How we take measuring sustainable impact to the next level
The UN Sustainable Development Goals and the triple bottom line (economic, social and environmental bottom line) is the core of our work at SDG Invest. At this year’s World Economic Forum in Davos, Switzerland there was an in increased focus on sustainable investments, however it also became clear that there is still a need to clarify what is meant by sustainability. Otherwise there is a risk that the use of the term can confuse consumers and increase suspicion and claims of ‘sustainability washing’.
A prevalent discourse in relation to sustainable companies and investments, is the ESG taxonomy. The abbreviation ESG stands for environmental, social, and governance, meaning that an investor or company will take these three areas into account when investing or conducting business. However, at SDG Invest the concept of sustainability goes even further. We do not only want to our investments to consider ESG, we want them to be sustainable leader within their sectors and drive the agenda towards 2030.
However, is it even possible to measure sustainability? And if so, how to go about it? Cicero, a company doing research in the field, presented a report recently, showing that 97 out of 100 financial advisors were “very” or “fairly” concerned about the potentials for allegations of mis-selling of ESG-labelled products. But what is this ESG concept, that advisors worry about, and that seems to be at the center of everyone’s attention? When a company is evaluated on its ESG profile in relation to investments, it is common practice to exclude those companies that work in certain sectors, e.g. weapons and tobacco. And according to Cicero’s report, almost all advisors did exclude these sectors from their ESG investments. However, only 29% of investors were inclined to exclude mining and fossil fuels. At SDG Invest, we have done the ESG evaluation as well, and we exclude all companies that essentially are unsustainable – including mining and fossil fuels. If they are not part of the 2030 development goals, they are not part of the SDG Invest portfolio.
On top this ESG evaluation, we have a unique scorecard at SDG Invest, containing 42 parameters in three overall areas. These areas are leadership, sustainability, and governance. This means, that to make it into our portfolio, companies must perform accordingly in an ESG screening, but also take an active lead in their field of expertise to reach the 2030 Sustainable Development Goals. To us, it is not enough to cut down your CO2 emissions; we want to see that companies are making an active difference in these areas.
Our portfolio consists of 50-100 companies. These are the companies that are best in class in a combination of all of the following: first and foremost economically, then in an ESG screening, and finally in our scorecard, where we emphasize leadership within the 2030 agenda, which is unique when it comes to measuring the active responsibility and leadership shown by a company.
For example, Nestlé, a company in our portfolio, are showing proactive action on plastic and waste management. They have set the goal that 100% of all product packaginging being either recyclable or reusable by 2025. They have identified the plastics that are difficult or impossible to recycle, and these will be phased out of current production, and not be incorporated in any future products. In addition, they have launched a collaborative project with a number of other companies, where consumers can order home delivered groceries, and in this environmental friendly project, all packaging is reusable. The service is comparable to the old school milk man, however, the assortment is much larger. The project is titled Loop, and the aim is to make it easy for consumers to make a choice that is convenient and sustainable. The packaging and containers will include a deposit, and Loop handles all cleaning and re-circulation. A smaller pilot project is to launch mid-May of this year in Paris, New York, New Jersey and Pennsylvania, and roll-out in London through Tesco is planned later this year; the aim is to launch in Tokyo in 2020.
At SDG Invest such initiatives score high in our leadership section. We believe that a highly sustainable approach can be good business, as well as it can work towards the UN SDGs.
We believe that companies can deliver an essential part of the actions needed to reach the Sustainable Development Goals by 2030, and as you can see in our first annual impact report, 49% of CEOs globally agree. The report will be published later this month (February), and we are looking forward to share the results with you. By starting a dialogue, and continuously work to keep companies responsible, we aim to ensure that doing sustainable business will equal top market positions.