This article is featured in the 2024 FCLTGlobal Blue Book, a collection of real-world examples of how our members are putting long-term strategies into practice today. We hope that these practical illustrations will inspire others to embrace the mission of focusing capital on the long term. Learn more >>

Setting a standard for SDG investing 

In 2020, APG Asset Management, together with AustralianSuper, British Columbia Investment Management Corporation (BCI), and PGGM jointly established the Sustainable Development Investments Asset Owner Platform (SDI AOP). This platform seeks to accelerate investments that deliver on the UN Sustainable Development Goals (SDGs) and contribute to better financial and social outcomes for end beneficiaries. These goals, set by the UN in 2015, aim for a better, more prosperous world, by addressing urgent global issues such as water scarcity, healthcare access, and protecting the environment.  

We have created a community of investors who promote the SDI AOP standard for investments in products or services that contribute to realizing the SDGs. These Sustainable Development Investments (SDIs) are underpinned by a clear definition of SDI and an SDI taxonomy. The definition and taxonomy can be applied to both public and private market investments and are publicly available. The SDI AOP enables asset owners and their managers to understand and more effectively communicate on the contribution their investments make to sustainable value creation through the SDGs.  

In response to investor demand, the initiative has expanded its offering to cover more than 10,000 capital market equity and fixed income investments globally and across sectors. Moreover, in the last year or so, we have introduced a number of innovations such as thematic tagging on biodiversity and climate solutions, and a forward-looking innovation outlook 

Informing capital allocation by investors  

According to research by the Principles for Responsible Investment (PRI), an increasing number of global investors consider the SDGs to play a key role in their investment strategy, policy, asset allocation, and investment decisions. They also influence how investors implement active ownership. By providing a globally consistent SDG methodology and assessment framework the SDI AOP standard and its underlying classification helps investors to embed the SDG themes more effectively into their investment processes. 

Collaboration with other initiatives is key and the Chair of the SDI AOP has been instrumental in the development of the Model Mandate by the International Corporate Governance Network (ICGN), and the UN supported Global Investors for Sustainable Development (GISD) Alliance. Its primary purpose is to provide guidance to asset owners to ensure that their stewardship and sustainability objectives are fully reflected in their agreements with the managers of their assets, and to provide practical assistance to enable them to do so, with specific reference to the SDGs. 

Ability to account for investments in the SDGs transparently and consistently 

For the SDI AOP, the primary focus is on companies’ contribution to the SDGs through their products and services (the “what”), while standard ESG assessments typically focus on conduct (the “how”). For example: making solar panels (SDI) versus having operational policies, management systems, targets, and disclosure in place (ESG). This approach enables investors to monitor and manage their global portfolios according to their contribution to the SDGs and to report to clients and external stakeholders transparently and consistently. It provides them with a common and auditable standard that incorporates concrete investment targets and examples.  

Driving innovation and enhancing the methodology 

The SDI AOP has developed an SDI Methodology to quantify the contribution of an investment to such goals. This includes detailed taxonomies and guidelines, SDI classifications, and a rating methodology. The process uses structured and unstructured data, artificial intelligence, and machine learning, combined with human validation. The SDI AOP is committed to driving innovation in the investment industry and is constantly evolving and improving.  

In response to the growing demand for customized, sustainable index products, in 2021, APG, BlackRock, and index provider Qontigo launched the iSTOXX APG World Responsible Investment Indices. Philips Pensioenfonds, Qontigo, and BlackRock also launched a customized index (iSTOXX® PPF Responsible SDG Index) in the same year.  

A more recent addition, in late 2022, is the SDI Innovation Outlook. This assesses the alignment of a company’s patent portfolio with the UN SDGs, giving a forward-looking metric on how future products and services could contribute to the SDGS and increase potential for higher returns. A separate section has been added in the taxonomy to cover negative contributions – factors that go against achieving the SDGs. In 2023, a new overlay was introduced to help investors who prefer to take a theme-based approach to potential investments (biodiversity, climate change, financial inclusion, etc.) rather than targeting individual SDGs. For 2024, the focus will be on further developing our methodology to effectively calculate real-world outcomes and deliver impact, and to further structure our solution to enhance its application and value in private markets.  

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