The creation of a single, standardised approach to measuring the Sustainable Development Goals (SDGs) won’t absolve investors of the need to do their own due diligence, a panel of asset owners told the Phenix Virtual Impact Summit last week.
Although investors are increasingly willing to integrate these goals into their portfolio analysis and decision-making, the lack of a single, standardised approach when it comes to measuring SDGs has been a stumbling block.
Instead, a hodgepodge of different standards, metrics and frameworks used to showcase how much progress companies have made in committing to the SDGs have sprung up, leaving investors, companies and accounting firms confused.
Need for standardisation
“We do need some standardisation,” Marthe Borhaug, global head of sustainable outcomes at UK-based Aviva Investors, said during an online panel about aligning entire portfolios with SDGs at the Phenix Virtual Impact Summit.
“I read somewhere that there are 60-plus or so different standardisation projects. So if all the standardisation for this could come together, that would be beneficial.
But waiting for standards and waiting for perfection, doesn’t mean we can wash our hands of our responsibility to do proper due diligence,” Borhaug added.
Aviva Investors, the global asset management arm of Aviva, had assets under management of £366bn (€430bn) as of 31 December 2020.
Growing frustration over plethora of competing systems
In the US, “there has been rising frustration amongst corporations and investment groups over the plethora of competing systems in measuring sustainability,” said Andrew Siwo, director of sustainable investments and climate solutions at the $250bn New York State Common Retirement Fund.
Siwo is a former manager at the Global Impact Investing Network (GIIN), where he helped develop ImpactBase, the largest platform of impact investment funds globally.
“There is no ESG police, there is no impact police, and there is no SDG police,” said Siwo. “For example, a publicly-traded company selling cell phones qualifying for advancing an SDG may make some people grimace, yet there is no regulation of who can use the SDGs and how they are used.”
No magic wand
Although a unified SDG standard would certainly be welcome, it won’t be “a silver bullet or magic wand”, Siwo warned. “Even in the world of accounting standards, there are companies that have to do restatements in terms of revenue recognition.”
“It’s even messy in something that’s been developed for 100 years. That’s a signal to this imperfect space that we’re in.”
“What is useful in this case is analysing the targets that are beneath these SDGs, there are I believe 169 of them,” said Siwo. “To better understand the case that the manager is seeking to make, which will be harder when there is a feeble case being made.”
“For us, this is not a space where we need particular assistance. It’s more of a method to examine the strength of a manager’s investment thesis.”
Be transparent about your targets and how you measure them
Some of the claims Siwo has come across in corporate impact reports require additional scrutiny.
“A lot of managers get really excited to see this really beautiful, colourful tent,” said Siwo, referring to the SDG-goals set out by world leaders six years ago.
“How can someone dislike this colourful paint here? And so you see this slapped on every investment presentation. It’s hard to resist,” he added.
“Because there is no impact police, all you can do is have your own conviction in what you believe is important,” said Borhaug. “What are the impact targets that you are trying to accomplish? Show people how you delivered your analysis and then be transparent about it.”
