When every government in the world and a kaleidoscope of private stakeholders negotiated the Sustainable Development Goals in 2015, they had no idea the impact investing industry would embrace and run with them as the go-to investment principles for social impact.
“As diplomats, you never thought that it would be such a big driver for action in the financial industry,” Esther Pan Sloane, head of partnerships, policy and communications at the United Nations Capital Development Fund, told Karma. “We thought there was a lot of distance between the U.N. and development goals, eradicating poverty, and the investment industry.”
The United Nations adopted the 2030 Agenda for Sustainable Development, including its 17 Sustainable Development Goals, in September 2015 at a special summit.
Socially responsible investing principles didn’t originate with the U.N.’s SDGs, as Quakers, Methodists and Islamic scholars offered guidelines centuries ahead of the U.N.
But the SDGs have come the closest to standardizing how the impact investing industry categorizes opportunities. Still, now may be the time to rethink them and recognize their limitations as a part of the next stage of impact investing industry growth.
Speaking at the ESG Investment Forum at the U.N. hosted by InvestmentNews, Andrew Lee, head of sustainable investing at UBS Americas, addressed the limits of SDG framework, noting that the SDGs do not always correspond perfectly to “themes that are investable” and the financial vehicles that claim to align with SDGs don’t necessarily do so or measure progress effectively.
“As diplomats, you never thought that it would be such a big driver for action in the financial industry.”
“A lot of the ways that SDGs are being misused are more thematic, saying we have a healthcare fund and therefore it’s automatically aligned with (the corresponding) SDG,” Lee said at the event. “You’re not actually driving progress towards those targets, you’re not measuring it and you’re not reporting it.”
The ‘Most Transparent Negotiation’
When the industry did take up the SDGs as guidelines for investments and began to use them to screen opportunities and educate their clients, Pan Sloane was “thrilled.”
The SDGs are now proudly painted across the sidewalk outside the U.N. headquarters entrance in New York and a range of public and private companies have taken them as guidelines.
“It was really exciting,” says Pan Sloane of the framework’s industry adoption. She was a part of the U.S. mission at the U.N. that negotiated the SDGs guidelines from 2013 to 2015.
“It was the most transparent negotiation process the U.N. has ever had, every session was live-streamed — it was the first time every government was involved in every stage of the negotiation process,” she recalled. “Usually what happens is you have big sessions, then countries break off and then deals are done in the back rooms. This time, every country was present at every session.”
She notes it was also the first time the U.N. recognized other stakeholders involved in development besides governments.
But it wasn’t until the Addis Ababa Action Agenda, which was also adopted in 2015, that the private sector’s role came into focus.
“The U.N. traditionally is pretty anti-business, especially in development,” Pan Sloane said. “The idea that you would recognize the private sector as an actor in development was quite controversial in itself.”
Still, the Addis Ababa Action Agenda recognized that all these ambitious goals needed serious funding and backing of all stakeholders.
“That was really recognizing the role of the private sector,” she said, acknowledging that “without the private sector, there is no way we’ll ever meet any of these goals.”
More than half of impact investors say they’re relying on the SDG framework to track their performance, according to GIIN’s 2018 Annual Impact Investor Survey.
Many leading financial organizations from Bank of America to UBS have relied on SDGs at least in part.
Speaking at Bloomberg’s Global Responsible Investing Forum in New York, Jackie VanderBrug, managing director and head of sustainable and impact investing strategy at the Bank of America, credited SDGs with helping systematize the offering for their clients.
“We needed to scale up and understand interconnected nature of this, and this is where the SDGs have helped,” she said.
As Andrew Lee of UBS Americas highlighted at the U.N. ESG Forum last week, SDGs are not the perfect solution for all impact investing needs and do not necessarily translate in driving progress.
Many actors in impact investing can claim they’re aligned with SDGs without any repercussions or penalties from anybody if they are not.
“That’s the gap — if you see a fund out there that’s SDG-oriented, but it’s not doing any sort of measurement, following through on objectives with regards to the SDGs,” Lee said.