The global journey towards achieving the SDGs provides investment opportunities many investors are keen to grasp. Although some investors have already adopted strategies to capture these benefits and avoid the risks presented by ignoring the SDGs, many are still seeking answers to the question of if and how the SDGs will affect their investment strategy, policy, asset allocation and other investment decisions.

Not taking account of the SDGs could jeopardise comprehensive fulfilment of investors’ fiduciary duty. The PRI’s Fiduciary duty in the 21st century concluded that as part of their duty to beneficiaries, investors must consider all financially material factors, regardless of their origin. Far from fiduciary duty being a barrier to considering sustainability issues, the report finds that there are positive duties on investors to incorporate them, and this belief is supported by a growing number of policy makers and regulators.

One approach policy makers are taking (notably including the UK’s Law Commission), is to set out a two-step system: firstly, all financially material factors (including financially material ESG factors) must be considered; secondly, ethical/ non-financial factors can be considered should there be evidence to suggest that beneficiaries are in favour and that such an investment decision is not detrimental to the fund’s long-term value. The second part of the approach is brought into play by the often key concepts of loyalty and prudence increasingly being understood as taking into account beneficiaries’ long-term interests, such as the condition of the environment and society that they and future generations will inhabit.

As the UK example shows, investors should take the longterm interests of their beneficiaries/clients into account. This includes activities that aim to prevent or even combat the root causes of systemic risks.

In general, the SDG agenda reflects beneficiaries’ ultimate interests and why taking them into account is part of fiduciary duty. Additionally, beneficiaries may share more specific common values or may view the achievement of certain specific ESG objectives as a logical consequence of their professional or other background (e.g. a pension fund for textile workers may have a special interest in labour rights in supply chains or the teachers’ pension fund in access to quality education).

Unfortunately these thoughts about fiduciary duty are not yet adequately reflected in all regulatory frameworks. As part of the fiduciary duty project, the PRI, UNEP FI and The Generation Foundation have published detailed roadmaps across the world’s major capital markets, setting out policy and practice recommendations to overcome barriers to a fiduciary fulfilling the sustainability considerations of his or her duty.

The SDGs impact upon the capital markets in a number of ways, but the most relevant for our purposes are:

  • the SDGs are a global consensus on long-term goals, and investors have a role to play in achieving those goals;
  • they act as signposts for economic actors and public sector policy, which will impact finance;
  • they can be used as a framework for measuring real-world impact at the investor and system level.

So, when considering the wider role of finance in society, the SDGs are likely to become the common framework with which to shape future investment decisions and against which to judge the utility of finance.

“At Cbus our priority is investing to generate the best outcomes for our members and ensuring our strategy delivers sustained value. A sustainable global financial system requires the realisation of the SDGs. That is why we are committed to investing in a way that contributes to the achievement of these ambitious goals and encourage others to join us.”

David Atkin, CEO, Cbus

“Institutional investors should be in the business of investing for the long term well-being of their beneficiaries. After all, nobody wants to retire into a world ruined by poor corporate practices. The SDGs provide the best guide as to how to build the world we all want. That’s why at Aviva we’re bringing together others to build a set of free, publicly available benchmarks to show how well companies are doing in contributing to – or working against – the aims of the SDGs. We believe everyone needs to work together to deliver the bold aims of the SDGs and a healthy future for all.”

Steve Waygood, Chief Responsible Investment Officer, Aviva Investors

“As a fiduciary investing on behalf of our institutional clients, Western Asset seeks to identify investments which will deliver superior and consistent returns over the long-term horizon. We believe that the Sustainable Development Goals (SDGs) are vitally important to the health of the global economy and as such, fully synergistic with our investment objectives. Through our engagements with issuers, we seek to increase transparency around environmental, social, and governance factors, and through our partnerships with clients, we seek to increase understanding of the importance of the SDGs.”

Western Asset

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    The SDG investment case

    October 2017

Produced in collaboration with PwC

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