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  4. Episode 38: How Can Investors Integrate the SDGs Into Their Strategies?

Guest speaker:

Andre Chanavat, Director of Product Management at Refinitiv

Julia Walker, Head of Government and Industry Affairs, Sustainable Finance and Risk at Refinitiv

How Can Investors Integrate the SDGs Into Their Strategies?

Episode 38 | Duration: 18minutes

Investors must understand their role in shaping the world we all want. Investment strategies that specifically target SDG goals need to scale, and system-wide initiatives should be mainstreamed. But how can we incorporate SGDs in the investment decision-making process?

  • Keesa Schreane [00:00:00] Hello, everyone. This is Keesa Schreane, and today we're going to talk about one of the key topics related to sustainability and the way it affects the responsible investor community. The SDGs, Sustainable Development Goals. To help us here today are Refinitiv experts - Julia Walker, our Global Head of Government and Industry Affairs. And Andre Chanavat, Director of Product Management. So let's first talk about how can sustainable investors incorporate SDGs in the process and channel more money toward them. Andre, Could you give us some insight into the process for this?  

    Andre Chanavat [00:00:40] Sure. So we've got a number of ways we can help investors to actually invest following the SDGs. So obviously the SDGs have quite a strong government macro focus. So we've actually carved out a segment of our macroeconomic time series database which have been mapped to the SDG indicators. So it is possible to understand at a country level how countries are performing against those specific outcomes.  

    Andre Chanavat [00:01:24] So we've got a there is a way to to to invest at a country level. And then, of course, most of our investors, have used a lot of our ESG data. So we've already mapped a number of the ESG metrics that align with the SDG indicators. And so it's also possible to carve out which of your investable universe, of your stock list, which would align based on that ESG framework. So there's a couple of ways of doing it, both macro and at a company level. And then, of course, we've got our use of proceeds data within our fixed income database. So it's also possible to understand, based on that use of proceeds information, which fixed income instruments would align best with the various SPG goals.  

    Keesa Schreane [00:02:28] So Andre, it's interesting to hear what the investor community is saying about the way their investment decisions are impacting the SDGs, wondering is it true that most of the time it's all about understanding ESG risks and opportunities within the company and then making a decision to invest versus how the investment itself can impact the SDGs? Is there a thought around how they see that coming together?  

    Andre Chanavat [00:02:54] Well, it is. It's a growing conversation that's happening really and trying to understand what is the impact of an investment from an SDGs perspective. So obviously, you know, a lot of mainstream investors have already integrated ESG factors, material factors into their investment process. Now, as I mentioned earlier, there's a number of ESG metrics which clearly do align with with those SDGs. But I guess it's more from the perspective of how are those ESG measures driving towards those positive outcomes, those time time-based outcomes that the SDGs have? And, you know, that's quite a new way, let's say, of analyzing how your portfolio is contributing in an impactful way towards those sustainable development goals. Obviously, you've got company-level data, and then how does that marry up to something which is broader in scope, like an SDG indicator? You know, measuring that is a more recent way of analyzing. So we're starting to see more of that happen, overlaying, you know, company-level ESG metrics with the SDGs indicators.  

    Keesa Schreane [00:04:28] Let's talk specifically about the financial services sector. Julia, there's been a lot of talk in the past about the need for the financial services sector to really step up and to support financing the stages. Take us through what changes we've seen over the last few years here.  

    Julia Walker [00:04:47] Hi, Keesa. And a good question. So in 2016, 52 institutional investors were interviewed by Share Action. Over 80 percent said they were willing to allocate capital to investments supporting the SDGs and would support regulatory reform. Fast forward to 2020. We have seen significant increase in the issue found in green bonds, but only 12 percent of asset managers have developed a strategy to measure their impact in line of the stages across all asset classes. So more to be done. But on the regulatory and policy front, there has been quite a bit of significant movement. And we'll see this being implemented in the years to come. Regulators and supervisors are aligned on the risk that climate change poses and are implementing policy and regulatory change to enable a transition to a low carbon economy.  

