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Investing in the UN Sustainable Development Goals: Opportunities for Companies and Investors
Author(s) -
Schramade Willem
Publication year - 2017
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/jacf.12236
Subject(s) - performance indicator , sustainable development , incentive , business , set (abstract data type) , investment (military) , norm (philosophy) , key (lock) , risk analysis (engineering) , environmental economics , finance , process management , computer science , economics , marketing , computer security , political science , law , programming language , politics , microeconomics
The UN's Sustainable Development Goals (SDGs) are a set of ambitious targets for making the world a better place. For both companies and their investors, the pursuit of SDGs offers a “path to value” while addressing social problems—but a path that presents significant risks as well as opportunities. To prepare themselves for the SDGs, companies and investors will have to take a number of steps: (1) determine the extent of their exposures to those SDGs that are most relevant to their businesses or investment approaches; (2) set specific goals for contributing to the most relevant and material SDGs, which means among other things reflecting such goals in incentives through the use of carefully designed metrics, or key performance indicators (KPIs); and (3) establish a system for measuring and reporting on contributions to the SDGs. For investors, it is important to recognize that not all SDGs are equally investable and that reporting on key SDG performance indicators is still too new and uneven to rely on for investment purposes. To overcome this problem, the author's firm has developed a tagging approach that alerts investors to companies' main SDG exposures. As better data becomes available, the metrics and reporting will improve. Although companies are increasingly referring to the SDGs in their investor communications, corporate discussion of targets and KPIs on the SDGs is rare. But reporting of such KPIs is likely to become the norm as investors begin to expect companies to report on their progress on achieving their goals. The author offers a number of hypothetical KPIs for SDGs while providing several examples of pioneering companies.