How to integrate SDGs into government bond portfolios

It’s an important question to tackle as the SDGs face a significant financing gap. It is estimated that the annual shortfall for attaining the SDGs by 2030 is around USD 2.6 trillion, or 2.7% of global output. With the burden disproportionately falling on poorer nations, there is a need to explore additional funding sources beyond public and multilateral financing. The private sector, including traditional financial institutions, can play a crucial role in bridging this gap.

Sovereign debt, specifically government bonds, can be a significant financing channel for sustainable development. Yet it is unclear which countries’ bonds should be prioritized in SDG-aligned investment portfolios. Existing sovereign ESG ratings, while useful for managing ESG-related financial risks and opportunities, are not designed to guide investors supporting the SDGs.

Moreover, these tend to favor wealthier nations, neglecting those in greater need of funds. Consequently, a rating system specifically directing investors towards bonds that promote the SDGs is essential.

To meet this challenge, Robeco has developed a second framework that assesses the credentials of nations in being able to make further progress on one or more of the 17 goals. It advises on how investors can integrate the SDGs into government bond portfolios by applying in essence the same kinds of SDG scores to countries as it does to companies through the original SDG Framework.

In our new brochure, we outline how the Country SDG Framework analyzes countries in three steps. We show the distribution of SDG scores and then illustrate how these can be used to create government bond portfolios in support of the goals.