The United Nations Sustainable Development Goals (SDGs) can serve as a framework for measuring impact in environmental, social and governance (ESG)-focused investing. Establishing a common approach, and understanding how to measure progress towards meeting the goals, is key to unlocking core fixed income capital for the purpose of positive change.
For a growing number of investors, financial performance is no longer the sole investment objective. Instead, many people are looking to align their financial goals with the ability to influence change – to put their money to work in a way that will have a positive impact on the world.
Yet this is no easy task. For starters, what does “impact” even mean? Many investors have struggled to answer this question, particularly in fixed income. Traditionally, impact investing has focused on project finance or “green” investments, which have clear objectives against which progress can be measured, such as to provide clean water or build a railway. Moving from these types of projects, with well-defined but narrow goals, to establishing objectives for investing in the world’s largest and most complex companies is a challenge. And yet solving it is the key to unlocking the wider pools of capital available for this purpose.
The framework for measuring impact needs to be versatile enough to accommodate the diversity of the global bond universe and clear enough to be measurable. The good news is that a suitable framework already exists.
THE SUSTAINABLE DEVELOPMENT GOALS: A SOLUTION
The Sustainable Development Goals are a set of 17 ambitious goals targeting 169 outcomes in the realms of sustainable development, better environmental outcomes and healthier communities. They were signed by 192 countries in 2015, and range from ending poverty to taking urgent action to combat climate change (see Figure 1). Together they can provide a comprehensive framework for investors seeking to evaluate companies’ positive impact on the world.