UN SDGs to become a key pillar for investor engagement

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CONTRIBUTED ARTICLE

by Carola van Lamoen*

It is increasingly recognised that embedding sustainability goals and criteria into the business strategy can help companies improve their bottom line.

From a practical perspective, taking a sustainability approach means that companies are more likely to align with government policy and regulations, thus avoiding the risk of losing their licence to operate or encountering high costs resulting from structural change.

But there are also business opportunities. Such an approach provides companies with a future competitive advantage by being a source of innovation, process improvements and operational efficiencies.

As investors, the financial services and investment industry has an important role to play in encouraging companies to achieve sustainable practices and approaches, because we have the ability to direct capital towards companies and sectors that are achieving best practice.

A good example of a framework that is already in place to help companies develop strategies and make disclosures around sustainability is the United Nations Sustainable Development Goals (SDGs). These 17 goals seek to end poverty, protect the planet, and ensure prosperity for all, and have specific targets to be achieved by 2030. The goals include: responsible consumption and production; sustainable cities and communities; decent work and economic growth; affordable and clean energy; and gender equality.

At Robeco, we actively engage with companies on the most material sustainability issues, using the SDGs as a framework to help assess companies as well as assist them in linking their strategic vision to desired impact. We can do this in a way that also helps improve their competitiveness and profitability, and ultimately their investment performance.

There are a number of tools that we can use, including impact investing to make a measurable social or environmental impact, integrating ESG analysis into the investment decision-making process, exclusion of companies or sectors, and active ownership.

The latter is a particularly effective and direct way for asset managers and institutional investors to make a practical and beneficial contribution to sustainability and corporate responsibility.

 

The two main ways in which we employ active ownership are:

 

  1. Constructive dialogue with companies

Engaging companies in proactive and structured dialogue can help encourage them to take action on issues such as sustainability or governance. As an example, we have worked closely with biopharmaceutical companies to take part in the UN’s Sustainable Development Goals by reporting on their contribution to SDG 3 – good health and wellbeing. This is a financially material issue for the biopharmaceutical industry, because most companies are vulnerable to reputational risks such as lack of trust in the community, and negative media coverage. In addition, companies that have ongoing investment in research and development in order to develop innovative drugs, which in turn contribute to SDG 3, also generate a competitive advantage.

 

We are seeing companies starting to include case studies in their sustainability reports, and creating internal groups to identify ways to measure quantitative impact.

 

  1. Voting at shareholders’ meetings

In recent years, the number of shareholder proposals filed at shareholder meetings on topics related to sustainability has risen substantially, generating growing levels of investor support. For instance, we were involved in the shareholder proposal to McDonald’s last year which called for a ban on the use of antibiotics in its supply chain. McDonald’s announced it would start reducing its use of these substances a few months later.

 

Another topical example is gender equality. It is increasingly recognised that broader diversity, including gender diversity, is a financially material issue as well as a social one.

Robeco’s own studies indicate that companies with more diverse boards are better positioned to outperform and achieve higher stock returns. Other research has found that companies with highly diverse executive teams boasted higher returns on equity, earnings performance and stock price growth. We therefore believe that assessing diversity in the board and total workforce is important.

Company boards need to be developing comprehensive diversity policies, not only at board level but for the broader workforce as well. They also need to increase disclosure on this topic, and companies must be prepared for questions on diversity.

To date, significant steps have been taken in the move towards sustainability, but there is still more that can be done. To help achieve this, the financial services industry has a special role to play, by choosing to invest in those organisations and industries that offer the best contribution to the SDGs.

We expect the SDGs will become an integral part of the relationship between companies, boards and shareholders. It is therefore crucial for board members to discuss how they wish to contribute.

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 Carola van Lamoen is head of active ownership at Robeco, responsible for Robeco’s global engagement and voting activities.

 

Article first published in Superfunds Magazine