There's a world of opportunity to help your clients who are looking to make a difference while creating long-term value in the process. The challenge can be knowing where to start. Fortunately, a global framework for sustainable development has emerged to serve as a meaningful launching point for helping investors seek opportunities to contribute to positive societal change.
In 2015, the United Nations (UN) adopted the Sustainable Development Goals (SDGs), a set of 17 goals that serve as a blueprint for achieving a more sustainable, inclusive and prosperous world for all by 2030. The SDGs consist of ambitious goals for all countries. In addition to supporting humanitarian objectives such as ending poverty, eliminating hunger, and improving access to clean water and sanitation, the SDGs also focus on responsible resource management, improved gender equality, responsible consumption and production, full employment, economic growth and improved access to clean energy. In short, they encompass the environmental, social and economic dimensions of sustainable development.
Although global in scope, achieving the SDGs will require meaningful action at the national, regional and local levels. Governments will be responsible for leading these efforts, but investors will play an essential role as well.
The UN Conference on Trade and Development estimates that between US$5 trillion and US$7 trillion of investment capital will be required annually to achieve the SDGs by 2030. Much of this capital will be needed to finance the transition to clean energy as well as climate change mitigation efforts. However, significant investments in food security, telecommunications, transportation, water and sanitation, health and education will also be required. These are all areas in which advisors and asset managers who have expertise in responsible investments (RI) will be able to help their clients look for profitable and impactful investments.
RI incorporates environmental, social and governance (ESG) factors into the selection and management of investments. Thus, it's no surprise that responsible investors and companies have been early adopters of the SDGs. Recent analysis from MSCI ESG Research found that 41 companies in the MSCI ACWI index already referenced the SDGs in some way nine months after the goals were adopted in September 2015.
"The referencing represents a start that promises to become increasingly important to institutional investors that aim to contribute to global stability and prosperity in the long term," the MSCI ESG Research report stated.
A growing number of RI mutual funds support specific themes within the SDGs. On the environmental side, thematic investment opportunities abound. For example, NEI Environmental Leaders, AGF Sustainable Growth Equity and Desjardins SocieTerra CleanTech mutual funds invest in environmental opportunities such as clean energy, pollution control, water management, energy efficiency and sustainable agriculture.
Investors can gain exposure to similar green themes in fixed-income. For example, Desjardins SocieTerra Environmental Bond Fund invests in an international portfolio of green bonds while CoPower Inc., a Toronto-based exempt-market dealer, and SolarShare, a Toronto-based provincial co-operative, issue green bonds that provide investors with exposure to renewable energy and clean technologies.
There are also RI mutual funds that target the social aspects of the SDGs. Bank of Montreal's BMO Women in Leadership Fund invests in companies that have a female CEO or a board of directors with at least 25% female representation. OceanRock Investments Inc. is engaging with companies in its portfolios to increase the representation of women in senior leadership positions and calling for more formal and transparent gender-diversity policies. OceanRock also allocates a portion of its portfolios to impact investments, such as affordable housing, healthy and sustainable food production and micro-loans to entrepreneurs living in low-income countries. OikoCredit's Global Impact GIC invests in microfinance and other areas aimed at lifting people out of poverty internationally.
SGD-themed benchmarks and analytics are also on the rise. For example, the MSCI ACWI sustainable impact index consists of companies whose core business addresses at least one of the world's social and environmental challenges outlined in the SDGs. The constituent companies in this index are focused on health care, education, affordable housing, clean energy, green buildings, sustainable water and other themes that are linked directly to the SDGs. In addition, firms such as Sustainalytics, Vigeo-Eiris and MSCI provide research and metrics for institutional investors to measure their exposure to companies that are aligned with the SDGs.
There's certainly a long way to go to achieve the SDGs. Ensuring a more sustainable, inclusive and prosperous world for all will require significant evolution in business practices alongside policy, financial and technological innovation. It will also require a tremendous amount of capital, which means responsible investors will play an essential role in the process.
The SDGs are already contributing to a proliferation of opportunities for investors to align their portfolios with sustainable development. With such a wide range of opportunities available, advisors who focus on RI are well positioned to serve the growing number of clients looking for investments that generate long-term value while contributing to positive societal change.