News Every Day | 10 July 2020, 22:00

Big investors, we can’t fight poverty or protect the planet without you

When the Sustainable Development Goals (SDGs) were first adopted by global governments at the United Nations in 2015, they were designed as an ambitious universal call to action to end poverty, protect the planet, and ensure growing global prosperity, with a target of the year 2030. With 10 years left to fulfill these goals and the broader 2030 agenda, the SDGs have never been more relevant.

Today, as we grapple with an unprecedented global health crisis and the economic consequences that follow, we are also seeing many fractures within society, with tens of thousands taking to the streets across the globe in a historic display of outrage over racial inequality. The potential real-world consequences of falling short in delivering on the SDGs could not be clearer.

Many investors and corporate leaders, along with elected officials and governments, clearly recognize their inherent responsibility to respond to these tumultuous times with solutions that foster change and help us to address some of the most pressing and urgent issues we face, ranging from climate change, human rights abuses, inequality, and social inclusion. However, while public sector leaders who neglect the imperative of addressing issues that the SDGs seek to mitigate can be held accountable at the ballot box, those in the private sector have traditionally not had the same level of scrutiny.

Thankfully, this is starting to change. Our private sector model that has been built around Milton Friedman’s economic theory and a shareholder-first, profit-first mindset is moving toward a more inclusive “stakeholder capitalism” approach. This approach moves beyond shareholder primacy and considers a wider set of stakeholders including employees, suppliers, and communities, as evidenced by the Business Roundtable’s statement on the purpose of the corporation.

On the investor side, at the Principles for Responsible Investment (PRI), we are seeing an increasing number of signatories send strong messages to companies through their engagement and proxy voting activities on their expectations around the incorporation of ESG issues into a company’s strategies and business plans, as well as the role they expect them to play in our broader society.

However, with the sheer scale of the challenges we now face, things are not changing fast enough, and we need to see more action to back up these words. We need to know that these words are worth more than the paper they are written on. The SDGs clearly have a role to play in aligning the demands of governments, business, and investors with civil society, which is why the PRI has released a new framework on Investing with SDG Outcomes to support those signatories that are seeking to shape outcomes in line with the SDGs.

All investments have outcomes in the real world that can be both positive and negative, and investors have the ability to shape both the positive and negative outcomes of pressing global issues. This means looking beyond financially material environmental, social, and governance (ESG) issues alone, and tackling societal and environmental factors on a systemic level as part of their investment strategies, and wider collaborative actions, to support the achievement of the SDGs by 2030. It means not just thinking about the returns they make for their beneficiaries and clients, but also to consider the world in which those beneficiaries live and want to retire into.

The framework emphasizes that investors can use key levers, including investment decisions, stewardship of the companies they invest in, and engagement with key stakeholders to shape outcomes in line with the SDGs—and the critical role for collective action.

As a starting point, investors can begin by understanding the unintended outcomes from their current investments. But to have a real impact, they will need to set policies and targets to shape outcomes in line with the SDGs, including a focus on both increasing positive outcomes and decreasing negative ones. If the COVID-19 pandemic and ongoing unrest around racial inequality has taught us anything, it is the importance of working together toward our common goals. That is why the PRI’s framework also encourages investors to collaborate with stakeholders such as businesses, governments, academia, NGOs, the media, and the broader public in order to achieve outcomes in line with the SDGs.

Some investors are already successfully implementing systems to align investments with the SDGs. Investment managers such as Actis in the United Kingdom have developed in-house tools to identify, measure, and monitor the positive social and environmental outcomes of their investments. U.K.-based Aviva Investors applies an ESG-balanced scorecard approach to analyze proposed real assets transactions, complemented by an impact overlay to consider a project’s potential contribution to the SDGs.

Ultimately, no person is an island, and no investor or business can thrive in the long term in a world that faces continued upheaval and uncertainty. It’s time investors recognize the unique role they have to play in addressing the biggest challenges we face.

It’s time they start playing a bigger role in being part of the solution.

Fiona Reynolds is CEO of Principles for Responsible Investment, a United Nations–supported nonprofit made up of institutional investors committed to integrating environmental, social, and governance issues into investment decision making.