The Sustainable Development Goals (SDGs) are 17 objectives for improving human society, ecological sustainability and the quality of life launched by the UN in 2015. They cover a broad spectrum of sustainability topics, ranging from eliminating hunger and combating climate change to promoting responsible consumption and making cities more sustainable.

All 193 countries – no matter how rich or poor – have agreed to work toward achieving the 17 SDGs by 2030, thereby establishing a 15-year timeframe for progress. The goals are part of ‘Transforming our World: the 2030 Agenda for Sustainable Development’ and are branded by the UN as “a blueprint to achieve a better and more sustainable future for all.”

The SDGs succeed the Millennium Development Goals (MDGs), eight objectives launched in 2000. They included a commitment to eradicate extreme poverty and hunger, achieve universal primary education, and combat HIV/AIDS. Developed from 2012 using a global consultation period in which more than one million people gave their inputs, the SDGs are much broader in scope – and they apply to all countries, not just those earmarked as ‘developing’.

Figure 1: The UN’s Sustainable Development Goals

Source: United Nations

The 17 goals have 169 underlying targets and 232 approved indicators, which are used to track progress toward achieving them. For example, the targets for SDG 3 (Good health and well-being) aim to end premature mortality, halt the spread of communicable diseases such as malaria and HIV/AIDS, and promote the attainment of affordable universal health coverage. The indicators measure factors such as a country’s child mortality rate, the number of new malarial or HIV infections, and the number of people covered by health insurance.

In terms of tangible investing, health care companies can contribute to SDG 3 by developing drugs that combat certain diseases, or by improving people’s access to affordable medicines. Conversely, some companies may negatively contribute to the SDGs by producing harmful products such as tobacco or firearms.

Aside from benefiting the under-served, it’s also a massive business opportunity and a means of job creation. One estimate predicted as much as USD 12 trillion of market opportunities per year and 380 million new jobs, particularly in projects related to combating climate change.^1,2

As all UN member states are expected to track their SDG progress, the UN Statistics Division (UNSTATS) has the primary responsibility of collecting each nation’s SDG metrics. These can be accessed via ‘SDG Indicators’ in the UN’s Global SDG Database.³

Other initiatives are helping to monitor progress. The online publication SDG Tracker was launched in June 2018 and backed by Our World in Data – a joint project between the University of Oxford and the non-governmental organization Global Change Data Lab⁴. It collects data on all indicators relevant to the SDGs.

Another project is the Global SDG Index and Dashboards Report. The SDG Index does more than track performance with respect to all 17 goals; it also ranks countries in terms of their achievements, thereby facilitating comparisons. This annual publication is co-produced by Bertelsmann Stiftung, a foundation run by the German Bertelsmann media group, and the UN’s Sustainable Development Solutions Network.⁵

Figure 2: The Global SDG Index and Dashboards Report is interactive

Check out how your region is performing on any one of the 17 goals by clicking on the interactive chart via the link below.

Source: https://datahub.sdgtransformationcenter.org/reports/sustainable-development-report

The sheer scale and diversity of the indicators makes tracking progress a difficult task. Some statisticians struggle with obtaining data as numerous indicators are not compiled regularly. Others have problems creating methodologies for less mainstream indicators. Even the richest countries have shown significant gaps in their ability to track progress. ⁶

Companies also face challenges in measuring their contributions to the SDGs. The investment process of asset managers including Robeco offers strategies that target these objectives. This is discussed more fully in . However, a lot more needs to happen in order to achieve the SDGs, including the core issue of funding.

Estimates vary widely for how much funding is needed to meet all 17 goals by 2030. The UN Trade and Development’s World Investment Report of 2023 suggested that the funding gap was about USD 4 trillion per year – up from USD 2.5 trillion in 2015 when the SDGs were adopted. The report said global foreign direct investment fell 12% in 2022, and that emerging markets need renewable energy investments alone of about USD 1.7 trillion each year, but attracted only USD 544 billion.⁷

The financing gap is particularly wide in poorer nations. Whereas larger or more advanced emerging market economies like Guatemala and Indonesia need to spend an additional 4% of their GDP per year to attain the SDGs by 2030, this figure rises to 15.4% for lower-income developing countries such as Vietnam, Rwanda and Benin, also according to the UN. ⁸

These numbers starkly contrast the additional spending requirements of richer states. High-income countries must invest more in some areas linked to the SDGs, like renewable electricity, roads, and water and sanitation, but the additional annual investments needed are estimated to be below 1% of their GDP.

Since the public sector is unable to finance the SDGs by itself, there is a need to involve the private sector including financial institutions like banks, asset managers, insurers and pension funds. As we will see in later chapters, this has led to the creation of many investment initiatives including bespoke SDG-focused strategies, along with products focusing on themes or even individual goals.

Still, the SDGs have captured the world’s imagination. They have started a movement that began with the optimism that this new millennium brought for the future. As this learning module will demonstrate, there are many opportunities for investing in one or more of the goals.

And we all have a role to play, as this ‘We the People’ video, featuring some very famous faces, suggests. It’s not just governments, companies, investors or special interest groups that should be involved – it’s everyone!

You should now know how the 17 SDGs came into being as the successor to MDGs, the methods (and limitations) for tracking their progress, and the funding still needed to achieve them as the Covid pandemic hurt progress.

