Adopted in 2015, the United Nations’ 17 Sustainable Development Goals (SDGs) recognize that ending poverty and the impacts of poverty must go hand in hand with strategies that improve health and education, reduce inequality, and spur economic growth—all while tackling climate change and preserving the planet’s natural resources. Many in the impact investing community have sought to use the SDGs as meaningful frameworks for thinking about how we approach our investments, but these goals stop short of providing substantive guidance and standards of measurement for investors. Consequently, concerns of ‘SDG-washing’ abound.
At Confluence’s 2nd Annual Advisors Forum, Greg Snyders, Global Finance Partner, with Dalberg Advisors, moderated a discussion on how the SDGs can be better utilized for meaningful assessment. The panel included Erika Karp, Founder and CEO of Cornerstone Capital Group; Matt Patsky, CEO of Trillium Asset Management; and Raul Pomares, Founder and Managing Director at Sonen Capital.
Snyders began the discussion with a live poll that gauged the audience’s sentiment towards the SDGs in the investment context. Three questions were posed to the audience: 1) How meaningful do you believe the SDGS will be to assist with and grow the field of impact investing? 2) How meaningful do you think SDGs will be to attracting, educating, and engaging private capital? 3) How much of a concern is ‘SDG washing?’
For the first and second question, around 60% of the audience voted that the SDGs were “very meaningful” or “somewhat meaningful,” with the remainder voting that the SDGs were “not meaningful” or “undecided.” When questioned about their concerns around ‘SDG washing,’ 80% of the audience answered that they were “very concerned” or “somewhat concerned.” Snyders summarized that while the audience generally found value in the SDGs, there are clearly concerns about the potential risks.
Risks and Opportunities
After further defining SDGs for the audience as a set of universal goals to achieve by 2030 for a sustainable world with 169 underlying aspirational indicators, Snyders segued into the first question: "How do you and your firm use the SDGs today, and what risks or opportunities do you see for how the SDGs are used?"
Patsky, whose firm Trillium has been a leader in socially responsible investing since 1982, noted that the firm was already utilizing a similar framework in their business model, so the conceptualization of the SDGs had little effect on the firm's actual operations but proved to be a useful mapping exercise. He cautioned investors to be wary of funds that only align with one or two specific SDGs. "Almost every company can line up with a sustainable development goal,” Patsky warned. “If you make food, you may pass yourself off as addressing hunger.” He shared the importance of standardized measures and the ability to compare based on these goals.
Karp agreed that impact-based investment funds need to address most of the 17 SDGs if they want to truly have an impact. “You cannot talk about going after one goal,” Karp said. Quoting John Muir, Karp stated, “If you tug on a single thread in nature, you see how they are connected to everything else and that is how I see the SDGs in my view.” Her firm, Cornerstone Capital, identified the idea of access to opportunity as the common denominator amongst the SDGs. They analyze the ESG impact of every investment they make and now uses the SDGs to engage investors in a visceral way. “When you are talking to an investor and they are so committed to the idea of giving the world access to education, or access to water, or access to justice and equity… we can speak in a very human way about their portfolios.”
“There is so much energy and attention around the SDGs and these topics that it has become a bit of a buzzword,” said Pomares, of Sonen Capital. He added that the SDGs were not originally intended to be used as a gauge to measure the social impact of investments. “Everyone is focused on the 17 [goals] but what really matters is what’s underneath them,” Pomares observed. He praised the SDG framework for focusing attention on key issues but conceded that the goals have shortcomings from an investment standpoint: “They are not all investable," but "they do create a framework from which asset owners can develop portfolio strategies." He added that there is a clear handful that lend themselves to be measured and reported against and that the SDGs provide a set of common goals that can be used as a marketing strategy to "mobilize the capital we need to address these large-scale challenges that we face."
SDG Washing
Next, Snyders asked panelists to reflect on SDG washing and share some circumstances where “the labels are getting ahead of substance.” The panelists offered their own views on SDG washing and highlighted similar themes in their examples:
1) Damage of Marketing Ploys: Pomares found that the most noticeable and obnoxious form of SDG washing occurs as a marketing ploy. "It's a buzz word, they slap it as a label on anything and everything they can, and some of it is just grotesque," he observed. "That, to me, is the most blatant type of SDG washing."
2) Damage of Incremental Change: According to Pomares, the challenge is to align all of your investments within the SDG framework. If only a small percentage of your assets are in impact funds, the rest of your investments "are working directly against them." Patsky agreed that celebrating traditional incremental change may be doing harm. While people may feel proud of where and how they are contributing, the other half is working against them. As a nuance to this topic, Karp shared the impact of influential people not understanding the nexus of all of the issues and advocating for one as more important than another.
3) Inadvertent Damage: Pomares believes that SDG washing also occurs inadvertently. "It is not a perfect science, there is no perfect answer. We are all trying so I would say—to some extent—we are all guilty of SDG washing because of the imperfect reality of the system." As an example, Karp discussed corporate greenwashing and the poor quality of the ESG data and the importance of consistency as a factor for assessment given the challenges.
All three panelists emphasized that greenwashing is happening in a variety of ways within the ESG investing field and needs to be called out. "Honestly, at some point, we do need to call people out," Pomares shared. Patsky and Karp agreed that perpetrators of SDG washing need to be named and shared examples of their experiences. Karp underscored, “When you have a voice, you need to use it.”
Moving Forward
Snyders concluded by asking the panel what criteria they would use to judge success for the SDGs ten years from now and what the impact investing community should start working on now.
"The reality of it is, we are not responding with the level of urgency and scale that is necessary relative to the size of the problems. It is as simple as that," said Pomares. He cited a report recently released by the U.N., Progress Against the SDGs, that observed the same deficiencies. "Whether it is 2029 or today, we need to take action," Pomares concluded. "Let's all put everything aside and figure out ways to truly mobilize capital—at scale and with urgency—to tackle these issues."
Patsky reflected that he sees more creativity in moving fixed income dollars and has been participating in groups talking about trying to use the tax code to move significant dollars to solutions.
Karp said that she is more excited about the future for the impact investing sector than ever before. She noted that capitalism is broken and that a framework needs to be implemented to help transition towards a more sustainable circular economy to reduce waste. "I think we are going to be getting closer to figuring out how you do that within the next ten years." She noted that the corporate sector is adopting SDGs at an encouraging rate and cited several examples of sustainability initiatives from corporate leaders, like Apple and Google.
