What Are The Sustainable Development Goals And Why Do They Matter?

This article originally appeared on Investopedia.com on June 22, 2018.

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If the work you are doing is even tangentially related to impact investing, you’ve likely heard chatter about the SDGs, which is short for the UN Sustainable Development Goals. I mentioned them as one of the top themes I saw in 2017, and they continue to come up at every impact focused event I attend. So let’s do a quick catch up. What are the SDGs, why are impact investing professionals talking about them, and what’s next?

What Are The Sustainable Development Goals and Who Agreed to Them?

The seventeen goals were adopted by the 193 countries of the UN General Assembly in 2015, with a focus on reaching the ambitious goals by 2030. The SDGs call on all countries to “mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind.”

Compared to the Millennium Development Goals (MDGs), which received much criticism and were not thoroughly adopted, the SDGs cover a wider variety of areas, aim to be more measurable, and “call for action by all countries, poor, rich and middle-income to promote prosperity while protecting the planet.” One of the criticisms of the MDGs was that the process did not include representation from the countries most affected by the problems the MDGs set to solve. This time around, the process to develop the goals was more expansive and inclusive. Last month Esther Pan Sloane of the UN Capital Development Fund spoke about the SDGs at Total Impact Philadelphia; she credited the widespread adoption and engagement around the SDGs to the transparent and inclusive negotiation process that formed them.

Each of the 17 goals has its own targets but the goals and targets are closely interrelated. For example, one of the targets for Goal #3, Good Health and Well-Being is, “by 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination.” You can see how this is also related to goals 6 (Clean Water), 7 (Affordable & Clean Energy), 11 (Sustainable Cities & Communities) as well as others.

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So What Does This Have To Do With Impact Investing?

As Impact Investing and ESG integration have grown in popularity, there has been an increasing demand to:

  • Identify metrics for assessing potential impact.

  • Adopt or standardize a materiality framework. (Materiality defines which information is important. For example, for a bank data security is more material than water use.)

  • Quantify and measure the impact of each investment.

 Currently, SASB’s materiality map is likely the most commonly used framework, but many investment firms define their own standards for impact and ESG. The lack of a common language makes it hard for investors and professionals to understand the topic and compare investments.

In the last year and a half at conferences and in my reading, I’ve heard and read an increasing number of calls to use the SDGs as a unifying framework for categorizing, assessing, and measuring impact.

What’s next?

My hope is that our industry will adopt the the SDGs as both categories for materiality and categories for investing themes while continuing to focus on materiality to make sure we measure, analyze, and report on factors that matter.  If we can combine the detailed analysis of materiality with the wide adoption of the internationally recognized SDGs, we could collectively measure the areas where impact investing is the most effective. Obviously, in working towards such audacious goals, government spending and philanthropy will play tremendous roles, but that won’t be enough. Private sector capital can fill some of the gaps and the SDGs can serve as a common framework to get all three sources of funding to collaborate well.

I suspect we’ll hear more and more companies talking about the SDGs in the coming year. Some firms are already beginning to use SDGs as a basis for evaluationmetrics and investment themes.  Along with wider recognition, we may begin to see companies that use the pretty logos as a marketing ploy. Hopefully, along with standardization and maturity of adoption, the impact investing community will develop metrics to identify which companies are making measurable progress towards the underlying goals they have committed to and not just co opting the positive imagery.

The SDGs may prove a useful tool for categorizing types of impact, measuring impact by goal, and showing the positive change each investment makes. Imagine if performance reports and fund fact sheets had impact measurements as a standard feature. When investors and advisors can review recognizable impact metrics- that could revolutionize the way people make investment decisions, and push impact investing towards wider popular adoption.