Footnotes

¹ https://www.un.org/sustainabledevelopment/sg-finance-strategy/
² Business & Sustainable Development Commission, 2017. “Valuing the SDG prize”. London.
³ https://unstats.un.org/sdgs/indicators/database/
⁴ https://sdg-tracker.org/; https://ourworldindata.org/about
⁵ https://www.sdgindex.org/
⁶ https://onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12595
⁷ https://unctad.org/publication/world-investment-report-2023
⁸ Integrating the Sustainable Development Goals in Government Bond Investment Strategies by Jan Anton van Zanten, Laurens Swinkels, Rikkert Scholten, Max Schieler :: SSRN

The ‘call to action’ that lies at the heart of the SDGs is that unlike most UN initiatives, the 17 goals are not just aimed at governments or NGOs, but the whole of society. It presents both a challenge and an opportunity, aimed equally at businesses and investors, who are seen as key to achieving the goals. It is a global plan that applies to everyone, rich and poor.

Subsequently, contributing to the SDGs presents a business opportunity for companies, although opinions differ on the preferred goals to invest in, and some of the goals are more investible than others. A survey by the UN Development Programme identified the three most popular goals in Uganda as being SDG 7 (Affordable and clean energy), SDG 13 (Climate action) and SDG 11 (Sustainable cities and communities).⁹

Figure 3: The most popular Sustainable Development Goals in Uganda

Source: United Nations Development Programme.

This is mainly because all three involve infrastructure and therefore provide a physical means of measurably adding value, while also achieving clear returns. Building renewable energy infrastructure provides a clear revenue stream from selling the electricity, as does installing mobile phone masts in areas that were previously uncovered.

SDG 16 (Peace, justice and strong institutions) was not considered very investible, with virtually zero interest – but it depends where you look. The goal’s justice element includes the cybersecurity industry, which is worth over USD 10 billion a year and has a lot of investible opportunities. Building phone masts improves access to information, which is also a target reflected under SDG 16.

Meanwhile, regulations are changing fast, and the public is increasingly demanding a more sustainable approach to business. Companies and investors that embed SDGs into their strategy will subsequently be more likely to align with present and future governmental policies and regulations. This means they would then avoid the risk of losing their license to operate, or encountering high costs resulting from structural change that is eventually forced upon them.

Companies also cannot now openly ignore the need to meet the net-zero carbon emissions goals of the Paris Agreement, which is reflected in SDG 13 (Climate action), and also alluded to in SDG 7 (Affordable and clean energy) and SDG 9 (Industry, innovation and infrastructure).

The introduction of sustainable finance regulation, as captured for instance by the EU Sustainable Finance Action Plan, the EU Taxonomy, Sustainable Finance Disclosure Regulation and the European Green Deal, are a direct consequence of countries’ adoption of the SDGs. Such regulation has helped to define what constitutes sustainable development from an investment perspective. In time, not adhering to sustainable policies will remove a business’s license to operate legally, commercially, and socially.

While such investment has captured the imagination of investors who want to engage in SDG investing, surveys show it has yet to enter the mainstream. Few of the world’s major professional investors such as pension funds currently allocate large sums to SDGs, viewing it as ‘niche’.

For example, a survey by the Dutch Association of Investors for Sustainable Development, representing about 95% of the Dutch pension savings market and has about EUR 1.36 billion in assets. It found that only 19% of its members had set targets to allocate investment cash toward the goals. ¹⁰

As with the UN survey, the Dutch research showed that some SDGs were more popular investment targets than others. SDG 13 (Climate action) was seen as offering the biggest investment opportunity, particularly as it has quantifiable targets, such as CO₂ emissions.

Figure 4: Pension funds’ focus on SDG-related investment opportunities and business responsibilitiess

Source: VBDO - Pension Funds and Sustainable Development Goals

The Robeco Global Climate Survey in 2022 showed that investor interest in the SDGs has grown significantly. About 18% of investors said they had made it a high priority to align or benchmark their portfolios with the SDGs, while 22% indicated they were doing this, but as a lower priority. A further 40% said they would consider doing so over the next two to three years. This shows that SDG investing is on the rise and has gained traction among asset owners.

Interest also still depends on the kind of goal being targeted. The SDGs were divided into five buckets for the survey: climate change, governance, basic needs, empowerment, and natural capital. The survey showed that 63% of investors were focused on climate change investing today (back in 2022), while 55% would make it a priority over the next two years. Investments would target strategies that can contribute to SDG 7 (Affordable and clean energy) and SDG 13 (Climate action).

There was a surprisingly high commitment to support governance via SDG 16 and SDG 17 (Partnerships to achieve the goals), with 50% of investors saying they were targeting it now and 46% committing to it over the next two years.

The biggest shift was seen in natural capital – essentially the ‘biodiversity bucket’ – where the proportion of investors planning to target it over the following two years rose to 53% from only 24% at the time of the survey. These target SDG 12 (Responsible consumption and production), SDG 14 (Life below water), and SDG 15 (Life on land), where experience has shown it can be more difficult to find suitable listed companies to invest in.

