Andreas Hoepner, Professor of Operational Risk, Banking and Finance at University College Dublin, says lawyers should include a reference to sustainability goals in corporate bond covenants. ‘Legal practitioners are the ones drafting covenants – they should recommend clients involved in long-term refinancing exercises to incorporate and accurately report on the SDGs. Investors will appreciate it.’
Increasing investor backing
Since the launch of the SDGs in 2015, institutional investors and asset managers have been vocal in their support. ‘Many investors are really aligned with the SDGs – this is somewhere where I do see a push,’ says Hyland.
But, according to a survey by French bank Natixis, published in September 2018, investor expectations on companies’ SDG contributions are ‘far from being met’. The survey involved 42 investors with combined assets under management of $14tn – including BlackRock, Legal & General Investment Management and UBS Asset Management. It found investors are committed to further integrating the SDGs into their own portfolio management. Many also offer specific products linked to the goals, such as SDG-focused funds.
In response to investor dissatisfaction, Natixis launched a methodology to address SDG contributions and ensure they are backed by sufficient evidence. In addition, in September 2017, UK insurer Aviva joined forces with Dutch non-profit, the Index Initiative, and the US-based UN Foundation to develop benchmarks that rank companies on their contribution to the SDGs. The launch of the World Benchmarking Alliance (WBA) noted that while many companies are aligning their business models with the SDGs, information on their performance is often hard to access and compare. The WBA benchmark aims to bring more transparency and aid investment decisions or policy efforts.
I have yet to see the SDGs having a particular influence on the funds, investment managers or investors for whom I have been acting
Co-Chair, IBA Investment Funds Committee; partner, A&L Goodbody
If institutional investors begin backing the SDGs at scale, it could significantly boost progress towards meeting the goals. The UN estimates that $85tn is parked in long-term investment vehicles, and some argue this should be invested in projects and companies supporting the SDGs.
But, despite efforts by some asset managers and institutional investors, sustainable development is not yet a core part of risk management and investment strategies for most investors. ‘I have yet to see the SDGs having a particular influence on the funds, investment managers or investors for whom I have been acting,’ says Brian McDermott, Co-Chair of the IBA Investment Funds Committee and a partner at A&L Goodbody in Dublin.
Hyland believes not enough has been done to promote the SDGs to the wider investment community ‘in a way that actually resonates with an investment firm in London, for example’. Some investors think the SDGs are a ‘UN-based ambition, only referred to when humanitarian response is required’ and don’t realise the day-to-day duties investors and businesses need to undertake to help meet them, he says.
Jakob Thomä, Managing Director at climate and finance-focused think tank 2° Investing Initiative, agrees that some of the SDGs are not understood by or accessible to investors. They might ask ‘what can a European pension fund really do about child mortality, for example?’ he says.
In Natixis’ survey, some respondents said corporates and investors can only make greater strides on the SDGs if they see more action at state level. ‘SDGs have been signed by countries, not by companies,’ said one unidentified investor who took part. ‘Although it’s clear that companies have their share in contributing in the achievement, it’s much more countries and states that should be [at] the forefront.’ If anything, governments have to help ensure SDG-related investments are de-risked so that institutional investors can back the goals, while also getting a long-term return. ‘There’s no lack of finance – but pension funds have a fiduciary responsibility to get market returns,’ says Paterson-Jones.
McDermott says environmental, social and governance issues are ‘much discussed’ in the funds and investment space, which will increase investor focus on the SDGs. ‘It’s only a matter of time before we see it having a significant impact on our clients, whether as a result of investor, legislative or regulatory pressures – or a combination of some or all of them.’ Elza Holmstedt Pell is a freelance journalist and can be contacted at firstname.lastname@example.org