www.hermes-investment.com January 2018 “At its essence, sustainability means ensuring prosperity and environmental protection without compromising the ability of future generations to meet their needs. A sustainable world is one where people can escape poverty and enjoy decent work without harming the earth’s essential ecosystems and resources; where people can stay healthy and get the food and water they need; where everyone can access clean energy that doesn’t contribute to climate change; where women and girls are afforded equal rights and equal opportunities.” UN Secretary-General Ban Ki-Moon What are the SDGs? The SDGs are a universal set of goals, targets and indicators for global development. They serve as a blueprint for significantly changing the world – by ending global poverty, safeguarding the planet and ensuring prosperity for all – by 2030. Established by the UN in September 2015, the SDGs were adopted by the international community, including 193 governments. There are 17 SDGs, and within these goals there are 169 targets and 230 indicators, which seek to realise the human rights of all and achieve gender equality, among other issues. They are integrated and indivisible and balance three primary dimensions of sustainable development: the economic, social and environmental. To achieve these goals, it is estimated that it will require investment of between $5-7tn each year until 2030. Approximately $1tn comes from public funds from the UN and member countries annually, while private capital must fund the remaining $6tn annually 1 . UN SUSTAINABLE DEVELOPMENT GOALS 1 “UN Sustainable Development Goals,” published by UN PRI as at November 2017
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www.hermes-investment.com
January 2018
“At its essence, sustainability means ensuring prosperity and environmental protection without compromising the ability of future generations to meet their needs. A sustainable world is one where people can escape poverty and enjoy decent work without harming the earth’s essential ecosystems and resources; where people can stay healthy and get the food and water they need; where everyone can access clean energy that doesn’t contribute to climate change; where women and girls are afforded equal rights and equal opportunities.”
UN Secretary-General Ban Ki-Moon
What are the SDGs?The SDGs are a universal set of goals, targets and indicators for global development. They serve as a blueprint for significantly changing the world – by ending global poverty, safeguarding the planet and ensuring prosperity for all – by 2030. Established by the UN in September 2015, the SDGs were adopted by the international community, including 193 governments.
There are 17 SDGs, and within these goals there are 169 targets and 230 indicators, which seek to realise the human rights of all and achieve gender equality, among other issues. They are integrated and indivisible and balance three primary dimensions of sustainable development: the economic, social and environmental. To achieve these goals, it is estimated that it will require investment of between $5-7tn each year until 2030. Approximately $1tn comes from public funds from the UN and member countries annually, while private capital must fund the remaining $6tn annually1.
UN SUSTAINABLE DEVELOPMENT GOALS
1 “UN Sustainable Development Goals,” published by UN PRI as at November 2017
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UN Sustainable Development Goals, January 2018
Why did the UN develop a set of SDGs? The SDGs expand on the UN’s millennium development goals (MDGs), which were agreed by UN member states but expired at the end of 2015. There was widespread agreement that the MDGs were too narrow, with eight goals that failed to mention human rights and address economic development. At the time, some 1bn people were living on $1.25 a day – the World Bank measure of poverty – and women were still fighting for their rights.
Furthermore, while they applied in theory to all countries, they were often considered targets for poor countries. Conversely, the SDGs provide a definitive framework for sustainable development, and every country is expected to work towards achieving these goals. The process of establishing the SDGs was extremely inclusive, with governments, businesses, investors, civil society and citizens involved since their inception. This ensured the UN was able to develop a thorough and democratic set of development goals.
The interconnectedness of the SDGsCompanies have an important role to play in delivering the SDGs. Research by the Natural Capital Coalition and the Institute of Chartered Accountants in England and Wales suggests that when ingrained in a company’s DNA and applied in all decision making, SDGs could prompt a fundamental shift in the way a business operates2. To achieve the SDGs, it recommends that companies ask themselves two fundamental questions:
1. How dependent is the company on the success of the SDG?
2. Are the company’s actions helping it achieve this SDG?
These questions recognise that we – companies and investors – cannot separate ourselves from global issues. It is difficult to think about one SDG in isolation. They are innately connected and indivisible. And understanding the impact on one helps you to understand the impact on others. As such, it is important for companies to think about the interconnectedness of SDGs in every decision they make.
2 “The capitals approach”, published by Sustainable Development Goals 2017 as at March 2017
Source: “The capitals approached” by J Rockstrom/P Sukhdev as at March 2017
Figure 1: The interconnectedness of the SDGs
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UN Sustainable Development Goals, January 2018
Why do SDGs matter to investors?Governments are introducing regulation and incentives to promote the SDGs, and companies are adopting more sustainable business practices and seeking to innovate to deliver sustainable products and services. For example, French law requires asset owners to disclose how they are assessing carbon risk, while the updated UK Corporate Governance Code, published in September 2016 by the Financial Reporting Council, asks company boards to consider strategy beyond a minimum of 12 months.
Investors must join governments and companies on this journey. Here we explain the importance of SDGs for investors worldwide:
�� SDGs provide a timely chance to reshape the trajectory of lives globally for the better and create new market opportunities;
�� Integrating SDGs into investment decisions supports long-term value creation, aligns investors with the broader needs and objectives of society, and benefits the environment as a whole;
�� The SDGs serve as a list of salient ESG factors that investors should consider as part of their fiduciary duty;
�� Meeting the SDGs will be a primary driver of future economic growth, thereby providing opportunities for companies to boost revenues and earnings, and therefore the valuations of equities and other assets;
�� The adoption of the SDGs could force a portion of currently external costs, such as environmental damage and social upheaval, into companies’ accounts, which would further integrate ESG risk into corporate balance sheets and provide a clearer risk framework for investors;
�� The clear risk framework provided by the SDGs helps investors avoid businesses with unsustainable risks, which compromise their long-term revenues;
�� They help investors identify companies that are embracing sustainability to boost profitability;
�� Investors can implement investment strategies that target SDG themes and sectors;
�� The SDGs can be aligned with ESG analysis as they help investors integrate ESG by identifying companies with a material revenue exposure to products and services that assist in overcoming challenges in society, thereby managing risk and improving return;
�� Considering SDGs will not restrict the range of stocks available to investors, as an increasing number of companies are reporting their exposure to SDGs.
Source: “UN Sustainable SDGs,” published by UNPRI; “What do the UN Sustainable Development Goals mean for investors?” published by the PRI, UNEP Finance Initiative and UN Global Impact as at December 2016; and “Within investor reach? The UN Sustainable Development Goals,” published by Hermes Investment Management April 2017
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