Figure 5: Bucketing the SDGs

Source: Robeco Global Climate Survey 2022

You should now understand why the SDGs present a great business opportunity for companies, what are the most and least favored goals for development capital, and how investor appetite is evolving for investing in the sector, particularly the climate or nature goals.

Footnotes

⁹ https://www.undp.org/content/undp/en/home/blog/2019/boosting-private-investment-in-the-sdgs.html
¹⁰ https://www.vbdo.nl/en/2018/11/vbdo-acceptation-sdgs-is-slow/

Sustainable investors have long used the integration of environmental, social and governance factors to pick companies that do better on standard business subjects such as climate change (E), labor relations (S) or their involvement with contentious issues (G). Impact-aligned investing goes one step further by trying to make a measurable difference on the ground.

While they may seem similar, they follow different objectives, and produce different outcomes that can even be contradictory. Many investors conflate ESG integration with the positive sustainability benefits that accrue from this, including helping achieve the SDGs. But this is not the case: ESG ratings typically do not measure the sustainability impacts that companies have.

Rather, they gauge whether a company’s financial performance is at risk due to sustainability factors. As a result, there are many examples of companies that have top-notch ESG ratings but which also have negative societal and environmental impacts. This way, some companies have a high ESG rating but a low SDG score.

For example, many tobacco companies and weapons manufacturers have high ESG ratings, since they usually score well on emissions, labor relations and governance. This signals that their profitability is not really at risk due to ESG factors – but there can be little doubt that their products are harmful to society, and would not pass SDG investing criteria. Indeed, they usually appear on exclusion lists.

Figure 6: Scores of companies on exclusion lists, using different sustainability measures

Source: Robeco, MSCI, Sustainalytics

In 2022, a Robeco research project¹¹ confirmed how positive ESG ratings do not always guarantee positive SDG scores. The Robeco SDG Framework assigned negative scores to the vast majority of the ‘usual suspects’ in environmental pollution, whereas their ESG ratings were found to be average, or even quite good.

A comparison was then made between companies in some of the world’s most recognizable sustainable thematic funds in the clean energy, sustainable water and health care clusters. Again, the research found that most of the companies had very positive Robeco SDG scores, while the ESG ratings for these companies were average, or even poor.

Another test studied a company’s alignment with the EU Taxonomy, which stipulates what types of corporate behavior violate the ‘do-no-significant-harm’ (DNSH) principle. Companies that cause significant environmental harm through pollution, for example, would fall foul of the test.

There was no surprise in finding that companies with a negative DNSH score also had a low SDG score. Likewise, companies that derived over two-thirds of revenues from EU Taxonomy-aligned activities typically had very positive SDG scores. But in contrast, the ESG ratings for both types of companies tended not to differ that much from the benchmark. Thus, the SDG score is in line with this specific sustainable investing regulation, whereas ESG ratings are not.

You should now know why ESG ratings assess risk while SDG investing looks for an impact, and are not the same, since companies can get a positive ESG but negative SDG score, or vice-versa. The EU Taxonomy and its do-no-significant-harm (DNSH) principle show how the two often don’t correlate.

Footnote

¹¹ ESG to SDG: Do Sustainable Investing Ratings Align with the Sustainability Preferences of Investors, Regulators, and Scientists? by Jan Anton van Zanten, Joop Huij :: SSRN

Companies can contribute to achieving the SDGs by making products or offering services that help achieve one or more of the 17 goals. Moreover, companies can advance the SDGs by integrating them into their policies. Some companies will, by nature, be more attuned to making a contribution than others.

For example, a company producing solar energy is a clear win for SDG 7 (Affordable and clean energy). A business creating educational materials for schools directly contributes to SDG 4 (Quality education), while a firm that actively works to promote women in leadership roles advances SDG 5 (Gender equality).

However, some companies have negative impacts on the SDGs. This might be obvious in some cases, where harmful products such as cigarettes are produced. But other companies may contribute both positively and negatively. How do we categorize, for example, an energy utility that uses both wind power and thermal coal?

Even more complex challenges arise with the creation of products or services that advance SDGs but simultaneously generate negative externalities. For example, mining metals that are crucial for the manufacture of electric cars or wind turbines, also adversely impact ecosystems, emit greenhouse gases, and can have issues over the treatment of local labor.

In 2017, two years after both the SDGs and Paris Agreement entered the lexicon, Robeco became the first asset manager in the world to create a means of measuring corporate contributions to the goals. The SDG Framework was developed to provide the research behind what became a dedicated range of SDG investment products for credits and equities.

While the SDG Framework used standard sustainability metrics to calculate contributions to environmental, social and governance factors, how this applies to the SDGs requires a different approach. It is based on three steps that are followed to assess contributions and then come up with a score.

Figure 7: The three-step approach adopted by Robeco

Source: Robeco.

• Step 1: What does the company produce? Analysts look at what the company produces to determine whether this contributes positively or negatively to the relevant SDGs, using specific key performance indicators and thresholds.
  
  

• Step 2: How does the company produce? Here, analysts examine how these goods and services are produced and whether these companies advance SDGs in their operations, or whether there are any flipsides to apparent good intentions, such as poor governance.
  
  

• Step 3: Has the company erred? Checks are made to see whether the company has been involved in any controversies. Examples include pollution incidents or the mis-selling of services.
  

