The United Nations SDGs and their impact on ESG investing
By Rachna Kango - Published September 10, 2023
Full interview available on Sustainability Magazine
When it comes to sustainable investing, it's essential to understand what exactly Sustainable Development Goals (SDG) and ESG are, their relation and the variable impact between the two. The United Nations member states adopted 17 SDGs in 2015, designed as a "blueprint to achieve a better and more sustainable future for all". These SDGs are intended to be accomplished by 2030. In this endeavour, ESG provides a framework for corporations to achieve their sustainability goals.
How ESGs promotes sustainable investment According to a Deloitte survey on millennial buying patterns, 42% of this generation would be more likely to stick with a company if they thought it positively impacted society. Companies that are not ESG-friendly may suffer as millennials surpass baby boomers as the most significant spending demographic. Over time, methods for incorporating ESG principles into the investing process have changed. Although early ethic-based approaches like negative screening are still applicable today, many other new tactics can be included.
ESG investing is thus an investment strategy that creates a framework for business, social and environmental risks. A well-thought ESG investment includes the following factors:
Environmental: Businesses unavoidably impact the environment, but they may create policies to lessen or cancel out those effects or even have a positive impact in areas like carbon emissions, water use, green energy, pollution, and waste management, among others.
Sustainability: Companies' interactions with the people and institutions in their community also have an impact. Policies regarding diversity and inclusion, employment procedures, workplace safety, and charity exemplify how this impact is manifested.
Governance: Businesses have internal systems of practices, procedures, and controls for making decisions, running operations, and adhering to the law. Board diversity, executive compensation, company ethics, fair competition, and financial procedures are all part of governance.
Aligning SDG with company values Companies choose different SDGs aligned with their company values based on several factors. Here's how companies typically approach the selection of SDGs:
Mission and values: Companies first examine their mission and core values to identify the social and environmental issues that resonate with their purpose. They consider how their business activities can contribute to specific SDGs that align closely with their organisational values.
Materiality assessment: Conducting a materiality assessment helps companies identify the most significant social, environmental, and governance issues relevant to their industry, stakeholders and business operations. This assessment helps prioritise the SDGs that are most material to the company's operations and stakeholders.
Stakeholder engagement: Engaging with stakeholders, including employees, customers, investors, and communities, provides valuable insights into their concerns and expectations. Companies take into account the feedback and perspectives of their stakeholders to determine which SDGs are of particular importance to their key stakeholders.
Collaboration and collective impact: Companies explore opportunities for collaboration and collective impact by identifying SDGs that resonate with industry peers, NGOs, governments, and other stakeholders.
Benefits offered by ESG investing
The market share of ESG investing has been continuously increasing for decades, so it's not just a passing fad. A third of the total global assets under management are currently anticipated to be made up of ESG assets, valued at US$4t.
This industry is only anticipated to expand as worries about social injustice, climate change and governance practices become more mainstream. In addition to being better for the environment and our communities, the ESG investment strategy has demonstrated outstanding long-term growth in return. Additionally, it is more durable during market downturns than other stocks.
Similarly, investor risks, like the long-term effects of climate change on enterprises, can be reduced with the aid of ESG investment. More systemic risk reporting openness is required as ESG investments become more popular. Institutional investors and advisors now have access to the knowledge they need to make wiser investment choices and suggestions.
Integrating ESG principles and supporting the SDGs provides companies with several benefits, including enhanced brand reputation, improved risk management, access to capital, increased operational efficiency, attraction and retention of talent, and long-term business resilience.
Furthermore, aligning business strategies with the SDGs helps companies contribute to global sustainability and social progress, fostering a more inclusive and prosperous future.
About the Author (Guest Contributor)
Almost 14 years of experience in strategic and corporate planning roles across sectors like cement, cars, commercial vehicles and power electronics have given me enriching exposure to varied environments and work cultures. I really strive on my problem solving and analytical skills which help me to define a problem and then contemplate its solution. I am an avid traveller who loves to visit new places and explore new things with my family and friends.