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Integrating SDGs into the investment process

This week I want to highlight a report Blackrock issued this month on how investors can integrate the UN’s Sustainable Development Goals (SDGs) into their investment process. In the report, the team at Blackrock shows that there is an important overlap between the UN’s SDGs and financially material company indicators. Looking at SASB’s indicators, Blackrock mapped 70% of them to an SDG.

Trying to explain why SDGs are important, Blackrock mentions: “The socio-economic impact of global burdens the UN SDGs address is a significant risk for the world’s growth prospects.” And according to their estimates, inaction regarding gender equality, biodiversity loss, and violence and armed conflicts could have a cost near 40% of the global GDP.

 

So, if investing with an SDG focus is as relevant, how can investors do it? Blackrock suggests the following:

  1. Focus on SDGs that are relevant to corporates (i.e., where companies can truly have an impact) and see how the private sector can either add or detract from these goals.
  2. Prioritize: consider your preferences for certain SDGs, the ones which are most urgent, or even the ones where corporates are more impactful.

And if we may add 2 more steps:

  1. Measure contributions using your desired indicators (and for it, the mapping of SASB indicators to SDGs can be useful).
  2. Decide how to incorporate these measures into your investment decisions (explicitly, implicitly).

 

Interestingly, on the mapping of SDGs indicators to SASB indicators “four of the goals constitute over half of all SASB materiality indicators mapped to the SDG country indicators: Clean Water and Sanitation (SDG 6), Decent Work and Economic Growth (SDG 8), Affordable and Clean Energy (SDG 7) and Responsible Consumption and Production (SDG 12).” It is therefore important for investors with responsible investment practices, even if they do not want to actively consider SDGs into their strategies, to keep this in mind. It is likely over time as countries are pressured towards contributing to the 2030 Agenda there will new policies which may impact companies or businesses which are not up to ideal standards. Thus, even if not explicitly doing it for SDGs themselves, it may make sense to do it for the sake of financial materiality.

Most Mexican companies by now have mapped their contributions to the SDGs in their annual reports or investor materials. In our “Mexico: ESG Development in the Public Equity Market” 2020 annual report, we showed 100% of the companies in Capital Goods, Energy, and Metals & Mining had publicly aligned with SDGs mapping their initiatives to individual goals by early this year (there may be more sectors joining this list after we update the report later this year). This should help investors to start their integration process. Over time hopefully the reporting will be more precise, and data will back the claims of contributions. With that, the integration into the investment process will be simpler.

 

Mexican Companies Aligned with SDGs by early 2021Average
Capital Goods100%
Energy100%
Metals & Mining100%
Transportation88%
Banks75%
Construction60%
Materials53%
Consumer Staples50%
Food & Beverages50%
Healthcare50%
Other Financials50%
Consumer Discretionary47%
Telcos & Media44%
FIBRAs27%
Commercial Services Supplies0%
Source: Miranda ESG 

 

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

CEO, Miranda ESG

Contacts at Miranda Partners

Damian Fraser
Miranda Partners
damian.fraser@miranda-partners.com

Marimar Torreblanca
Miranda ESG
marimar.torreblanca@miranda-partners.com

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