Scores are then assigned to assess a company’s overall impact. These range from -3 (highly negative) through 0 (neutral) to +3 (highly positive). Once the overall score is known, it can be used in dedicated SDG portfolios to invest in those companies that advance the goals, and in wider research as an ingredient in all other equity and fixed income strategies.

The animated video below describes this three-step process. Watch the short film to see how it works:

Robeco now makes all the SDG Framework scores freely available through the Sustainable Investing Open Access Initiative. Launched in 2022, SI Open Access initially made the data behind the framework available to clients and academics.

The Country Sustainability Framework was added to SI Open Access in 2023. This assesses the ESG characteristics of 150 countries and is primarily used for government bond investing.

You can check on the SDG score of more than 10,000 companies by entering on this page:
How do companies and countries score on sustainability

A similar framework was developed by the Dutch pension funds APG and PGGM, which manage EUR 750 billion in assets between them for 8.7 million people. Their Sustainable Development Investments (SDI) Asset Owner Platform allows institutional clients to see the extent to which their portfolio investments contribute to the SDGs. ¹²

The data is supplied by Entis, a data analytics team that uses artificial intelligence for the more advanced number crunching. The analysis is based on a taxonomy that explains each SDG, and crucially defines which of its sub-goals are investible. The investment universe that can be analyzed now extends to around 10,000 listed companies. ¹³

The team then measures contributions to these subgoals using financial or operational metrics such as the proportion of revenues derived from a certain SDG-friendly activity. External metrics include outcomes such as the number of people who have access to health care or financial services as a result of a company’s activities. The example below shows the platform’s views on the investibility of SDG 14 (Life below water).

Figure 8: The types of business that can be targeted to meet SDG 14

Source: The SDI Asset Owner Platform.

You should now understand the need for calculating positive and negative contributions that companies can make to one or more of the goals. This can be done through Robeco’s SDG Framework or the SDI Asset Owner Platform. The contributions can be measured through scoring the company, or more holistically via sub-goals such as pollution.

Footnotes

¹² Global SDI Asset Owner Platform is leading the way on sustainable investing’ | APG
¹³ https://entis.ai/

All nations have a role to play in meeting the SDGs, but the question arises about how much they are doing internally to progress the goals. Virtually all countries need to invest more money into the different SDG areas, such as health care, education, renewable energy and nature. And there’s a big gap.

The current financing gap for achieving the goals by the 2030 deadline amounts to an annual shortfall of USD 2.6 trillion, or 2.7% of global output. This gap is much wider in emerging countries, which often lack good access to capital markets, compared to developed countries.

Sovereign debt is one channel through which countries can obtain better funding for the SDGs. Sovereign bonds are bought by international investors seeking the returns that they pay. The bonds are given credit ratings depending on the financial stability of the issuer, ranging from AAA (rock solid) to CCC (likely to default). Subsequently they are rated as either investment grade (down to BBB- on the Standard & Poor’s scale) or sub-investment grade below that.

Figure 9: Credit rating scales

Source: Researchgate.¹⁴

Choosing SDG-friendly government bonds is not easy. There are many ‘sovereign ESG ratings’ but, as with corporate ESG ratings, they are not designed to tell you which countries to prioritize to promote the goals. Instead, they inform you on whether a government’s ability to repay its debt is likely to be influenced by ESG issues.

The World Bank also concluded that such sovereign ESG ratings have an ‘ingrained income bias’ that makes them unsuitable for understanding commitment to the SDGs. Richer countries tend to have better ESG ratings, but these are not necessarily the ones you should invest in for more progress on sustainable development. Thus, we a need to look at sovereign sustainability from a new angle.

After developing the SDG Framework for companies, Robeco subsequently developed its counterpart for countries. Those satisfying these criteria were then put into two hypothetical SDG-aligned government bond portfolios to see how it would work in a real fund.

As with the corporate framework, the country framework assigns SDG scores ranging from -3 (highly negative) through 0 (neutral) up to +3 (highly positive) to the 170 nations covered by them. But as we are now dealing with the criteria pertaining to public policy in entire countries, the three-step process uses different criteria.

In step one, we measure a country's SDG-related policies using roughly 100 indicators linked to SDG targets. For instance, for SDG 3 (Good health and well-being) we can use indicators such as maternal mortality rates and health expenditure to GDP ratio. For SDG 8 (Decent jobs and economic growth), we can assess children's workplace rights.

Step two assesses whether countries need additional capital to attain the SDGs. We consider income classification and corruption levels; lower income countries with moderate or low corruption receive a +1 score, indicating the need for more capital.

In step three, we screen for behaviors contradicting the SDGs. Factors like poor governance, autocracy, sanctions, violations of political rights, and high political instability negatively impact the score, ranging from -1 to -3.

Of the 170 countries analyzed, 20% received a positive score, 25% a neutral score, and 55% a negative score. Only a handful of countries received the highest score of +3. The lowest scores were assigned to countries with quickly deteriorating SDG progress or those involved in war and conflicts.

The study found no discernible relationship between a country’s income level and its SDG score: some relatively poor countries, like Ghana or Indonesia, are making good progress on the SDGs and thus can be perceived to have good policies for the goals.

