UN Sustainable Development Goals: Aperio's Perspective

Values-Aligned Investing
June 6, 2019


In 2015, the UN General Assembly adopted the Sustainable Development Goals (SDGs) agenda, with 17 goals and 169 targets to be achieved by 2030. (Click on the hyperlink to view the goals.) The SDGs are an extension and expansion of eight UN Millennium Development Goals launched in 2000; that earlier initiative’s targets were mainly achieved by 2015. The SDGs are more ambitious. While not legally binding, they are directed at countries to reorient their domestic spending priorities and create road maps for sustainable development policies, plans, and programs.

Increasingly, investors are turning to the SDGs as an extension of environmental, social, and governance (ESG) objectives to measure the impact of investments. Beyond conventional views of risk and return, SDGs add a new element, beyond materiality, by which to gauge investment performance. Whereas ESG focuses on ethical corporate behavior and sustainable finance, SDGs attempt to embed broader societal needs and real-world outcomes in the calculus of an investment strategy. (See the real-world impact chart on this page.)

Aperio Group recognizes that the launch of SDGs and their embrace by investors is a trend that’s still gaining momentum. As such, SDGs are not yet fully developed as an investment concept. We lay out our cautionary perspective in this blog.

“The global SDGs are a clear call to action for the private sector. Some of the SDGs are easier to contribute to than others; sometimes public policy changes are needed and will be made to make certain SDGs more investable. Sometimes it is easier to address an SDG through investment decisions; sometimes it is easier to incorporate the SDG in active ownership. But either way, investors will be asked to contribute.”

– UN Principles for Responsible Investment, October 2017

SDGs: An Investment Tool in Need of a Better Handle

The UN Conference on Trade and Development (UNCTAD) estimates that meeting the SDGs will require $5 trillion to $7 trillion in investment each year from 2015 to 2030. While government spending and development assistance will contribute, these sources are expected to make up no more than $1 trillion per year, so new flows of private sector capital will be essential, either through new allocations or by rerouting existing capital flows. In order to unlock this opportunity, it will be critical for investors to reorient their investment flows toward the new innovative products and services focused on finding mechanisms to achieve the SDGs.1

Some large institutional investors, such as Dutch pension managers APG and PGGM, have published a taxonomy of investment opportunities linked to the SDGs. Some US asset managers are also getting active by joining partnerships like the World Benchmarking Alliance.2 These like-minded institutions are exploring potential sustainable development investments that bridge the gap between the UN’s targets and tangible investment opportunities. Examples include direct private equity investments in social enterprises that are right in the wheelhouse of the SDGs as well as public equity investments that steer in the same direction but whose impacts are more at the periphery of the SDGs’ stated objectives.

Deciphering which impacts are direct and consequential, and which are glancing and coincidental, poses an ongoing challenge for investors interested in the SDGs, especially in the public equity space. While we at Aperio are working with clients who want to find better ways of aligning their values with SDG-related investments, we also need to temper client expectations about what this connection may ultimately accomplish. At its root, tying SDGs to public equity investments, in particular, remains a dot-connecting exercise, for the following reasons:

  1. The SDGs were not designed for investors. Government entities were the initial target audience. Many of the SDGs are meant to address shortcomings in market delivery systems. Some activities necessarily involve the handle of government intervention or control to harness market tools for meeting societal needs.
  2. The SDGs were not designed for companies. Similarly, some of the issues that SDGs are meant to tackle are macroeconomic in scale. While individual companies provide jobs, wages, and benefits that can enhance workers’ quality of life, they cannot ensure the alleviation of poverty all by themselves, for example.
  3. The SDGs were not designed for financial accountants. Because some developmental goals are not well served by market provision of goods and services, it follows that some SDGs don’t fit neatly on a balance sheet, either. This is yet another example of externalities that SDGs are meant to confront for society at large.
  4. The SDGs struggle with definitions of "additionality" and "intentionality." All companies can strive to do better by their workers, customers, shareholders, and the environment. These are basic tenets of ESG. But when can they claim they are orienting their businesses purposely to serve unfulfilled SDGs? This is where shareholder engagement may be key—urging companies to enter underserved markets with products and services that are purposely designed to be more accessible, affordable, and affirming of the principles underlying the SDGs.
  5. Progress toward the SDGs cannot always be measured in dollars and cents. Some ESG data providers now make revenue estimates of goods and services that serve the objectives of the SDGs. However, lack of standardized accounting metrics (among other things) keeps this effort as a dot-connecting exercise. Accruing revenues to SDGs remains more of an art than a mathematical science.

For investors seeking impact, the SDGs offer a new framework by which to assess company performance. Because “what gets measured gets managed,” the SDGs can provide an additional way for concerned investors to assess the relationship between their portfolios and societal objectives they find important. Some of the SDG concepts are relatively easy to assess, and data are currently available to do so. In Aperio’s view, however, much of the information currently offered by ESG data providers falls well short of being able to capture the full scope of the societal objectives embodied in the SDGs. This goal remains very much a work in progress.

Send questions or comments to blog@aperiogroup.com.

1 Source: "Investors and the Sustainable Development Goals."
2 Neuberger Berman and Boston Common Asset Management are members of the World Benchmarking Alliance, a broad group of stakeholders aligned with the universality of the SDGs.


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