SDGs
INVESTMENT ACTIONS

Integrating the UN SDGs in investments

We explore how the UN SDGs can be viewed through the lens of financial materiality and used for building strategies that invest in the transition towards a more sustainable and equitable world.

A call to action

The Sustainable Development Goals were adopted in 2015 as part of the 2030 Agenda for Sustainable Development.1 They consist of 17 goals the world must collectively achieve by 2030 to end poverty, protect the planet, and improve the lives of everyone everywhere.

As for climate change, the cost of not achieving the UN SDGs is greater than the cost of action. Failure to achieve the UN SDGs will have significant consequences on our collective economic, social, and environmental prospects. The cost of biodiversity loss alone is estimated to have impaired up to a third of global GDP between 97 and 2011 according to OECD research.

Estimated cost of inaction associated with selected UN SDGs

Current and projected costs of inaction as share of global GDP

Current and projected costs of inaction as share of global GDP

Source: Estimated and current cost data taken from: Gender equality – McKinsey&Company, September 2015; Biodiversity loss – OECD, May 2019; Violence and armed conflicts – Global Peace Index, June 2020; Local air pollution – Philip J Landrigan, November 2016; Corruption – Secretary-General António Guterres, September 2018; Malnutrition – Global Panel, July 2016; Work-related hazards – European Agency for Safety and Health at Work, September 2017; Illicit financial flows – United Nations Office on Drugs and Crime, October 2011; Food waste – Food and Agriculture Organization of the United Nations, 2014; Alcohol - Thavorncharoensap, M., Teerawattananon, Y., Yothasamut, J. et al., November 2009; Climate change – OECD, November 2015; Tobacco - Mark Goodchild, Nigar Nargis, Edouard Tursan d'Espaignet, January 2017; Illiteracy – World Literacy Foundation, March 2018; Renewable energy use – International Renewable Energy Agency, January 2016; Antimicrobial resistance – The World Bank, September 2016; Toxic air emissions – OECD, June 2016; Energy efficiency – The European Commission, July 2017; Safe water – Lixil, September 2016; Sustainable construction – The European Commission, September 2015; Water scarcity – The World Bank, 2016; Climate risk in mortgage underwriting – The World Bank, October 2016; EU soil degradation – European Innovation Partnership, February 2012; Access to water and sanitation – World Health Organization, 2012; Road accidents - Chen S, Kuhn M, Prettner K, Bloom DE, September 2019. For illustrative purposes only. There is no guarantee that any forecast made will come to pass.

Meanwhile, advancing the SDGs could open up a whole host of opportunities as the world transitions towards a greener and more equitable economy. According to the Business and Sustainable Development Commission2, achieving the UN SDGs opens up some $12 trillion of market opportunities, representing around 60% of the real economy.

While countries are accountable for their progress, we believe the private sector holds the key to unlock the world’s ability to deliver on the goals. Investors and asset owners are becoming increasingly aware of the UN SDGs as a framework for sustainable investing and are looking to understand their relevance to investment decisions.

(Capital at risk. The value of investments and the income from them can fall as well as rise and is not guaranteed. Investors may not get back the amount originally invested.)

The Sustainable Development Goals, adopted by UN Member States in 2015, consist of 17 goals the world must collectively achieve by 2030 to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.

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Title: How do the UN SDGs impact investing?

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Carole Crozat

Head of Fundamental Research for BlackRock Sustainable Investing 

While measuring the alignment of investments to the UN SDGs is still a complex and evolving task, we believe that their integration in investment decisions can help secure long-term financial performance and is relevant to all sustainable investors. 

Our research finds significant overlap between the UN SDGs and company indicators that are material to their long-term performance. 

This means that the management of both positive and negative social and environmental outcomes today may become more and more material to company success in the future as countries progress towards achieving the goals.

Redirecting capital towards them could offer 12 trillion dollars of market opportunities linked to our long-term social and environmental wellbeing. Examples include the building of key waste and water treatment infrastructure, and green transportation. 

The bottom line is that investing in alignment with the UN SDGs has the potential to deliver value to all investors and will play a key role in accelerating the global transition towards the goals.

Troubled waters: The financial risk of water stress

On this episode of the BlackRock Bottom Line, Carole Crozat, Head of Fundamental Research at BlackRock Sustainable Investing, explains how the UN SDGs can be linked to financial materiality and integrated in investments.

