What You Should Know About SDGs and Sustainable Investing
Welcome back to another look into sustainable investing. Today we are focusing on a broader concept–changing the way companies think about development and opportunity in the future. Let’s back up, in case you’re new to sustainable investing, sustainable investing is a way for investors to align their values with their investments, pretty simple, right?
Overall, yes! Sustainable investing is an umbrella term for using investments to achieve many different sustainability and social goals. For example, my best friend Heidi is passionate about reducing palm oil use (see ya later, Oreos!); my other friend, Janet, is actively engaged towards equitable pay for educators. No matter what your goals are, whether it’s increasing diversity in the C-suite or avoiding all companies affiliated with tobacco production, as an investor the overall objective remains the same: planning and investing to reach your financial goals while helping the world become a better place.
What is an SDG?
Going back to the title of this blog–what the heck is an SDG? No, it’s not the upgrade from the 5G network. SDG stands for Sustainable Development Goals. A set of interlinked global goals that were adopted by all United Nations Member states in 2015 to focus on a cleaner, healthier and more equitable planet for the future.
“The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including poverty, inequality, climate change, environmental degradation, peace and justice.”United Nations
The hope is that some of these goals can be achieved by 2030 and for others there isn’t a clearly defined end date because we as a collective humanity need to permanently shift some of the ways we do things. This is one of the reasons SDGs are so exciting, the possibilities are ever evolving. See my last blog post to dig deeper into the history of sustainable investing.
How Many SDGs are there?
Here is the list of 17 SDGs as established by the U.N.:
SDGs encourage companies, governments and individuals to start thinking about sustainability in a broader more global scale.
“At its heart are the 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all countries – developed and developing – in a global partnership. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.”United Nations
Examples of SDGs in Sustainable Investing
Where do we see SDGs showing up as investable opportunities? (Please note, this is not investment advice. The following are examples of investable opportunities where fulfilling SDGs is possible, and that’s exciting!) The company Ecolab specializes in water treatment, purification and cleaning. Alright, that already checks the SDG Goal #6 of clean water and sanitation. However, within their company they are also working to reduce their emissions by 10% and reduce demand in operations to increase water supply where they operate. Not only is Ecolab’s primary business supporting SDGs but they are also working internally toward #13, climate action.
Another example of SDGs in the investable world are green bonds used to promote sustainable development in the fixed income space. Green bonds can be used to finance projects aimed at producing environmentally friendly technology, sustainable water management, or supporting sustainable agriculture. The World Bank is one of the largest issuers of Green Bonds. According to the 2019 Green Bond Impact Report India has been one of the largest recipients of Green Bonds totaling more than 2.5 billion rupees. With this kind of investment they’ve backed such projects as the Rampur Hydropower Project, which has generated some impressive results. The report states that this project “aims to provide low-carbon hydroelectric power to northern India’s electricity grid. It produces 1,957,000 megawatts annually, saving 1,407,700 tons of carbon dioxide emissions a year.”
While both examples epitomize what SDGs are all about, at times discerning what is truly a sustainable investment can seem overwhelming. There can be varying definitions of sustainably sourced and different rating systems–that doesn’t even include products that claim to be green, which are not as green as you might think. This is known as “green washing” and it’s far more prevalent than you think. The key here is to do some research. Whether you’re shopping at Target for natural dish soap or investing, make sure you take the time to really understand what is “green or sustainable” about a specific product or investment before going all in.
Sustainable Investing at TCI
At TCI, we offer a sustainable investment portfolio that investors can choose to use to align their values with their financial goals. Our approach primarily focuses on reducing exposure to greenhouse emissions and fossil fuel reserves. Additionally, TCI also incorporates other sustainability considerations, such as operational waste, factory farming, tobacco and toxic spills into the portfolio. We take a systematic approach that provides a high level of diversification, but also assign a sustainability score for all companies. We can then start excluding or penalizing companies that rank poorly and emphasizing companies with the higher sustainability scores. TCI’s sustainability approach can help to fulfill SDGs: #3-Good Health and Well-Being, #6-Clean Water and Sanitation, #13-Climate Action, #14-Life below Water and #15-Life on Land.
No TCI blog is complete without mentioning the importance of diversification, low-cost funds, and making sure you are aligning your investment objectives with your long-term goals. There is a stark difference between a sustainable investment concentrated only on one specific piece of technology to reduce greenhouse gas emissions compared to a portfolio that takes various sustainability metrics into account when building a diversified mutual fund. There are also large price differences too, so please be mindful as you consider different funds and expense ratios.
While the SDGs have provided a fantastic framework and call for action in both the private sector as well as public to start considering these long-term goals, I want to see MORE companies adopting clear, actionable guidelines to work towards these goals. I’d also like to acknowledge that there’s no such thing as perfection. We’re looking for progress and dedicated commitment to move in the right direction. It’s idealistic to think every company is going to have a 0-emissions supply chain, and net zero impact on the environment, but working towards reducing emissions or cleaning up existing practices is critical as we look out into the future. So go out there, take a look at those Sustainable Development Goals, and maybe there are few things you can do to implement to help accomplish a few of those 17. I know I’m working on it!