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ESG

ESG Newsletter published on April 12, 2019

Bringing Company SDG Efforts to Light

In last quarter’s ESG newsletter article on the Sustainable Development Goals (SDGs), we reviewed the story behind their creation. We also outlined ways that companies are beginning to report on their SDG “mapping,” or the links between their operating performance and the SDGs. In this article, we highlight some of the challenges of SDG reporting by companies, and we discuss some of the newest tools for investors to gauge how their portfolio holdings map to SDGs.

Company Mapping to SDGs

Companies present their alignment with the SDGs via a wide range of reporting mediums. Some companies include a prominent profile in their corporate sustainability report (CSR), which can take the shape of an index or table that lists the related corporate business activities next to each SDG. Others detail support in letters penned by CEOs. As an example, in their 2018 CSR this Australian bank discusses how its sustainability strategy aligns with the SDGs:

As companies increasingly discuss their SDG mapping, they are helping bring awareness to the SDGs and smoothing the path of countries trying to achieve the goals. By ratifying the SDGs in 2015, 193 member countries committed to developing the strategies necessary to achieve the 17 goals and 169 underlying targets. It quickly became apparent that governments and civil society would need help from the business community. Therefore, in our view, the global sustainable development initiative is greatly aided by companies affirming their adoption of the SDGs and including them as part of their overall business goals.

Current Challenges of SDG Reporting

In the reporting, however, companies face headwinds. The primary challenges with SDG reporting are as follows:

  • Mapping is open to interpretation, as there no standards for what is required of companies to comply with each goal.
  • Given no requirements for SDG reporting, companies must self-disclose, and investors may not receive sufficient detail on SDG alignment.

As a result, investors and other stakeholders interested in understanding the alignment between their holdings and the SDGs do not have standardized, actionable data. We believe steps should be taken to demonstrate that SDG alignment is genuine and made with the right intentions. To garner greater acceptance of the SDGs across the marketplace, it will be important for companies and investors to endorse and use SDG reporting frameworks with agreed-upon standards.

SDG Reporting Tools: Moving the Needle on SDG Reporting

Fortunately, market participants are attempting to fill the void by developing mapping methodologies that could be used by companies and investors.

First, the United Nations Global Compact is encouraging its signatory companies to advance the SDGs. The compact provides resources for companies on its website. Additionally, the U.N. Global Compact has partnered with the Global Reporting Initiative (GRI) and the Principles for Responsible Investment (PRI) to ask signatory companies to report on the SDGs. The collaboration seeks to develop SDG reporting standards. The U.N. Global Compact states, “Best practices for corporate reporting on the SDGs have yet to be established.”

Second, a 2018 research paper recommends that SDGs be connected to a company based on the material sustainability topics for its sector, with the materiality determined through analysis by the Sustainability Accounting Standards Board (SASB).1 The authors note how the “mapping can be used as a guide for both companies and investors who want to understand how value-creating ESG performance can contribute to the SDGs.”

Finally, Bloomberg Intelligence (BI) recently developed a tool that enables users to analyze a company’s exposure to the SDGs. Exposure can be measured in two ways: 1) revenues from products and services that could advance the goals of the SDGs; and 2) internal corporate ESG benchmarks, such as those tied to diversity and inclusion, and thereby contributing to SDG Goal Number 5, Gender Equality. BI notes how companies including Schneider Electric SE and Siemens AG have used the BI model to demonstrate SDG alignment.

Our View on the SDGs

Companies are demonstrating their support of the SDGs by highlighting alignment with the goals in prominent locations such as their CSRs, their websites or their communications from management. However, the process lacks standards. We see value in the SDGs as part of investor reporting data, but we believe that the true value of reporting will be realized once more standardized requirements for SDG alignment are in place.

Here at Breckinridge, we have integrated environmental, social and governance (ESG) factors as a supplement to our fundamental corporate research to help mitigate credit risk. Therefore, we view the SDGs as an effective portfolio reporting tool for our clients. In collaboration with our research team, we have developed an SDG alignment map that covers all the securities that we actively follow. SDG alignment reports are available to all clients in our sustainable portfolios.

 

[1] Gianni Betti, Costanza Consolandi and Robert G. Eccles, “The Relationship between Investor Materiality and the Sustainable Development Goals,” May 2018. Available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3163044

 

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