Granularity on SDG Alignment is Needed to Find an Edge in Sustainable Investment

Product Updates December 7, 2023 Andrés Cruz, Ani Widham

A deeper analysis of companies’ contribution to SDGs can better inform engagement strategies and improve stakeholders’ communication

So long as achieving the UN Sustainable Development Goals (SDGs) still requires an estimated annual investment of $5.4 to $6.4 trillion investors will continue to place money with companies that align with the goals. Pursuing these goals presents a significant business opportunity, with the potential for an annual $12 trillion in additional net revenues. Both the public and private sectors stand to gain from participating in solving the goals.

Many investors use the SDGs as a framework to shape their sustainable investment strategies, but alignment at Goal level does not tell the whole story of a company whose products and services are oriented to solving these issues. To accurately find companies that are making a significant impact on solving the goals, investors need transparency on how companies’ contribute to the specific issues that define each goal. This issue-level alignment allows for more in-depth analysis and for investment firms to convey more detailed messages to stakeholders on issues they care about.

Take for example, a large electric utility company. At goal level it may appear that such a company contributes to SDG 7: Affordable and Clean Energy if it provides services in regions with limited energy access, but if you can analyze this company at issue level, it becomes clearer that renewable energy actually drives nearly 40% of their business and this helps differentiate them from other global energy providers.

For companies aligned to SDG 3: Good Health and Well-being at goal level it is hard to address the specific interests of investors who may want to understand their exposure to pressing issues such as infectious diseases, for example. Issue level granularity gives investors access to find these opportunities and helps them tell a compelling story to stakeholders.

Clarity AI’s methodology addresses these challenges by providing transparency regarding the specific issues companies address through their products and services. This empowers investors to build investment strategies targeting specific challenges of interest. This enhanced granularity is a crucial improvement in methodological transparency, enabling users to gain a deeper understanding of how companies align with established investment strategies.

In Clarity AI’s Revenue Alignment methodology, the root causes behind the UN SDGs are identified and quantified, based on leading academic and scientific authorities, to establish a scope of issues to address. This creates an understandable framework for users to achieve the level of detail required for deep-insight analyses and reporting to help stakeholders understand exactly where and how investments are helping tackle issues mapped to the UN SDGs.

See some examples of issues for UN SDG 2 – Zero Hunger:

Establishing this mapping helps users identify the issues that are being tackled through their investments. Being able to understand where the impact is coming from is crucial to ensuring that the right issues are being addressed. This can open the door to new investment opportunities and a more accurate understanding of the granularity of impact that investments have in the world.

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