Two thirds of the UN sustainable development goals are in danger of not being achieved, warned Ben Constable-Maxwell of M&G. In some areas, great strides are indeed being made in the right direction, but in the area of hunger and poverty, the Covid pandemic has caused a setback.
About six years ago, the United Nations (UN) defined 17 sustainable development goals (SDGs). The objective is to achieve them by 2030, securing a better and above all more sustainable future for all. The British fund house M&G annually examines the evolution of these SDGs and establishes whether they have come closer to their objective.
In some areas, big steps in the right direction are indeed being taken, concluded the asset manager: especially in the field of sustainable energy and gender equality. But in the area of hunger and poverty, the Covid pandemic has taken a serious hit and caused a setback.
Energy issue
In an interview with sister platform Investment Officer Belgium, Ben Constable-Maxwell of M&G said first of all that the current crisis around gas and oil prices is an indicator that we have hit the limits of the current energy system. “It shows how vulnerable the current system has become due to disruption,” said the head of sustainable and impact investing at M&G. “Some say we should invest in fossil fuels again. I don’t agree with that. On the contrary, we should definitely opt for the opposite and further increase our investments in renewable energy capacity.”
But won’t this accelerated energy transition cause a shortage of raw materials? “We need to retrieve raw materials today to drive the clean-tech revolution, that much is clear. But now we also have to opt fully for a circular system so that we have to do as little new exploration as possible: recycling, reusing and giving used raw materials a new purpose. The fact that there has been too little investment in the infrastructure for reuse and in recycling technology in recent years does not help.” Constable-Maxwell also stressed that M&G spends a lot of time in dialogue with mining companies. “We constantly encourage them to work more sustainably, to mine with limited pollution and to respect social rights.”
Progress is frenetic
In the SDG Reckoning report, Ben Constable-Maxwell underlined that the world is falling behind on the targets, stating that the overall score for the 17 goals is only 4.1 out of 10. Why is progress so slow? “The lack of progress is partly due to inertia and resistance to change. And it is not easy to make the transition to another system. Many people need to be convinced that it is in their best interest.”
“Also, the pandemic has weighed heavily on many areas, such as education, because many young people were unable to go to school. On top of that, it is not easy to get such an extensive programme up to cruising speed.”
However, the head of impact investing at M&G expects some improvement. “In the first five years since the SDGs, the world has been primed to see the need for change, and now that we are getting such strong indications that the climate, for example, is heading in the wrong direction, even close to home, many are starting to see the urgency of change. We are seeing encouraging progress: many companies are signing up for net zero by 2050 and some are even anticipating it earlier. They are being driven by investors but also by policy makers and governments.”
Ben Constable-Maxwell also pointed out that everyone is responsible today. “People need to change their behaviour, policy makers need to get it right, companies need to reduce emissions and investors need to ask tougher questions. At the same time, NGOs should teach us how to walk the right path.”
SDGs and investments
In M&G’s impact investments, these SDGs are the starting point and driving force behind the investment strategy. And Ben Constable-Maxwell stressed that we need to look at what can be invested in to support these SDGs. “We look at the 17 goals and how they can be achieved. Where should capital and investments go to catch up with some of the SDGs. And our report is an indicator to see where we are lagging.” And where are the SDG investment opportunities? “Of course, we also want to book a return for our clients and investors. So we need to look for business models that are strong and companies that are creative and provide solutions.”
Ben Constable-Maxwell pointed out that financial markets and investors are not yet sufficiently aware that the eventual failure of these SDGs will have a significant impact on their investment portfolios over time. “If we do not achieve SDG number 7, transition to sustainable energy, we will continue to see the recent distortions in the energy market. If we do not develop a circular economy, SDG 12, we will not succeed in the transition to green energy because we do not have enough raw materials. If we don’t tackle the climate crisis, SDG 13, properly and invest enough in it, the disruption will be such that there will be a negative impact on investment portfolios of thousands of billions of dollars. And people are starting to realise how important these targets are for the real economy and the financial system.”
How will impact investing evolve?
“We are moving to a world where all investors will take into account the impact their investments have. That will become the dominant way of looking at investments. So a fund will no longer be judged just on its financial performance but also on its impact on sustainability. Within 10 years, it will be unacceptable for a fund to achieve fantastic returns but at the same time have a seriously negative impact on society or climate change. And that will apply to the entire financial world. And the job of impact investor? It will therefore become increasingly important and relevant. And then there are those who say that my job will disappear because impact investing will become mainstream. I hope that this will happen and that I will eventually be regarded as an ordinary investor and manager.”