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A new framework has been developed to identify investments that will promote the United Nations’ Sustainable Development Goals (SDGs).
The research teams from the City University of New York (CUNY) and Harvard, in conjunction with UBS Asset Management, are seeking to take a more scientific approach than just accepting “the self-disclosure of beneficial actions that are claimed typically by companies themselves.” Instead they will test their framework by analyzing the environmental and health benefits of a $2.1 billion portfolio of public equities managed by UBS Asset Management on behalf of the giant Dutch pension fund PGGM.
The SDGs are “a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity,” according to the UN Development Programme. There are 17 goals focused on tackling issues such as poverty, hunger, gender and income inequality, water availability, sustainable energy, climate change and conservation of oceans and forests. The researchers are focusing on four key areas – water, climate change mitigation, human health and food security.
One fifth of all investments in the U.S. now have a focus on environmental issues and the sector is set to grow strongly for years to come. However, one of the issues facing the sector is that there is still a lack of information on what companies are doing and the impacts of their actions. Much of the information that there is comes from the companies themselves, which are inevitably inclined to highlight the benefits of what they are doing.
Dr Charles Vörösmarty, director of the Environmental Sciences Initiative at the Advanced Science Research Center at CUNY and joint leader of the research, said that the new framework will help investors “evaluate how companies’ actions, products and services support the environment and human well-being. A key is to provide systematic, transparent, and verifiable metrics of success based on well-accepted scientific approaches.
“Other frameworks for measuring corporate sustainability focus on how internal corporate production processes at the facility level support environmental integrity or human beneficiaries but give limited guidance for assessing the longer-term impact of business practices,” he added.
“We need to reframe sustainable development in terms of building our collective natural, human and social capital,” said Dr John Spengler of the Harvard T.H. Chan School of Public Health. “In order to do this our financial institutions need clear signals that the goods and services of companies are actually healing natural systems and providing for the wellbeing of society.”
The team used recent advances in data gathering in several areas, including earth observation, epidemiology and public health and linked the information they gleaned to corporate operational and financial data “to show how products and services can contribute to more sustainable environmental and human systems.”
It is an example of the way that investors are increasingly using big data to provide additional insight into sustainability issues. Dutch asset manager APG, which runs the pension fund of the Dutch civil service, recently acquired a Deloitte Netherlands data analytics unit for sustainable investing. The team “will be tasked with identifying listed companies that make an important contribution to solutions for climate change, or for problems in the areas of health care and education. The team will complement the expertise already available at APG in the areas of artificial intelligence and big data.”
Institutional investors are facing growing pressure to invest sustainably, and to measure the positive environmental and social impacts of their portfolio, according to Dr Dinah Koehler, head of research on the sustainable investment team at UBS Asset Management. The CUNY/Harvard research will make it easier for investors to make direct comparisons between different companies’ sustainability performance, which has been difficult to do but which is “an important consideration when identifying how to make investments that have beneficial environmental and social impacts,” she added.
And it is not just important for investors, Vörösmarty said. “The global effect of this transformation would likely be valued at trillions of dollars in terms of its impact in helping to limit climate change, reduce water pollution and supply stresses, foster human health and counter the widespread loss of ecosystem services.”
