and Sanitation) would be less investable in Europe than, say, Southeast Asia and Africa,” says Merle.

The report also highlights the challenges of ensuring that the financing of one solution doesn’t negatively impact another SDG at the same time, and highlights how companies have focused on their internal impacts when it comes to SDGs rather than their outbound impacts. Says Merle: “We really need companies to be considering what the impact of their products and services are.”

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Orith Azoulay, Natixis

The report lays out indicators for every SDG that can help investors determine the full impact of a company or government’s claim to be providing a solution.

“We remain sceptical about how the SDGs will be met and whether it will be in a meaningful way, but it is hoped this framework can provide some rigour as SDGs become part of standard reporting,” says Merle. “The SDGs are only going to receive an increased focus – particularly as large pension funds are now using them as a yardstick,” he adds.

Natixis has been invited by the French Ministry of Ecology to join the stakeholders preparing France’s SDG world map to be presented next year. The bank is also working on two investment solutions that use the framework it has created. The first is a basket of sovereign debt focused on education, and the second is a cluster of SDGs that provides an equity solution to health, clean energy and clean water.

The research was part of Orith Azoulay’s strategy for the development of Natixis as a leading voice around green and social finance. She headed up SRI research before being made global head of green sustainable finance last year. 

“There is a lot happening within the financial community around sustainable finance and the UN SDGs that it’s vital to ensure there is greater substance and in-depth discussion taking place. It’s no good to just claim contribution to the SDG without demonstrating and measuring how and to what extent. Research and development needs to run side by side product development.” 

She says that the bank is hiring into its new Center of Expertise which is an internal R&D unit dedicated to green and sustainable finance.

Natixis ranked top of Euromoney Fixed Income Research 2018 for Green Bonds and ESG.