UN SDGs through the financial materiality lens

As the world embarks on the transition to net zero, the necessity of adopting a fair and equitable pathway is stronger than ever. As a framework of global social and environmental objectives, the UN SDGs demonstrate the interdependencies between financial and sustainable performance.

For investors interested in understanding the value that the UN SDGs can likely deliver, BlackRock’s research highlights a significant overlap between the UN SDGs and company indicators that are material to long-term financial performance. Our mapping of the 980 financially material sustainability indicators identified by the Sustainability Accounting Standards Board (“SASB”) to the 242 UN SDGs country indicators reveals a match as high as 70%.

The SASB materiality indicators have a high correspondence with the UN SDGs

Percentage of SASB materiality indicators mapped to UN SDG indicators per SICS Sector

Percentage of SASB materiality indicators mapped to UN SDG indicators per SICS Sector

Source: BlackRock Sustainable Investing, with data from UN Sustainable Development Goals, SASB as of 31 May 2021. The SASB Materiality Map assesses material company indicators across the 11 SICS sectors, that are further expanded into 77 Industries. The 679 unique SASB company indicators are ‘activated’ across 77 Industries where there is a material connection between the company indicator and financial performance for the given Industry. This results in 980 total pairs of company indicators and industries, 687 (or 70%) of which can be linked to the UN SDGs. This graph illustrates the total number and proportion of the 980 indicators that correspond to at least one UN SDG country indicator, split across the corresponding SICS Sectors.

UN Sustainable Development Goals: https://sdgs.un.org/goals. SASB Materiality Map: https://materiality.sasb.org/.

Our analysis of these links also revealed that the management of negative social and environmental externalities today may become more and more material in the future as countries progress towards achieving the goals, with the majority of material sustainability indicators linking to the management of company risks and negative externalities.

These results highlight that integrating the UN SDGs is therefore relevant for long-term investors to not only align their strategies with sustainable objectives, but also to incorporate associated risks and opportunities into their broader ESG integration strategy. The strong links between material ESG issues and the UN SDGs help investors understand the relevance of the goals to investment decisions and offer solutions for aligning investments with the world’s collective effort to end poverty, protect the planet, and improve the lives of everyone everywhere.

As such, the UN SDGs have the potential to deliver value not only through impact investments, but also through wider ESG-focused strategies.

Measuring UN SDG alignment

While there is no consensus on a universal approach to report on UN SDG alignment, it is increasingly recognised that companies can contribute or detract from the UN SDGs through not only their products and services, but also through their operations.

The measurement challenge

the measurement challenge

Source: BlackRock Sustainable Investing as of 31 May 2021.

Measures of holistic alignment equip investors with useful information on their exposure to SDG-related themes and gives them the ability to differentiate amongst investments which are more exposed to future risks and opportunities.

Integrating the UN SDGs in investments

While measuring the alignment of investments to the UN SDGs is still a complex and evolving task, our research shows that their integration in investment decisions can help secure long-term financial performance and is relevant to all sustainable investors.

Impact and thematic investing

We believe that the UN SDGs have the potential to deliver value to not only impact investments, but also wider ESG-focused strategies that can benefit from the historic opportunity to accelerate the global transition towards the goals.

An example of a theme relevant to the UN SDGs is the Circular Economy. The circular economy encapsulates the global shift from a linear take-make-use-waste economy to one in which goods are recycled, shared, re-used and/or used for longer to design waste out of the system. It thus provides alignment with targets linked to UN SDG 12 Responsible Consumption and Production.

Impact and thematic investing

Source: BlackRock Sustainable Investing as of 31 May 2021.

Sustainable objective

On top of thematic exposure, UN SDGs can also translate into a sustainable objective based on both assessment of product and services alignment and adding operational alignment using ESG key performance indicators that are relevant to the goals. This involves setting a threshold of aggregated UN SDG alignment from a revenue perspective and an operational alignment perspective.

At BlackRock, we provide our investment teams with tools to integrate the UN SDGs in their solutions and prioritise engagements to help enhance corporate disclosures and awareness on the topics that matter most both for companies’ long-term financial prospects and for the goal achievement.

Download the full report
Access BlackRock’s full insights on how the UN SDGs can be viewed through the lens of financial materiality and used for building strategies investing in the transition towards a more sustainable and equitable world.
Report cover
Paul Bodnar
Global Head of Sustainable Investing
Read biography
Philipp Hildebrand
Vice Chairman
Read biography
Carole Crozat
Head of Fundamental Research, BlackRock Sustainable Investing
Eve Velikova
Researcher, BlackRock Sustainable Investing

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