United Nations’ Sustainable Development Goals (SDGs) are 17 globally recognized economic, social and industrial targets that aim to support a better and more sustainable future for humanity. Investors who want to build sustainable portfolios aligned with the SDGs have a variety of investment solutions to choose from.
Here we look at how investors can use ETFs to build sustainable portfolios to support UN’s SDGs, and the growing challenges of picking the right ETF in an increasingly crowded market.
Sustainability has become one of the hottest themes of recent months. It is happening at a time where humanity is facing one of its biggest challenges in history, the Covid-19 global pandemic.
Investors have flocked to investment products that promise long-term performance while also making our planet a better place, such as ESG ETFs. According to TrackInsight, ESG ETFs reached a record high of $194 billion in assets at the end of January 2021.
Yet, while the cash keeps flowing, more questions are being asked about whether ESG ETFs create any meaningful change in the world. Or, are they a marketing ploy on the part of large institutions that want to ride an incoming wave of ‘green’ money from socially and environmentally conscious investors?
This so-called ‘Greenwashing’ is a true challenge for sustainable investors. As the number of ETFs listed on exchanges has exploded over the last year, the difficulty of picking the right ETF is only growing.
ESG: Sustainable Investing is a Big-Tent
One of the issues with investing, researching or writing about ESG investment is defining what it is.
Each investor has their own ideas and priorities when they build an ESG portfolio. Also, each asset manager and ETF issuer will have their own definition of ESG that they think is marketable.
Given the broad range of approaches, it’s not always easy for investors to compare funds. As a result, investors have difficulty making sure that their fund allocation will help address the issues they are concerned about.
One of the solutions to these problems is a framework that is based on globally recognized standards. A framework can help investors understand the impact of their decisions and allocate their capital more precisely. The UN Sustainable Development Goals (SDGs) can be used as such framework as SDGs are tangible and meaningful global outcomes and provide an excellent reference point to judge the impact of investment choices.
SDGs are a globally recognized standard for sustainable investment
The Sustainable Development Goals (SDGs) are a collection of 17 interlinked goals and 169 targets to wipe out poverty, fight inequality and tackle climate change over the next 10 years. SDGs were designed to be a “blueprint to achieve a better and more sustainable future for all.” SDGs were set in 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030.
In short, the SDGs are developed by an authoritative entity (UN), explicit on the detailed targets (interlinked 17 goals and 169 targets), globally relevant, and with a precise timetable (2030). These qualities render the 17 goals with the potential to be new benchmarks for sustainable investment impact.
How can you invest and support UN’s Sustainable Development Goals (SDGs)?
In developing countries alone, the UN estimates the gap in financing to achieve the Sustainable Development Goals (SDGs) at $2.5 trillion per year (UNCTAD, 2014).
Exchange-traded funds (ETFs) is one of the most rapid-growing financial products with assets reaching $ 7.8 trillion globally. ETFs that align their investment objective with SDGs can help investors who would like their money to support one or several SDGs.
One excellent example is that among all the 17 SDGs, SDG 13 – Climate Action has been well supported by the ETF industry. Making a total of 163 ETFs provided by 25 fund houses collaborating with 13 index providers worldwide at of the end of Jan 2021.
So, through careful selection of ETFs, an investor can build an ESG portfolio that is clearly aligned with the long-term global sustainable development goals, thereby contributing to a better future for humanity and avoiding the greenwash.
Where can you find SDG-aligned ETFs?
We at TrackInsight, have partnered with United Nations Conference on Trade and Development (UNCATD) in our joint research focusing on SDG-aligned ETFs since 2019.
In January 2021, with the support of UNCTAD and ESG specialist CONSER, we launched the Global ESG Observatory which tracks the ETFs listing worldwide that are aligned with the 17 Sustainable Development Goals.
See the SDG-aligned ETFs that are listed in your region here: https://www.trackinsight.com/en/esg-observatory