How to align your investments with the UN Sustainable Development Goals

As climate changes are materialising and the world is hit by a pandemic in several waves, private as well as institutional investors are asking themselves how they can be a part of the solution and help fund a more sustainable future, or even address specific global challenges.

This growing interest in sustainability-focused investing should of course be seen as a reflection of a deeper concern about the welfare of people and the planet, but also as an expression of a stronger interest in thematic investing. Thematic investing focuses on long-term trends rather than specific companies or sectors and aims to target the opportunities that arise with global mega trends before they become widely recognised. Examples of such themes could be anything from disruptive new technology to the rise of a new middle class in emerging markets.

Over the past years, the global sustainability challenges and their possible solutions have emerged as a potentially profitable theme that is likely to unfold over the coming years. This gives investors a unique window to address global challenges and at the same time obtain exposure to trends with a strong potential for excess return. That is why it’s highly relevant to approach the theme in a systematic way.

It may seem simple to address social or environmental challenges by investing in companies offering solutions to them, but for the individual investor the realisation of the strategy is somewhat more complex. This is why we have chosen to analyse how to carry out a sustainability-themed investment strategy in Nordea’s latest ESG Investments publication. Here are some of our findings: 

Why sustainability-themed investing?

There are several reasons why sustainability is relevant as a theme and has already attracted much attention from investors. One reason is of course the appealing opportunity to combine a financial and a sustainable objective. Another is the belief that investing in solutions to global challenges will ultimately benefit the global economy and long-term investments. Lastly, particularly major investors are under growing external pressure to ensure that their portfolios take ESG factors into consideration.

Why invest in line with UN’s sustainable development goals?  

All UN members have agreed to adopt the 17 UN Sustainable Development Goals (SDGs) as part of the 2030 Agenda for Sustainable Development. The SGDs are thereby the closest we have to an international strategy for how to achieve a better and more sustainable future. The annual investments required globally to achieve the SDGs are estimated at USD 5-7 trillion. Government investments are not enough to reach the goals. But the goals can be reached if approximately 7% of privately managed investments are mobilised. This is why private investors can play an crucial role by redirecting their investments towards the goals.

As 2030 is approaching, govern­ments will have to introduce new regula­tions and drive capital towards sustaina­ble eco­nomic activities, which will impact indus­tries, companies, regions and countries. The uncertain timing and extent of this shift is a crit­ical component of the overall risk landscape facing investors and the SDGs provide a good framework for understanding the trend and identifying the risks.

What are the most important points for inves­tors to learn? 

In practice, investors interested in a sustainability-themed investment should consider the following steps to align their portfolios with one or several sustainability goals: