Impact investing is increasingly expected to close a looming funding gap to achieve the United Nations Sustainable Development Goals (SDGs). According to the U.N., achieving the SDGs by 2030 will require a total annual global spend of $5 trillion to $7 trillion, with an investment gap in developing countries of about $2.5 trillion. But how do the investors who are willing to step up to the plate know that their money is driving real impact?
Today, the non-profit organization Verra launched the “Sustainable Development Verified Impact Standard,” or SD VISta for short. SD VISta sets out rules and criteria for the design, implementation, and assessment of projects that aim to deliver sustainable development benefits. Under SD VISta, projects must demonstrate to the satisfaction of a third-party assessor that they advance the SDGs. The standard requires direct alignment with SDG targets.
“A standard like SD VISta can play an important role in having an independent assessment of SDG impacts and drive funding towards high-impact projects,” Julie Baroody, Director of Standards Development at Verra, told TriplePundit.
Verra developed and manages the world’s most widely used voluntary greenhouse gas (GHG) program, the Verified Carbon Standard (VCS). Baroody says she has seen the private sector lead innovation in the carbon space and expects that “the private sector and impact investing can have the same kind of effect with the SDGs.”
A recent report from research house Cicero found that 97 of the 100 independent and restricted financial advisors surveyed said that they were either “very concerned” or “fairly concerned” about the potential for ESG (environmental, social and governance) products to be mis-sold to them.
And as Huw van Steenis, a senior adviser to the governor of the Bank of England, recently noted in the Financial Times, the lack of high-quality metrics is a chief obstacle in asset managers adopting ESG principles.
“We need to avoid misleading claims around SDG contributions,” Baroody says, “Our standards are a credible way to say that this is a legitimate project with a verifiable impact.”
The need for more transparency and clear labeling around ESG products is also driving a trio of exchange-traded funds (ETFs) from Impact Shares, which helps organizations translate their social values into an investable product traded on the New York Stock Exchange.
The latest addition, launched last September, is the Impact Shares Sustainable Development Goals ETF, which tracks the Morningstar Societal Development Index.
According to Ethan Powell, CEO of Impact Shares, the fund is designed to provide exposure to companies worldwide with strong policies and practices relative to the SDGs that are actively engaged in the world’s poorest countries, known also as the 47 Least Developed Countries (LDCs).
“We act as a capital bridge to social advocacy causes,” Powell told TriplePundit. “Our social screens are public and very transparent. We provide companies with the ability to understand what is expected from them as corporate citizens from credible social advocacy groups related to important social issues.”
The other two ETFs from Impact Shares reflect collaborations with the NAACP and the YWCA. The former, which began trading in July 2018, is the first of its kind in that investors can allocate money to the companies that have a track record of supporting the NAACP’s vision for corporate America. The latter, launched in August, allows investors to deploy capital in companies that have aligned their business practices with the women’s empowerment standards of the YWCA and nonprofit research firm Equileap.
The SDGA fund has been well received, Powell says, “particularly in Europe, where they are a little ahead of the game. The challenge with the SDGs is that the goals are not written rules for ESG investment fund managers. They are broad aspirational goals designed to reach several constituencies and audiences. With the help of the United Nations Capital Development Fund and Sustainalytics, we synthesized a system of social screens.”
The impact investing firm Swell Investing requires that each company it includes in its portfolios must have revenues aligned with at least one of the SDGs. According to Jake Raden, Impact Analyst with Swell Investing, the team conducts a deep dive analysis of the company’s business practices and then uses a proprietary process to ensure those revenue-generating activities align to specific SDG subgoals.
Like Impact Shares, the emphasis is on transparency. “On the platform you can see exactly which companies are in each portfolio and details of what it does to align with the SDGs,” Raden told TriplePundit. “If you don’t agree that one of the portfolio companies is actually driving towards positive progress, then you can simply exclude it from your Swell ‘mix.’ We allow investors to exclude up to three companies from their overall Swell mix. “
Whether these new standards, funds and platforms will help drive more ESG investment towards the SDGs remains to be seen.
“I think institutional investors get it,” Powell says. “They appreciate the position the U.N. took in 2015, but it takes time to apply their goals into actionable investment strategies. The awareness about the SDGs among the general public is still in its nascent stages but it will eventually spread to the general investing public as the SDGs become more familiar.”
The investment community itself certainly recognizes that it has to walk the talk when it comes to creating forward momentum for the SDGs. Refinitiv, a leading financial market data firm, recently pledged support for the SDGs. The company pledged to be carbon neutral by 2020 as well as reach a minimum of 40 percent female representation in senior leadership roles globally.
“As well as driving changes in investment behavior through our data and insights, this also means caring about our own operational footprint,” David Craig, CEO of Refinitiv, recently announced. “We are increasingly harnessing our core capabilities to drive positive social impact, being smarter with our resources and footprint, and balancing short-term considerations with long-term progress.”
Image credit: United Nations Women/Flickr
Based in southwest Florida, Amy has written about sustainability and the Triple Bottom Line for over 20 years, specializing in sustainability reporting, policy papers and research reports for multinational clients in pharmaceuticals, consumer goods, ICT, tourism and other sectors. She also writes for Ethical Corporation and is a contributor to Creating a Culture of Integrity: Business Ethics for the 21st Century. Connect with Amy on LinkedIn.