Equity investors are increasingly thinking about how their decisions affect society. The United Nations’ Sustainable Development Goals (SDGs) provide a good road map for identifying investments that can make an impact—and generate profits as well.
The UN SDGs represent an aspirational view of what the world could look like by 2030. Introduced in September 2015, the 17 goals and 169 specific targets address areas of critical importance to humanity, including eliminating poverty and hunger, improving access to education and healthcare, and addressing the negative impact of climate change (Display). Crafted and agreed to by 193 developed and developing nations, the SDGs attempt to build on the earlier Millennium Development Goals and accomplish what they did not achieve.
The SDGs are not without controversy. Critics argue that there are too many individual targets, while some goals lack focus, are vaguely worded, or are difficult to measure and track. Some goals are seen as too expensive to implement or even contradictory with other goals. There is some truth to each of those claims.
But does that mean that there is no value in the SDGs or that they are not relevant for investors? We’d say just the opposite. In our view, the SDGs provide a powerful investment framework for active equity investors looking to achieve strong long-term investment results and also have a positive societal impact. Despite the complexities, we view the SDGs as a 15-year blueprint that highlights key opportunities for businesses—and attractive, differentiated trends for investors.
SIZING THE OPPORTUNITY
The costs of achieving the SDGs and, therefore, the opportunities for companies that can help address them are huge. Key areas of investment need are in basic infrastructure, notably transportation, energy and telecommunications. The UN estimates the annual price tag for meeting the SDGs globally in the US$5 trillion−$7 trillion range. Actual funding falls far short of that figure, equating to an annual gap of $2.5 trillion, with developing nations accounting for most of the deficit.1
VITAL ROLE FOR PRIVATE SECTOR
Given the sheer size and scope of these goals, philanthropy and government spending alone won’t be enough to get the job done. It is imperative that the private sector—and equity investors—play a significant part in providing solutions. In the US, for example, the investment capacity of the 500 largest companies is more than 11 times larger than that of all of the country’s charitable foundations combined (Display).
Mobilizing private sector support for the SDGs will require solid evidence that such investments can pay adequate returns. There are reasons for optimism here. According to a recent comprehensive study from the Copenhagen Consensus Center, investing equally across all 169 individual SDG targets would yield $7 in benefits for every dollar invested. Focusing on the targets with the highest-expected social payback could boost that return on investment fourfold.2 That’s a powerful incentive.