ShareAction: How can you motivate investors to act on the SDGs?
ShareAction: How can you motivate investors to act on the SDGs?
This article originally appeared at Corporate Citizenship — as part of its "Leader Insights Series: Business Action on the Sustainable Development Goals," written by leaders from across industries and sectors. The full series appears here.
Catherine Howarth, chief executive at ShareAction and Young Global Leader of the World Economic Forum, discusses below what’s needed to make the investment case for the SDGs.
ShareAction is a U.K.-based NGO campaigning for responsible investment by pension funds and other institutional investors. It demands transparency and accountability to the millions of people whose savings are managed by investment professionals.
Are the SDGs really relevant for companies focused on sustainable, long-term returns?
Absolutely. I think they are relevant in two ways. Firstly, businesses can make a real difference to the achievement of the goals, and many businesses stakeholders, including investors, are increasingly facing expectations that businesses should be net positive in respect to the goals.
Secondly, I think there is a business case around the goals. I think businesses collectively, and in some cases individually, have a huge amount of new business opportunities connected to the goals; and the business environment will be enhanced in various ways if we make serious progress on a number of the key goals.
If we look at Goal 1 to end poverty, for example, it is obviously a huge opportunity to build a bigger market of consumers globally. Businesses also need a healthy workforce and Goal 3 on public health is very relevant to creating a busines-friendly environment into the future. Therefore, I think there is much to be given and there is also much to be gained for the business community from the SDGs.
Since the launch of the SDGs almost a year ago, what trends are there in the investment sector in response, whether from asset managers or asset owners?
It is still very early days, but what is positive is that there has been a good effort to raise the profile and coverage in the investor world for the goals. Particularly notable is the U.N. PRI’s high profile consultation on its blueprint for the next 10 years. The consultation includes an explicit question about using the SDGs as a framework to guide responsible investor action and priorities into the next 10 years.
U.N. PRI’s signatories account for half the world’s asset under management, so we have this huge group of global investors that have been specifically asked for their opinion about the relevance and use of the SDG framework for their objectives and their plans into the future. That is helpful but it is still early days in terms of being able to provide investors with the tools, the insights and the research that they need to action that commitment.
What needs to be done to bridge the gap between willingness and taking action?
A recent survey (PDF) of institutional investors by ShareAction found that 89 percent of respondents are prepared to report on their impacts on the goals to clients or beneficiaries; although at present only 21 percent definitely will do so.
I think that investors need some help here. What is needed is research that pulls together the investment case for the SDGs, showing the business community and investors why investors should give their support and use their time and resources to promote the achievement of the goals. ShareAction is involved in commissioning research around the investment case for the SDGs.
We also need practical tools that help investors to map the goals onto their investments, and we of course need better data coming out of companies that allow investors to drill into the way in which businesses are making an impact on the goals. We need better metrics and benchmarks, as well.
To develop this agenda, overall, there is an important need to build a practical infrastructure of metrics, tools, case studies and events that help to build knowledge, capability and capacity for investors to take this agenda forward in a serious way.
Will investors will rise to this challenge?
A recent report by the U.N. Environment Program, The Financial System We Need, estimates that $5 trillion to $7 trillion will be needed every year to achieve the SDGs on infrastructure, clean energy, water, sanitation and agriculture.
This is very connected with public policy, planning regulations and many other pieces. There’s no question that the capital exists in the pension fund and investment industry to achieve these goals. At the same time, investors are hungry for good investment opportunities. At the moment, they are challenged in getting strong returns from their portfolios, so good investment opportunities connected to the SDGs will find investors and the money should flow.
In the case of infrastructure, what is needed is to bring together the right combination of governments, investors and the businesses that actually will build the infrastructure. It’s a case of knocking heads together in coordination. I think the case for investing in infrastructure that meets the SDGs is incredibly strong because infrastructure is the fundamental underpinning of GDP growth.
What we need, however, is low-carbon infrastructure. We have to be very careful we do not lock in high carbon models of economic development. It’s not just a matter of money, it is also a matter of making sure investment is focused on infrastructure that helps us to manage some of the SDGs around climate risks and managing resources sustainably.
It is a complicated conundrum and equation. However, by having the goals explicitly stated, with a mandate from governments, and bringing the investors on board, we have the fundamental building blocks. There is no reason to think this cannot be completed successfully.
So, the money exists but we need to make sure investors do not feel frightened by political risk or by uncertainty around projects. They need to feel that the right pieces are in place and they will get their returns.
As companies begin reporting on SDG efforts, what type of information would be most useful for investors?
We often find that sustainability reports are not targeted towards investor audiences. Annual reports and accounts often do not include data that is most material to investors from a sustainability perspective.
For each company, different issues are financially material. I think it would be fantastic to move to a position where companies are providing an independently audited account of how they are supporting and engaging with the SDGs.
I am a fan of integrated reporting — a world where we don’t have sustainability reports on one side and audited financial reports on the other side. I would like to see full integration of sustainability information into companies’ audited accounts. That is information that investors can trust and use.
The standards are very high around the verification of data in accounts that get audited independently. It would be excellent to start seeing explicit references in companies’ annual report and accounts on SDG progress. I hope that we begin to see a growing number of companies pioneering that and that we will then begin to see a growing number of investors making that request of investee companies.