At the same time, various richer countries, like the Republic of Ireland, have policies that detract from achieving the SDGs. The broad distribution is shown in the graphic below, though it is subject to change when updating the scores over the years.

Figure 10: Global distribution of Robeco’s SDG scores

Source: Robeco, 2024. Countries that lack a score, due to data unavailability, are shown in grey.

The results of the study were used to create two hypothetical government bond portfolios aligned with the SDGs in which higher scoring countries were prioritized. Countries with a neutral SDG score or low default risk were also included, but those with negative SDG scores were avoided. The approach was illustrated using two common benchmark indices: the BB Global Index and JPM EMBI Diversified Index.

In the BB Global Index, France and Italy led among countries with positive SDG scores. Despite having a large bond market, the UK has a lower SDG score and thus received a smaller allocation. The remaining countries with positive SDG scores have small weights in the index and were each allocated 2.0% in the portfolio due to liquidity constraints. Among countries with neutral scores, the US and Japan have the highest allocations, as they make up a significant portion of the index.

Figure 11: 2023 SDG Core portfolio for BB Global Index

Source: Robeco.

For the JPM EMBI Diversified Index, a total of 84 countries were studied. 25 had positive or neutral SDG scores and therefore were eligible for inclusion. This created a more diverse portfolio with some surprising results: countries such as Armenia, Senegal and Côte d’Ivoire were included, with even larger weightings given to Indonesia, Columbia, Dominican Republic, and Uruguay. In a way, this reflects the spirit of the SDGs, in that the government bonds of the emerging nations most in need of the money are prioritized.

Figure 12: 2023 SDG Core portfolio for JPM EMBI Diversified Index

Source: Robeco.

This methodology also confirms that SDG scores and ESG ratings are not the same thing. Countries that have made considerable progress in meeting the goals and have higher ESG ratings often receive neutral SDG scores on this framework. This mirrors the SDG scoring methodology, which aims to recognize countries with strong policies and financial needs, rather than strictly evaluating their current SDG achievement level.

It also does not necessarily correspond with sovereign credit ratings. In the SDG Focus portfolio, most have sub-investment grade ratings, many of the picks such as Honduras and Jamaica have a rating of BB-, making them ineligible for most sovereign bond funds. Bolivia has a rating of CCC+, the second worst of all ratings with a high risk of default.

You should now understand that countries issue bonds to pay for public projects that are not SDG-targeted, but a three-step process in the Country SDG Framework can still attribute scores based on their potential to further the goals. A weighting system is used to create SDG Core and Focus hypothetical portfolios of eligible government bonds.

Footnote

¹⁴ www.researchgate.net/figure/International-Credit-Rating-Agencies-Scores-Meanings-and-Color-Coding_tbl3_332126048

There are several ways to invest in the SDGs. One is to look for bespoke investment products that directly target the equities or credits of companies contributing to one or more of the 17 goals. Many now exist on the market, though the arena is still considered niche and relatively new, with most funds appearing only in the 2020s.

Another way is to look for investment funds that target a specific SDGs, such as SDG 3 (Good health and well-being), SDG 5 (Gender equality), SDG 6 (Clean water and sanitation) or the biodiversity-related SDGs 14 (Life under water) and SDG 15 (Life on land). Bespoke funds have been around for many years, in some cases actually pre-dating the SDG it became associated with.

You can also look for a theme such as renewable energy and climate change, which encompasses several of the SDGs, in this case SDG 7 (Affordable and clean energy), SDG 12 (Responsible consumption and production) and SDG 13 (Climate action). These often overlap with megatrends such as consumer trends, fintech, new materials and innovation which underpin many of the SDGs.

Three themes that are particularly gaining traction are renewable energy, the circular economy and biodiversity.

• Renewable energy is a genre of investing in its own right that now straddles impact investing and mainstream sustainable investing. Once considered niche, the solar, wind and hydroelectric power industries have become an important part of the international energy mix, accounting for 28% of global energy production in 2020. Investing in renewables, however, is often done indirectly through more mainstream investing.¹⁵
  
  
  

• 2020 saw the launch of several funds targeting the circular economy. These aim to replace the current ‘take-make-waste’ model of production and consumption, which relies on the continual use of resources. To this end, such funds invest in companies engaged in activities starting with ‘re’: recycle, reuse, refurbish, repair, redesign, recover. There is no specific SDG for the circular economy – although its tenets are represented in several of the goals, such as SDG 8 (Decent work and economic growth), SDG 12 (Responsible consumption and production) and SDG 13 (Climate action).
  
  
  

• Biodiversity has emerged as a new investment frontier, though integrating biodiversity into investments remains a complex exercise, in part because of lacking standardized data and methodology. It must be considered through the lens of ‘double materiality’ – the reciprocal effects companies and nature have on each other. Biodiversity investment strategies focus on companies that support the sustainable use of natural resources and develop technologies, products and services that help to reduce biodiversity threats or restore natural habitats. Biodiversity benefits three of the goals: SDG 13 (Climate action), SDG 14 (Life under water) and SDG 15 (Life on land).
  
  

One form of SDG-related investing has become an asset class in its own right – green bonds. These are debt securities that are exclusively used to promote environmental projects and are issued mainly by governments, municipalities and NGOs.

