Risk and Opportunity
The Business & Sustainable Development Commission (BSDC), led by 32 of the world’s leading CEOs and civil society leaders, estimates there will be $12 trillion in economic value created in the achievement of the 17 sustainable development goals by 2030. This includes “blended value” investment opportunities—an emerging concept that describes value creation as a function of economic returns plus social and environmental impact. “That’s a lot of potential value-focused investment strategies for financial advisors to consider on behalf of their clients,” says Jeff Gitterman, founding partner of Gitterman Wealth Management, an RIA that offers ESG-focused investment strategies to clients and other RIAs.
This opportunity set is good news for financial advisors adding sustainability investment metrics into their clients’ portfolios. “ESG investing has gathered significant momentum in recent years as the use of big data platforms incorporates the potential for ESG portfolio alpha in addition to risk management and downside protection,” says Gitterman. He believes that the sustainable development goals are an excellent framework through which an advisor can identify clients’ personal and civil society values. The advisor can then help clients connect the economic value of a company or business sector to those personal values using ESG data as a link in the “proof of concept” chain.
Blended Value By The Numbers
Just how are public and private companies starting to use sustainable development goals for long-term business planning? As an important first step, a company can conduct an assessment of its material ESG factors, looking over its entire supply chain, for example. This process will help the company determine which of the goals among the 17 would most likely drive its measurable ESG outcomes and thus create shareholder value.
Most of the opportunity comes from four sectors: food and agriculture; sustainable cities; energy and materials; and health and well-being. The BSDC estimates 380 million new jobs will be created by achieving the development goals in these four sectors.
The Organisation for Economic Co-operation and Development includes 35 member countries whose economies are chock-full of opportunities for investors seeking sustainable development goals. For example, the costs are falling to supply utility grid-enhancing battery storage technologies (a subject addressed in the U.N.’s goal No. 13 on climate action). Also, consumers are increasingly demanding low-carbon transportation. Combine that with regional regulatory mandates, and we’re seeing a groundswell of demand for the replacement of internal combustion engine vehicles with electric vehicles. This will change the way consumers approach transportation (addressed by the U.N.’s goal No. 11 on sustainable cities and communities).
The global transition to a low-carbon economy has jump-started the sooner-than-expected price-competitive scaling of renewable energy sources and is reducing dependence on fossil fuels. In addition, the combination of low-cost solar power and smart monitoring of distributed electric grids is disrupting supply, demand and long-term capital markets financing structures in the energy delivery sector. These examples apply to multiple sustainability goals, but advisors working with investors can easily connect them to the U.N.’s goal No. 7 on affordable and clean energy.
In developing economies, the opportunities are just as diverse. For example, blockchain can be used to secure land rights. (See the U.N.’s goal No. 16, which concerns “peace, justice and strong institutions.”) There are also ways to verify the delivery of government-financed elementary education in remote communities (goal No. 4 is quality education), and there are ways to recycle waste to produce an alternative to cement to feed the building boom (goal No. 9 addresses industry, innovation and infrastructure).
ESG And Investor Conversations