The United Nations’ Sustainable Development Goals were ratified at the U.N. General Assembly in September 2015, when 193 governments agreed to 17 bold goals to help eradicate poverty, address climate change and create sustainable development across the globe. The plan was to do this by 2030.
Achieving these sustainable development goals (also known as SDGs) will take equally bold actions by the business community. Or, as U.N. Secretary-General António Guterres put it, it’s time for the business community to put aside business as usual and “misbehave.” He calls for “enlightened self-interest” in the form of partnerships among the business community, the private sector and the financial sector. The opportunities for collaboration are many, and the use of environmental, social and governance data can help address the global issues tackled by the sustainable development goals.
For financial advisors already using ESG criteria and impact investing in their client portfolios, the sustainable development goals enhance what they’re already doing and present additional opportunities for deepening relationships with clients. For advisors new to ESG investing, the global importance of the U.N.’s goals presents a great opportunity for starting these conversations. What’s clear is that financial advisors can play a significant role in achieving the goals, and in doing so benefit their clients as well as the planet.
Women, Millennials And The $60 Trillion Wealth Transfer
The sustainable development goals are meaningful to advisors because they embed the idea of ESG and impact investing within a global context and present 17 different ways to talk to clients about it. The goals cover a comprehensive range of issues from zero hunger to clean water and sanitation to gender equality to peace and justice. And for most women and millennials, this kind of investing is a priority.
Most advisors know about the $60 trillion in wealth that will transfer to women and millennials during the next 30 to 40 years. “What’s just beginning,” says Amber Nystrom, co-founder and curator of the SDG Marketplace, “is an intergenerational wealth transfer that is larger than any in economic history, and represents a tectonic shift in who stewards capital, how and to what end.” Fully 70% of this wealth will go to women across two generations: baby boomers and millennials.
In the U.S., women already control 39% of investable assets, and recent financial services industry studies confirm that women and millennials are aligned in prioritizing investments that serve long-term sustainability and economic inclusion.
A wealth transfer report in 2017 suggests that advisors don’t have time on their side in planning for this transition. Eighty-four percent of high-net-worth women in the U.S. and Canada are already responsible for some or all of their family investment portfolios. Since 70% of widows leave their advisors after their spouses die, now is the time for advisors to build stronger relationships with female clients.
Advisors who plan to grow their businesses should consider what their balance sheets would look like if they lost 66% of their best clients. Two-thirds of adult children fire their parents’ advisors after they inherit. So there may be considerable future value in understanding the next generation’s sustainability-driven approach to long-term investing. This understanding can help advisors retain millennial clients and their inherited assets in coming years.
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
Leading RIAs already integrate ESG data and blend the use of the global values framework on sustainable development goals into their advisory firms’ business development goals. The ways they do so are as diverse as the client portfolio strategies they recommend. And financial advisors who understand how sustainable development goals are driving ESG investing will be able to differentiate themselves with clients.
“All of our clients, institutions as well as individuals, leave discussions about the [sustainable development goals] relaxed and calm,” says Holly Ruxin, the founder of Montcalm TCR LLC, a San Francisco-based wealth management and capital markets trading firm. “You can see it in their faces and shoulders.”
Ruxin believes that the U.N. goal framework is critical to the use of existing ESG and impact product strategies, as well as to the creation of new ones: “Our process involves embedding the U.N. [goals] as immutable to all long-term, values-focused investing.” Ruxin agrees that the goals inspire investors hoping for a collaboration between economics and the social needs of civil society. Having a globally adopted framework like the development goals, and 193 member nations behind it, strengthens the case for sustainable development.
Lawrence Ford is the CEO and founder of Conscious Capital Wealth Management LLC, an RIA firm that works with clients to manage their finances and develop their dreams and wellness in every part of life. Ford says, “The global consciousness of the U.N. [sustainable development goals] is an effective way for all investors to bring more depth to the anticipated use of their capital. It’s about achieving personal financial goals and consciously contributing to the good of society.” Fossil-free portfolio strategies, which are aligned with goal No. 7 (affordable and clean energy), are an example of how Ford encourages clients to invest energy sector assets in renewable sources when appropriate for their risk tolerance.
A keyword Google search for “UN SDGs” generates as many hits for articles, blogs and white papers as the keyword search for “ESG” does these days. Advisors should stay tuned and blend the client discussion of ESG data with the sustainable development goals before their competitors do.
PAUL ELLIS is owner of Paul Ellis Consulting, which offers sustainable, impact and ESG services.
He is a speaker at the 4th Annual Invest In Women conference, being held April 29-May 2 in Houston. Turn to page 59 to learn more about the conference.