For a bond to qualify as ‘green’, its proceeds should be used for projects with clear environmental benefits, such as renewable energy or waste management. The first green bond was a Climate Awareness Bond issued by the European Investment Bank in 2007. It is becoming increasingly mainstream, with EUR 700 billion of green bonds now in circulation.

Over the last decade, green bonds issuance has increased exponentially. Sustainable bond issuance topped more than USD 1 trillion 2023, bolstered by record levels of green bond sales, reaching USD 575 billion, slightly ahead of 2022. The largest green bond sale of 2023 was a EUR 10 billion issue by the Italian government. ¹⁶

Figure 13: Green bond and wider sustainability-linked bond issuance

Source: Bloomberg

The most popular approach for integrating the SDGs within investments is via thematic strategies, with 25% of investors now doing this, according to the Robeco Global Climate Survey 2023. A further 22% were integrating the relevant SDG metrics into their analysis for existing portfolios, and 21% were applying non-SDG metrics such as those from the Sustainability Accounting Standards Board (SASB).

Regarding engagement, some 17% of investors were actively engaging with their investee companies to improve their performance on specific SDGs, while 16% were doing so as part of impact investing portfolios, the survey showed.

Figure 14: Preferences for SDG-related investing

Source: Robeco Global Climate Survey 2023

This kind of engagement can be a powerful means of improving companies’ SDG scores and wider ESG metrics in general. Not all asset managers have active ownership teams, so an asset owner will often ask a potential manager if they have such a team during the procurement process, so as to ensure a voting and engagement capability for their assets.

It can be even more powerful when investors band together. In May 2020, Robeco played a role in getting a former wind power executive appointed to the board of the Italian energy company Enel, in collaboration with the Climate100+ investor initiative. He is helping to moving Enel away from its exposure to fossil fuels and point it toward renewables, in an effort to make the company carbon neutral by 2050.

Further collaborations have resulted in engagement with the governments of Brazil and Indonesia to try to stop deforestation. Aside from the obvious impact on SDG 15 (Life on land), stopping deforestation is a key component of SDG 13 (Climate action). Engagement thereby directly contributes to both SDGs.

You should now understand the different investment vehicles available for the SDGs. Some strategies target the equities and bonds of companies that can contribute to one or more of the SDGs. Others use sectoral themes such as renewable energy and the circular economy, or more indirect approaches such engagement to stop deforestation.

Footnotes

¹⁵ https://www.iea.org/reports/global-energy-review-2020/renewables

¹⁶ https://www.bloomberg.com/professional/insights/trading/green-bonds-reached-new-heights-in-2023/

The UN collects statistics from its member states to track progress in achieving each of the 17 SDGs. At the half-way stage in 2023, some eight years after their adoption and with just seven years until the 2030 deadline, the UN’s Progress Report pulls no punches in saying how the world is not on track to meet the goals.

“Progress on more than 50% of targets of the SDGs is weak and insufficient; on 30%, it has stalled or gone into reverse,” says António Guterres, Secretary-General of the UN, in his introduction. “These include key targets on poverty, hunger and climate. Unless we act now, the 2030 Agenda could become an epitaph for a world that might have been.¹⁷

Figure 15: Progress on the SDGs at the half-way stage

Source: UN.

Things were made more difficult by the 2020-22 Covid pandemic that saw much economic activity come to a standstill. An urgent need to address a global health care crisis made less money available for investing in other initiatives such as the SDGs, and ‘progress’ in some cases went backward. War and related economic impacts have also taken their toll.

“The impacts of the climate crisis, the war in Ukraine, a weak global economy, and the lingering effects of the Covid-19 pandemic have revealed weaknesses and hindered progress toward the goals,” Guterres says. “While lack of progress is universal, it is the world’s poorest and most vulnerable who are experiencing the worst effects of these unprecedented global challenges.”

He says developed countries have not delivered the USD 100 billion a year that was promised from 2020, and that the long-term commitment to spend 0.7% on GDP on foreign aid – including money targeted to meet the SDGs – has not been upheld. He calls for a new ‘Bretton Woods moment’ to replicate the economic package organized to repair the global economy after the Second World War.

The report’s findings are discussed in this video: https://youtu.be/C0D53ZNP6OI

But despite the gloom, much progress has still been made, the report says. The best progress has been seen in SDG 12 (Responsible production and consumption), for which about 35% of the progress is defined as “on track or target met”. Encouragingly, eleven goals have seen some degree of being on track to reaching the half-way stage.

Figure 16: Green is good, but most SDGs are off-track

Source: UN.

Six of the goals show no level of being on track or target met, including SDG 1 (No poverty), SDG 6 (Clean water and sanitation) and SDG 13 (Climate action). The two biodiversity-based goals – SDG 14 (Life under water) and SDG 15 (Life on land) – are a tale of two extremes, demonstrating about 30% of progress but about 60% of regression. SDG 11 (Sustainable cities and communities) is the one for which there is the highest level of insufficient data.

One thing that has improved over time has been the ability to acquire comparable data with which to measure success, and a clear understanding of what the goals are trying to achieve. The number of indicators included in the global SDG database has increased from 115 in 2016 to 225 in 2023, according to the report. The number of data records in the database has also increased from 330,000 in 2016 to 2.7 million in 2023.