    Julia Walker [00:05:48] Now, last year, with contributions from a number of experts around the world, we published a book on how to achieve the SDGs through finance, technology and law reform angle. And I thought it might be useful to highlight a key points from that. So, one, companies really need to study and understand the SDGs. They need to rethink strategy, risk management and business behavior to align the goals. The second point would be citizen action matters enormously. Organizations should be able to advocate for them and hold governments to account. The School strike for climate, led by Greta Thunberg, and the work done by Extinction Rebellion did make a difference. Thirdly, I just want to touch on technology. So the role of technology is extremely important. Vast sums of money are lost to illicit activities. Corruption and tax evasion. Every year, by providing FinTech and MagTech solutions, money can be better allocated towards SDSs and allow for improved tracking, reporting, and cooperation. And the last point I wanted to raise is one on transparency and reporting because they matter, deciding what information to disclose, how to disclose it, and to who - is a regular problem for companies. Investors need to continue to push for improved corporate disclosure and focus on building their own capabilities to channel investment appropriately towards the alignment of the GS. Now there is a lot of talk about the data challenge, but an enormous amount of data is already there and more is coming online. The financial sector should be seen as a good servant, but a pool master and the hostages are a blueprint to create the world we want. Therefore, to create that world that we want, the financial sector needs to align to their achievement.  

    Keesa Schreane [00:07:51] So thanks for that, Julie, it sounds like the intentions are definitely there, but obviously, there is much more of an effort to drive things forward. If we just look beyond just the financial sector and look at all industries, the private sector, specifically, what is needed to mobilize private sector money. So just looking beyond financial services specifically, but looking at the private sector, Julia, what do we need to really mobilize financing more broadly?  

    Julia Walker [00:08:21] So a sustainable financial markets need to be rationalized, and on a positive note, we've seen quite a lot of movement here in the last couple of years. So the EU action plan for 2019. It was a great marker. And what's been happening since is it's quite transformative. And many of these things will come in the years is ahead of us. So sustainable finance markets need to be rationalized. They also need to be industrialized. They need to scale. We need to have better marketplaces for buyers and sellers. They also need to be democratized and open to all. We recently contributed to a report with the UN on digital financing of the stages. That report said as around citizen-centric financing. And that is a core concept. You, me, everyone, mum, dad, you know, auntie down the street needs to be able to contribute to an SDGs instead of just going for a low, medium or high-risk account. You know, why can't individuals put money into  SDGs, too? Why can't they put it towards SDG five if they are really passionately about something? Why can't you put your money where you want to? And we're starting to see products actually come to the retail space or even, you know, into it, into the environment to support these desires.  

    Julia Walker [00:09:42] And lastly, the big thing is that systemic policy change is needed and we'd need to transition to sustainability. So the whole financial system needs to be re-orientated to sustainable development. That might sound like a big thing, but it's already starting to happen. We're going to be releasing a report on the 21st of September, which we have done with a partner on what is happening in the central bank community and the network for greening the financial system. The NGFS has actually done a fabulous job. You know, they're really recognizing that climate risk is a financial risk and we're seeing new regulations coming across the globe. Now, it seems to be every week there's another country declaring a new green plan with great prudential regulations coming through. So these green plans, which I think the EU did kick-off, but they were inspired by the Paris agreement and the SDGs is creating a significant change.  

    Keesa Schreane [00:10:42] Andre, pick us up from there. I'd love to get some examples of how investors are working with key stakeholders. Julia just named several organizations, but the government, NGOs, you know, not for profit. So not just within the private sector, but there are loads of stakeholders in this entire ecosystem. How are they working together to develop tools to monitor and really measure progress against the hostages?  

