The Principles for Responsible Investment has released a framework for investors to help focus on aligning their activities with the UN’s sustainable development goals.
“Issues such as human rights abuses, climate change and inequitable social structures seriously threaten the longterm performance of economies, investors’ portfolios and the world in which beneficiaries live,” the report said. “Expectations from beneficiaries, clients, governments and regulators over how investors should respond have changed – driven by increased visibility and urgency around many of the SDGs.”
The report emphasized that achieving the SDG outcomes will require investors to broaden their analysis of financially material environmental, social and governance issues to include “a parallel analysis of the most important outcomes to society and the environment at a systemic level.”
While material issues investors examine sometimes overlap with real-world outcomes, they don’t always, the report noted. As the world transitions to further alignment with the SDGs, focusing on outcomes will allow investors to better understand the risks and opportunities ahead of them. Further, they can “identify opportunities in business models, supply chains and products and services; prepare for legal and regulatory developments; protect their reputation and licence-to-operate; meet commitments to clients and beneficiaries – and communicate progress; consider materiality over longer time horizons, to include transition risks, tail risks, financial system risks etc.; minimize the negative outcomes and increase the positive outcomes of investments.”
The framework the PRI established to push these goals forward has five components. First, investors should identify outcomes by assessing the unintended outcomes of their own business operations. “This assessment involves identifying positive and negative real-world outcomes related to investees’ operations, products and services. It can build on activities such as mapping existing investments to the SDGs and determining the scale of investments in explicitly SDG-aligned activities.”
Second, investors should put targets and policies in place to take intentional steps to shape better outcomes, with an eye toward the reality that many outcomes are interlaced, such as climate change and water scarcity, food security and poverty. And third, investors could then act in accordance with those policies and targets and measure and report progress.
Part four of the framework is considering the contributions of the financial system. “Shaping outcomes in line with the SDGs at the financial system level takes place both through aggregating the actions of individual investors, and from investors acting collectively – including alongside other financial system participants such as credit rating agencies, index providers, proxy advisors, banks, insurers and multilateral financial institutions,” the report said.
Finally, investors should recognize that no single set of actors will be able to achieve the SDGs in isolation and that collaboration between finance sector, businesses, governments, academia, civil society, the media, individuals and their communities is required to achieve the desired outcomes.
The PRI is in the process of making revisions to the its reporting framework, with an initial set of questions on outcomes set to piloted in 2021. “This report is only the beginning in bringing together thinking on ESG risks and opportunities with thinking on the potential to shape SDG outcomes. The scale of the challenge will require working with others across the finance sector, as well as with other key stakeholders.”