Responsible Investment

Advancing SDGs through engagement

The Sustainable Development Goals (SDGs) set out a roadmap for a more sustainable global economy
August 2018

Vicki Bakhshi

Director, Analyst, Governance and Sustainable Investment

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Emma Lupton

Associate, Analyst, GSI

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Risk Disclaimer

Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

 

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

  • Why: The Sustainable Development Goals (SDGs) provide a universally-recognised framework for assessing and accelerating progress towards a more sustainable world.
  • What: As shareholders we discuss important environmental and social issues with the companies we, and our clients, invest in to create positive behavioural change.
  • How: We are engaging with companies on SDG targets where we can have the most impact and influence.
What are the Sustainable Development Goals?

The Sustainable Development Goals (SDGs) set out a roadmap for a more sustainable global economy and society by 2030. Developed by the United Nations, they were endorsed in 2015 by all 193 member states. They build on the Millennium Development Goals (MDGs), but are broader in scope, and have a critical difference – whilst the MDGs focused on government actions, the SDGs look to all stakeholders, including the financial sector and business, to support implementation.

Risk Disclaimer

Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

 

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Figure 1

The SDGs are structured around 17 Goals (Figure 1). Each Goal has a set of targets setting out specific objectives to achieve the Goal, with a total of 169 targets across the 17 Goals.

Since the SDGs came into force in January 2016, they have been increasingly widely adopted as a common and consistent way to articulate sustainability; a survey of 470 corporate sustainability reports by PwC1 found that 62% referenced the SDGs. Amongst policymakers, the SDGs are one of the key foundations of the European Commission’s Action Plan on Sustainable Finance, as well as the G7 Summit which took place this year in Canada.
 

What is the role of investors?

Finance has a critical role to play in achieving the SDGs, by channelling capital towards solutions. We believe that the financial sector cannot be a passive bystander to sustainability challenges, and should work actively alongside corporates and governments within their privileged and trusted position as stewards of capital.

Our clients, rightly, have high expectations when entrusting their money to us. In my view, fulfilling those expectations is not just about the quarterly financial returns we deliver to them. It is also, I believe, about being a responsible member of the investor community, and supporting the development of a sustainable global economy – which, ultimately, will underpin our own and our clients’ long-term prosperity and security.

Richard Wilson, CEO & CIO, BMO Global Asset Management

We also believe that utilising the SDGs can have advantages from a fiduciary duty standpoint2, by providing a macroeconomic view of the key trends in sustainability that can help to shape investor thinking about future opportunities.

Ultimately, achieving the vision of the 2030 Agenda, of a stable environment and society, is essential for laying the foundations to long-term global prosperity and investment performance.

Recognising these points, a growing number of investors are already working to embed the SDGs in their processes. Examples of actions include:

  • Selecting one or more SDG to frame the social and environmental objectives of a pension fund
  • Mapping existing investments to the SDGs, across portfolios or asset classes
  • Setting targets for a proportion of future investments to align with SDGs
  • Using SDGs in company engagement
  • Referencing SDGs in reporting on responsible investment activities

Goal 17 (Partnership for the Goals) strongly promotes a collaborative approach, and investors are joining together to share information about their approach to the SDGs, given the importance of the Goals. One example is the PRI-led ‘SDGs in Active Ownership Working Group’, which we are an active member of. This group is looking at SDG application from a listed equity and corporate fixed income perspective.
 

A roadmap for SDG engagement

The link between the SDGs and engagement, in our view, is one of the most direct ways that investors can see real sustainability impact from the actions they take.

The principle of using investor engagement to promote positive financial impact, through working with companies to address material ESG risks, is well-established. What is so far less discussed is how we can articulate the positive societal and environmental impacts of engagement. We believe the SDGs provide an ideal framework to analyse this wider impact, by providing a comprehensive taxonomy for describing sustainability objectives which is commonly understood by investors, corporates and governments.

At BMO Global Asset Management our starting point was to establish a baseline by analysing the links between our existing engagement activities and the SDGs. This process started in 2016, when our approach was based on mapping our seven high-level engagement topics3 to the 17 SDGs.

1 Global SDG Reporting Challenge, PwC, 2017
2 The SDG investment case, UN PRI, 2017
3 At the time these were: Environmental Standards, Business Ethics, Human Rights, Labour Standards, Public Health, Corporate Governance and Social and Environmental Governance

Figure 2

2017 engagement data, excluding post-AGM letters

In 2017, we took our analysis further by matching our 43 more granular engagement sub-themes to the 17 Goals. (Figure 2)4.

The highest proportion of SDG-linked engagement related to Goal 13 (Climate Action). Other engagement activities linked strongly to Goal 12 (Responsible Production and Consumption), Goal 5 (Gender Equality) and Goal 6 (Clean Water and Sanitation).

17% of our engagement activities didn’t directly support a specific SDG; these were instances where we engaged on corporate governance issues alone. In our mapping work, we concluded that corporate governance engagement does not have a link to any single Goal. Rather, we see good governance and board-level oversight as a foundation for the achievement of all 17 Goals, with well-governed companies better able to manage sustainability risks and opportunities. The main exception in this mapping is our engagement on board diversity, much of which covers gender diversity issues, which we see as supporting Goal 5 (Gender Equality).

We have continued to develop our methodology in 2018 on how to engage in relation to the SDGs and have now mapped the 169 SDG targets to our engagement sub-themes, and vice versa, enabling us to have a more granular approach.

Not all 169 targets are directly applicable for investors and companies, as some are more effectively addressed by other stakeholders, such as policy makers. We have, therefore, identified 40-50 targets to initially focus on, where we believe our engagement can have the most impact to influence positive change.

The process of analysing the targets underpinning the SDGs has helped to strengthen our asks and recommendations to companies.

Mapping is a key step towards establishing a baseline and to be able to report effectively on how actions support the SDGs. But investors can go further by using the SDGs as a way to shape the engagement agenda itself. For us, the process of analysing the targets underpinning the SDGs has helped to strengthen our asks and recommendations to companies, and we are increasingly referencing specific SDG targets in our communication with companies; examples of which are set out in Figure 3.

Figure 3

Goal 2, Target 2.1: By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious and sufficient food all year round.

Goal 2, Target 2.2: By 2030, end all forms of malnutrition, including achieving, by 2025, the internationally agreed targets on stunting and wasting in children under 5 years of age, and address the nutritional needs of adolescent girls, pregnant and lactating women and older persons.

Goal 6, Target 6.3: By 2030, improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally.

Goal 6, Target 6.4: By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity.

Goal 8, Target 8.7: Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.

Goal 14, Target 14.1: By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution.

5 UN, 2016, 6 FAO, 2016, 7 UNESCO, 2014, 8 UNEP, 2018, 9 OECD, 2016

The 2030 Agenda is our roadmap and its goals and targets are tools to get there.

UN Secretary-General António Guterres

Our experience so far is that corporates welcome this development in engagement approach. With demands growing for sustainability reporting that is time intensive to produce, there is increasing pressure to prioritise and find ways to communicate on sustainability effectively, to satisfy a wide range of stakeholders. By working with the common language of the SDGs, investors and corporates can build a more effective engagement relationship.