    Andre Chanavat [00:11:07] That's a great question. Well, there are a number of forums and stakeholder groups across, like you say, private, governmental and other interested stakeholders in coming up with solutions that actually are pretty comprehensive in their breadth and depth. So, you know, I've seen various projects not to name names, but where they're looking at really both the micro and the macro impacts. As I mentioned earlier, when when we're looking at a company, for example, what is it's not just about the company as a whole but is about looking at its sources of revenue and then understanding how those sources of revenue are actually generating revenue towards either a green outcome or not. So what is equally important is not just about those business segment revenues, it is about where those business segments are situated geographically. Where we're combining very detailed,  company-level data and then overlaying that with country-level information and to get that kind of thought leadership to get the holistic view, it does require collaboration, both private and public groups, and only that way can we really find solutions to some of these countries.  

    Keesa Schreane [00:13:01] Yeah, absolutely. So if we look at the argument or an argument around SDG investing strategy, adoption, that argument, one of them would be SDGs, are principally focused on government and social action rather than being made for industries and investors. What would say to their argument, Andre and Julia, I love to hear your thoughts as well.  

    Andre Chanavat [00:13:26] I mean, obviously, there's the framework itself. And, when you look at the indicators, there are clearly some of the targets are planned well, to governments, but it shouldn't stop the private sector. And companies are finding ways to support those outcomes. Right. We can't afford to weigh something that's prescriptive, let's say, a company level. So a lot of companies that are making great initiatives, understanding their own operations and how those operations support the SDGs and those specific outcomes, the indicators. So, yeah, we're seeing a lot of good intent. Just trying to converge and meet the SDGs as good as possible. As many from the audience will know,  there are many different standards out there and it continues to be true around ESG. But it doesn't stop us from tendering to understand what are the material risks and opportunities linked to various entities. Right. And often there's a great deal of overlap and harmonization. So it's the same thing with the SDGs, you know, we find a lot of metrics that are clearly supportive of and support each of the SDG KPIs.  

    Keesa Schreane [00:15:00] Thank you, Julia. I'll give you the last word here. What are your thoughts?  

    Julia Walker [00:15:04] We realize that challenge. I mean, you know, 40 percent or nine three indicators are directly or indirectly linked to GRI disclosures. The SDGs compass has been created to address these challenges, but more needs to be done. So one of the things that we did do in January this year, Refinitiv spearheaded a new alliance called the Future of Sustainable Data Alliance to try and address these hard questions. Key members are the United Nations, Water Forum, the International Institute of Finance, SIFMA, FinTech for Good, Spatial Finance Institute, Oxford University, and lots of other names. We are there to address these big questions and we're starting to build our recommendations and start sharing them with the partners, which will want to be launching in a couple of months.  

    Julia Walker [00:15:54] But it is asking that question, how do we progress this? And we have to do it together. So look out for that, because I think that great progress will be made in the next year. One last thing also is, you know, the task force of climate-related financial disclosures has had a big impact. Look out for the task force of nature-related financial disclosures that will launch that next year. The initial working group is already underway and will be looking at natural capital and biodiversity. So we can't bite off too much at once. But, you know, carbon and climate have been looked at. We're gonna be looking at biodiversity. And one last point on COVID. So this year, you look at the SDGs and where we're miles behind where we would. But SDGs three. It is a good example. SDG three is around good health and wellbeing. So because of a sort of inadequate response or infrastructure in some countries, it has led us to where we are today coming out of this. Every country will need to look at SDG three. They will have to build resilience and strength in their health systems and prevention programs. So there are many things that will happen out of this to achieve the SDGs. There's a huge amount of stimulus coming from countries. It needs to go to things that support the stages like the health and well-being of people and our planet.

    Keesa Schreane [00:17:30] Lots of great information here, first of all. It is possible to understand how countries are performing against SDGs outcomes. So investing at a country level is something that is being achieved. Sustainable finance markets need to be rationalized as well as democratized and open to all. So with that being said, individuals need to be able to contribute to SDGs if they would like to. In that market forums across governments, NGOs are looking at micro and macro impacts. And we also see that progress around SDGs to continue. A high degree of cooperation across the public and private sectors is necessary. Julia and Andre, thank you so much for joining us today.