SDG Framework

The SDG Framework assesses whether companies are supporting or harming a transition to more sustainable societies. This assessment serves to screen companies on their suitability for inclusion in equity and credits investment funds based on their contributions to the goals.

Companies are assessed on a scale ranging from -3 (highly negative contributions) through 0 (neutral) to +3 (highly positive). They are evaluated on each of the individual goals and given a total score that is indicative of their overall impact on the SDGs.

The framework asks three questions when making these assessments:

• What does the company produce?

• How does it go about producing it?

• Has it been involved in any controversies?

With these scores, we are able to integrate the SDGs into investment strategies. We can avoid companies with negative scores to ensure that no substantial harm to sustainability objectives is caused by our investments, or we can only allocate to the leaders.

Our SDG Framework proved to be so successful in assessing sustainability that it is now used across most of Robeco’s mainstream equity and fixed income strategies as a core sustainability component. It’s also used in the multi-asset range of funds as it can encompass both the equity and credit asset classes.

An invaluable aid

In its seven years of use, we have found the Framework an invaluable aid in assessing a true level of sustainability that ESG ratings alone cannot cover. This is partly because a company could have a high ESG rating but a low SDG score. A tobacco company with low carbon emissions, good labor relations and excellent governance, for example, could get a high ESG rating. But its product is harmful for health and so it would generate a low SDG score. The issue is more fully addressed in two recent insights on the issue. ¹

And since the transition to a low-carbon world is becoming increasingly important, the SDG Framework can help assess a company’s preparedness, particularly scrutinizing whether companies provide solutions for tackling climate change, halting biodiversity loss, or improving people’s health and well-being.

All companies in our investment universe are now covered by the SDG Framework, making it an invaluable research tool for Robeco’s analysts and portfolio managers. Many other asset managers use ESG scoring in the investment process, and some look at contributions to the SDGs – but there are few who can do both with their own research tools.

¹ See Measuring sustainability performance: comparing an SDG score with ESG ratings and Do ESG ratings align with popular thematic impact funds?

Following the success of the corporate framework, Robeco went a step further in creating an SDG Country Framework that assesses the contributions that nations as a whole can make to the goals. Inspired by the corporate framework, our country SDG assessment is also rooted in a three-step process:

1. Policies
   In step one, we measure if countries have policies that enable additional progress toward achieving the SDGs. We use roughly 100 indicators linked to SDG targets, such as maternal mortality rates for SDG 3 (Good health and well-being). The data is analyzed via machine learning techniques.

2. Capital
   Step two assesses whether countries need additional capital to attain the SDGs. We consider income classification and corruption levels as one variable. This enables us to support the money to flow in the areas where it is most needed to make progress on the SDGs.

3. Behaviors
   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.

The scores make it possible to integrate the SDGs into government bond investing, which we view as the next frontier in sustainable sovereign investing.

Robeco is a strong believer in spreading sustainability but accepts that some investors lack the know-how or data to pursue it. Moreover, we want to facilitate academic research in order to drive novel insights that can advance sustainable investing.

That’s why we launched the SI Open Access Initiative to make our valuable proprietary data available to a wider audience. We offer free access to the SDG scores of over 10,000 companies.

It is a two-way street, as it also enables us to receive feedback on how stakeholders view the data gathering, so that we can improve our framework even more. We expect that this kind of collaboration will encourage a much deeper grasp of the SDGs, help the investor community understand the risks and opportunities involved, and optimize approaches to SDG-based investing.