Significant strides have also been made in the methodologies that lie behind the ability to measure the SDG indicators. By March 2020, all 169 underlying targets and 232 approved indicators had a well-established and internationally agreed methodology, which ensures the comparability, accuracy, reliability, and usefulness of the UN’s measurements. Moreover, the proportion of indicators that are seen as being “conceptually clear” with strong country coverage has risen from 36% in 2016 to 66% in 2022.

Figure 17: Clarity and perception have been a huge success

Source: UN.

You should now be able to explain why the world is lagging behind in meeting the goals by the 2030 deadline, though there are many positives. The best results have been seen in promoting responsible production and consumption. Strong progress has also been made on data measurement and the clarity of conception of what the goals are about.

Footnote

¹⁷ https://unstats.un.org/sdgs/report/2023/

In the last chapter we saw that it’s important to be able to measure the SDGs’ impacts and successes. Here we outline examples of what can be achieved when investment capital targets the goals.

The bond market is proving a useful means of raising money to further the SDGs, since it ticks all three boxes for impact investing: it is intentional, can make a real-world impact, and generate a financial return. Demand for such securities was shown to be strong in the January 2023 issue of a bond by the World Bank.

Formerly known as the International Bank for Reconstruction and Development, the AAA-rated institution raised USD 5 billion selling a Sustainable Development Bond with a 7-year maturity. It was the first bond in the sovereign, supranational and agency (SSA) market to be issued in US dollars, and attracted the largest order book for a World Bank 7-year bond from other institutions, including regular asset managers.

The proceeds will be used to support the World Bank’s work to end extreme poverty and boost prosperity on a liveable planet. In this way it directly targets SDG 1 (No poverty) and SDG 2 (Zero hunger) and puts SDG 17 (Partnerships for the goals) in action.

What was appealing for investors was that the bond has a triple-A credit rating, is a high-quality liquid asset, and meets the criteria for a sustainable bond that can make an impact. The bond will be listed on the Luxembourg Stock Exchange, pays a semi-annual coupon of 4%, and offers a spread of 16.7 basis points versus the reference US Treasury bond. This makes it a more attractive investment than an equivalent government bond at the same level of virtually no risk.

Some investors prefer to invest more directly in projects that can benefit the SDGs. Vital Capital specializes in underserves communities in emerging markets such as sub-Saharan Africa while also generating risk-adjusted returns. To fulfil this mission, it mainly invests in urban communities, agriculture, healthcare, energy, water and education.

One such project is the Vital Tomosis Dairy (VTD). The Kiruhura District in western Uganda is the country’s main milk-producing area, where cattle farming has been a way of life for hundreds of years. Vital Capital joined forces with a Ugandan dairy expert to build the region’s first dairy processing center, the Vital-Tomosis Dairy. ¹⁸

Sold under the MilkMan brand, the center supplies the local and regional markets with high-quality, affordable milk (UHT and fresh) and yogurt, all sourced from local smallholder farmers. VTD’s dairy processing, sales and distribution team have created over 100 jobs, of which more than 50% are held by women. The investment is thereby directly contributing to SDG 8 (Decent work and economic growth) and SDG 12 (Responsible consumption and production).

Another investment involved turning the Luanda Medical Center in Angola into a world-class clinic with state-of-the-art MRI, CAT scan, digital X-ray and similar equipment. This contributed to SDG 3 (Good health and well-being) among others. Vital Capital also developed the Kora Housing affordable housing platform in the country, building 15,000 new homes and contributing to SDG 11 (Sustainable cities and communities).

Eye health is a problem for millions of people in emerging markets without access to remedies for conditions ranging from cataracts to more serious retinal diseases. Companies that make products that can help will make a significant contribution to SDG 3 (Good health and well-being) and its sub-target 3.8, which promotes access to quality health care services for all.

Alcon, a Swiss-US pharmaceutical and medical device company specializing in eye care products, does this through a number of subsidiaries. Aerie Pharmaceuticals focuses on therapies for glaucoma and other diseases of the eye, while WaveLight develops and manufactures laser eye surgery technologies that can correct cataracts and improve short-sightedness.

In 2022, Alcon’s Surgical and Vision Care division products improved the lives of more than 260 million people – equivalent to the population of Indonesia – who were suffering with eye conditions for which local health care was inadequate to provide remedies. Its work was carried out in over 140 countries.

Also helping SDG 3.8 is UnitedHealth Group, a US health care and insurance company that in 2022 provided health insurance coverage to 70 million people. Its subsidiary Optum has provided in-home clinical assessments to more than 670,000 people in low-income counties.

Robeco’s SI Open Access Initiative allows the scores of more than 10,000 companies to be viewed on the main website. Both Alcon and UnitedHealth score +2 on the SDG Framework.¹⁹

Ending starvation or malnutrition requires innovative solutions to develop more plant-based products that can provide nutritious meals to a wider population, particularly in areas where food supply has been scarce. In this way it contributes to SDG 2 (Zero hunger) and its sub-target 2.4 of sustainable food production and resilient agricultural practices.

The French multinational food products group Danone is making a strong contribution here by developing specialized nutrition, dairy and plant-based products, and bottled water in 120 markets. Its corporate vision of ‘One Planet. One Health’ reflects the conviction that the health of people and the health of the planet are interconnected.

