Rethink investment strategies and processes
SDI-aligned investors can build on the following initiatives to rethink their investment strategies and operationalize them in their investment processes. This includes integrating SDG issues into their investment analysis and decision-making processes, and putting in place systems to monitor and manage the impact of their investment portfolios.
Identify activities with positive impact
SDI-aligned investors can use the following initiatives to identify investable activities that align with their sustainable investment strategies. Investors need clear standards and criteria to assess whether an activity they finance (i.e., company products/services or a project) contribute to the SDGs. Taxonomies have been created to classify sectors and activities with positive impact, while data providers quantify the sustainable revenue exposure of a company.
Some taxonomies include minimum technical criteria to be met for each sector/activity.
List of eligible sectors
Other taxonomies simply provide a list of sectors/activities linked to sustainable development objectives or do not disclose publicly the technical criteria they use.
Data on sustainable revenues
Several providers offer services to quantify the percentage of a company’s activities aligned with a sector/industry/theme considered as sustainable. While this is useful, revenue exposure is an imperfect measure of impact. The SDI definition calls for fundamental analysis at the company/project level to check the positive impact.
Measure company / project sustainability performance
SDI-aligned investors can use these information providers to measure a company or project's sustainability performance. Once investors understand what activities to invest in, they need quantitative information about the sustainability performance of company or project they might finance. This information is often produced by external providers and is either publicly available or behind a paywall.
Company SDG ratings and scores publicly available
While most methodologies and data scoring a company on its sustainability performance are behind paywalls, some initiatives provide data free of charge.
Company SDG ratings and scores behind paywalls
There are many ways to score a company on its sustainability performance and currently no harmonization of SDG scoring methodologies. Unlike credit ratings, scores may vary substantially by providers. This problem is compounded by the lack of consistent data reported by companies.
SDI-aligned investors can use these information providers to cross-check company reporting with unreported information (e.g. media). Companies might commit to sustainable development objectives (for example, using the UN Global Compact principles) and report positively on their performance, yet their practices remain unsustainable. In addition to assessing sustainability performance, SDI-aligned investors are expected to confirm the coherence of this performance through such cross-checks.
SDI investors are expected to cross-check company reporting with unreported information (e.g. media) to verify the absence of inconsistencies with sustainable development objectives (for example, using the UN Global Compact principles).
To be eligible as SDI, companies have to be transparent about their business practices and provide adequate sustainability disclosure and reporting (see the corporate module below for more information on corporate reporting).
Construct SDI-aligned portfolios
SDI-aligned investors can use indexes to help them construct portfolios with a positive impact on the SDGs. Several SDG indexes exist that group public companies of a higher sustainability performance. While this exposes investors to any weaknesses in the provider's sustainability assessment, indexes allow investors to efficiently build a portfolio of companies with a positive impact.
SDG indexes identify companies of a certain sustainability performance and group them in indexes upon which funds and other financial products can be based. While ESG-based indexes have mushroomed, SDG-based indexes remain scarce.