Insights

The Sustainable Development Goals:
a new lens for investors

By August 9, 2019 August 11th, 2019 No Comments
By Julia Bailey

What are the SDGs?

The Sustainable Development Goals (SDGs) seek to achieve a fairer, more resilient and sustainable world for all. The 17 goals, with 169 associated targets, address a range of global challenges including those related to poverty, inequality and climate. The goals were compiled by stakeholders at all levels of civil society, government and business from many countries. In September 2015, all 192 United Nations countries, including Australia, committed to achieving these goals by 2030.

Achieving the SDGs:

In order to achieve the goals, a coordinated response across multiple stakeholders within and between countries is needed.  As part of the Australian Government’s Senate Inquiry into the SDGs in February 2019, Chair of the Monash Sustainable Development Institute and ClimateWorks Australia,  Prof. John Thwaites explains: “[the 2030 Agenda] is not something that can be achieved just by the federal government or bureaucracy; it is something that needs different levels of government—national, state and local—business and academia”.

Source: United Nations

Source: United Nations

By Julia Bailey

What are the SDGs?

The Sustainable Development Goals (SDGs) seek to achieve a fairer, more resilient and sustainable world for all. The 17 goals, with 169 associated targets, address a range of global challenges including those related to poverty, inequality and climate. The goals were compiled by stakeholders at all levels of civil society, government and business from many countries. In September 2015, all 192 United Nations countries, including Australia, committed to achieving these goals by 2030.

Achieving the SDGs:

In order to achieve the goals, a coordinated response across multiple stakeholders within and between countries is needed.  As part of the Australian Government’s Senate Inquiry into the SDGs in February 2019, Chair of the Monash Sustainable Development Institute and ClimateWorks Australia,  Prof. John Thwaites explains: “[the 2030 Agenda] is not something that can be achieved just by the federal government or bureaucracy; it is something that needs different levels of government—national, state and local—business and academia.”

Using the SDGs for impact investing

At Melior, we believe that capital markets and corporations have a central role to play in building a better, more sustainable future. We have adopted the universal language of the SDGs as our key framework to define impact, positive and negative. We have translated the SDGs into actionable investment themes against which we analyse companies.

We assess the products and services a company offers using our proprietary multi-dimensional impact framework to determine their alignment with the SDGs. This results in a net impact score based on an assessment of positive and negative impacts – current and future.

Source: Sustainable Development Report 2019

How are Australia and New Zealand progressing towards meeting the goals?

In the recently published 2019 UN Sustainable Development Solutions Network report, Australia ranked 38th out of 162 countries in terms of progress in achieving the SDGs. This marks the 3rd consecutive annual decline in ranking for Australia from 20th in 2016. In contrast, New Zealand has risen in the ranks from 22nd in 2016 to 11th in 2019. The top-ranking countries for the 4th year running include Sweden, Denmark and Finland.

One of the members of the Melior Investment Management Advisory Council is Dr Jane Fulton. Dr Fulton is an expert on the SDGs, having worked for 10 years at the United Nations in New York. She ensures we stay abreast of developments concerning the SDGs and shares her insights with Melior:

”To be serious about sustainable development, Australia needs to focus on a number of key areas including addressing obesity; tackling environmental issues such as waste; and reducing our carbon emissions, amongst the highest per capita globally. Australia would do well to look to Scandinavian and Northern European countries who are committed to the SDGs as a result of community expectations and conscious government policy.”
Dr Jane Fulton, Melior Advisory Council.

Significant Australian SDG challenges:

Waste

The 2018 National Waste Report reported that in 2016-17 Australia generated an estimated 67 million tonnes of waste, equivalent to 2.8 tonnes per capita. 2016 figures from the ABS showed that Australia’s waste generation is growing at 4.5x the rate of the population and 1.5x the rate of the economy. Increased restrictions on the importation of waste into China and other Asian countries is forcing the recycling industry to pivot from an export to domestic focus, with an increased emphasis on quality.

Melior’s response: We seek to invest in waste management companies committed to increasing the amount of waste recycled, recovered and diverted from landfill, and companies enabling circular economy approaches such as reuse of assets and significant reductions in waste.

Source: ABS and MRA Consulting

Greenhouse Gas (GHG) Emissions

The Australian Government has committed to reducing GHG emissions by 26-28% below 2005 levels by 2030. As Government data shows, a significant change in emissions trajectory is required to meet the target without using Kyoto carryover credits. We will explore this topic in greater detail in a future Melior Insights report.

Melior’s response:  We seek to invest in renewable energy companies and companies which are committing to ambitious GHG reduction targets such as net zero emissions.

Source: Australian Government, Dept of the Environment and Energy, Australia’s emissions projections 2018

Obesity

Australia and New Zealand continue to rank amongst countries with the highest proportion of obese persons. Two SDGs include a focus on obesity; Zero Hunger and Good Health and Well-Being. Obesity is a form of malnutrition and a leading cause of disease including cancer, heart disease and diabetes. Some Governments, including the UK, are addressing this issue at a policy level through the introduction of a sugar tax. The Australian and New Zealand Governments have not pursued similar policies at this stage.

Melior’s response:  We seek to invest in companies that produce nutritious food and avoid companies producing highly processed foods and sugar-sweetened drinks.
Global Obesity Levels

Source: SDG Index data sourced from the World Health Organisation, 2016

Transformative change required

Australia will not fulfil its commitment to achieving the Sustainable Development Goals, without a major concerted change from business as usual. As the Sustainable Development Report 2019 notes, to achieve its 2030 targets Australia requires transformative change, with 11 of 17 goals designated as either major or significant challenges. Whilst New Zealand has been improving, it still has 9 of 17 goals designated as either major or significant challenges.

A recent BCG paper wrote that “Governments and local communities will set a higher bar for a company’s right to operate, and in a connected world a company’s local performance will quickly affect its global reputation and trigger social and regulatory consequences.”

Societal and stakeholder scrutiny over companies’ environmental and societal impact is intensifying. We believe that this is shifting how investors perceive risk and opportunity and is resulting in capital being allocated towards companies that can demonstrate that they are having a positive impact on the world. We also believe that these structural tailwinds will result in sustainable out-performance for purpose driven companies.

This content is for general information only. In preparing and publishing this content, Melior Investment Management Pty Ltd (ACN 629 013 896, authorised representative no. 001274055) does not seek to recommend any particular investment decision or investment strategy and has not taken into account the individual objectives, financial situation or needs of any investor. Investors should consider these matters, and whether they need independent professional financial advice, before making any investment decision.