Danone’s plant-based products and beverages line combines natural or flavored beverages made from soy, almonds, coconuts, rice and oat as well as alternatives to yogurt and cream. In 2021, Danone produced more than 1.1 billion plant-based food products, providing millions of people with nutritious meals at a relatively low cost.

Meanwhile, Danone has pledged to reduce the methane emissions from its fresh milk supply by 30% by 2030, having already cut its methane emissions by around 14% between 2018 and 2020. This is the first methane-specific commitment by a major food company, and the first involving livestock. Cattle are major producers of methane, a greenhouse gas that is much more damaging than CO₂. In this way it also contributes to SDG 13 (Climate action) and SDG 15 (Life on land). ²⁰

Danone scores +1 on the Robeco SDG Framework.

• An Indian renewable energy company generates 7.5 gigawatts of wind, solar and hydroelectric power across 15 Indian states. This is equivalent to the output of about ten average-sized coal-fired power stations. Since coal-fired power generation currently accounts for about 75% of India’s energy, this is bringing clean energy to around seven million Indian residents. It subsequently contributes to SDG 7 (Affordable and clean energy) and the wider SDG 13 (Climate action).
  
  

• A Colombian bank offers previously unavailable financial services to individuals and small and medium-sized enterprises (SMEs) in Colombia, Panama, El Salvador and Puerto Rico. Some 27% of the six million customers are first timers in the financial sector. The bank almost tripled the microcredits (short-term loans) granted in 2021, allowing lower-income people in remote communities their first-time access to financial services. This serves SDG 1 (No poverty) by allowing loans to start small businesses and SDG 8 (Decent work and economic growth). ²¹
  

You should now be able to cite examples of the kinds of investments that are benefitting the SDGs, such as the money raised by global AAA sustainable development bonds. Corporate cases show how products and services can benefit one or more of the goals, particularly in previously under-served areas in food supply and finance.

Footnotes

¹⁸ Vital Tomosis Dairy – Vital Capital (vital-capital.com)
¹⁹ How do companies and countries score on sustainability? | Robeco Global
²⁰ methane-matters.pdf (danone.com)
²¹ Source of snippets: Robeco SDG Credits

1. The Sustainable Development Goals are 17 objectives geared toward improving human society, ecological sustainability and the quality of life. They were adopted by the United Nations in 2015. They succeeded the eight Millennium Development Goals and are intended to be achieved by 2030. The SDGs cover a broad spectrum of topics that range from eliminating hunger and combating climate change to promoting responsible consumption and making cities more sustainable. They have achieved widespread support from companies and investors, though a significant funding gap was made worse by the Covid pandemic and progress towards achieving them is waning.
   
   

2. The SDGs present major business opportunities and are relevant for investors because companies produce goods and services that can contribute to the SDGs. To date, investor interest varies among the 17 SDGs. For example, some prefer goals that focus on building infrastructure, where returns are more easily acquired. The Robeco Global Climate Survey showed that SDGs 6 (Affordable and clean energy) and SDG 13 (Climate action) were particularly popular.
   
   

3. Investing in the SDGs is a form of sustainable investing that complements ESG-based investing – but the two things are not the same. ESG ratings typically do not measure the sustainability impacts that companies have; rather, they gauge whether a company’s financial performance is at risk due to sustainability factors. SDG investing seeks to make a measurable difference to one or more of the goals. Subsequently, a company could have a high ESG rating but a poor SDG score, or vice versa.
   
   

4. There are different ways of assessing how companies contribute positively or negatively to the SDGs. Robeco’s SDG Framework uses a scoring system that analyzes the impacts of companies’ products, their operations, and any controversies they might be involved in. This results in scores being given on a scale ranging from -3 (highly negative) through 0 (neutral) to +3 (highly positive). The SDI Asset Owner Platform conducts analysis that is based on a taxonomy which explains each SDG, and defines which of its sub-goals are investible.
   
   

5. Just as companies can be scored, it is also possible to assess the contributions that countries can make to the SDGs, though it requires a different assessment. Robeco’s Country SDG Framework uses a three-step process to give scores based on a nation’s potential to further the goals, and then integrate them into government bond portfolios. A weighting system is used to create SDG Core and Focus hypothetical portfolios of eligible government bonds.
   
   

6. There are many ways of investing in companies and sectors that can make a positive contribution to the SDGs. This can be done through bespoke equity or credits strategies that directly target the SDGs, or via more thematic strategies that target a related theme, such as renewable energy. Green bonds to fund environmental SDGs have become an asset class in their own right. Engagement is also a useful means of improving companies’ impacts.
   
   

7. The overall success of the SDGs at the half-way stage in 2023 has been mixed. There has been poor progress on at least half the goals, much of which stalled during the Covid crisis. The best results have been seen in SDG 12 (Responsible production and consumption). There has also been great progress in data measurement and a 100% understanding about what the goals aim to achieve.
   
   

8. Case studies show how investing in the SDGs can make an impact, from funding dairy farms in Uganda and medical centers in Angola, to improving eye care throughout emerging markets. The bond market is useful means of raising the money, since it can make a meaningful impact while also offering attractive returns at the same time. Funding can directly help under-served areas in food and finance.