The United Nations sustainable development goals aim to build upon and expand the millennium development goals while making sustainable development a reality. Aviva believes that the goals represent a unique opportunity for governments, companies, investors and stakeholders to work together to effect positive change.
Business in general, and finance in particular, has a critical role in ensuring that the goals are met. The SDGs have great aspirations for the roughly $150 billion worth of official development assistance (ODA). However, we believe that more needs to be done to harness the roughly $300 trillion of capital in the global markets in a way that will help to achieve these goals.
With some 169 targets, from ending hunger to providing water and sanitation for all, and an estimated cost of around $2-3 trillion attached to achieving these ambitious goals, we cannot expect governments and civil society alone to meet the challenge. It will need capital markets and global investors to play their part. Aviva’s Roadmap for Sustainable Capital Markets was aimed at UN policymakers and published in June 2014. It set out how policymakers can move capital markets to a more sustainable basis.
For our part, inspired by the Brundtland report, our aim is to promote “capital markets that finance development which meets the need of the present, without compromising the ability of future generations to meet their own needs”.
Aviva is a founding partner of Project Everyone, which aims to tell everyone in the world about the goals. The more famous these global goals are, and the more widely they are understood by everyone – the more politicians will take them seriously, finance them properly and make them work.
The same mobilisation needs to happen in business too. We are proud to be associated with the launch of The Global Goals Commonwealth Sustainable Business Challenge at the Commonwealth Business Forum in Malta. By providing a mechanism for business to demonstrate their commitment to helping to achieve the goals by holding a board discussion on the sustainable development goals and reporting back on that. The initiative is being launched by the Commonwealth Enterprise and Investment Council with the support of PWC, Project Everyone and The Prince of Wales’s Accounting for Sustainability Initiative.
For our part, our board is clear that as asset owners and asset managers, Aviva has a duty to protect and enhance the value of client assets. This includes engaging companies on their sustainability performance and putting pressure on policymakers to address the key sustainability challenges within our capital markets and the broader economy.
As an investor, we aim to be a catalyst for the innovation of sustainable technologies and entrepreneurialism required to meet the growing demand for goods and services for an increasing global population.
Governments need to take bold action to correct the market failures around unsustainable growth
While the global goals were being signed by 193 world leaders, Aviva was also making sure that the chairmen and women of the world’s largest publicly listed companies in the world – collectively worth $38 trillion – were also aware of these goals. Working with the UN-supported Principles for Responsible Investment (PRI) – representing $60 trillion of investors – we asked these companies to consider how their own businesses, at their best, can help to deliver on these global goals. We will also be encouraging the chairmen and women to report to society on what they have done to deliver the goals, perhaps via a statement integrated into their report and accounts. This sustainable business statement by companies in Malta provides an excellent opportunity for companies to respond positively to this challenge.
We believe that momentum for sustainable investment is at a tipping point.
Over 1,300 investors managing around $60 trillion have committed to the PRI, and 43 per cent of its signatories integrate ESG into the fundamental analysis of company valuations in equities. The biggest barrier preventing all investors from properly incorporating environmental, social or governance (ESG) factors into their investment decisions is the inaccessibility of consistent data such as carbon emissions, employee turnover or water use.
It is important to acknowledge that many leading companies publish some ESG data. More than 5,000 companies report climate change information to the Carbon Disclosure Project (CDP) and around 10,000 companies report ESG data using the Global Reporting Initiative’s framework.
However, these items are not consistent or global enough to meet investor needs. When it comes to global financial architecture the only ones who can deliver the standardised ESG data which investors require are stock exchanges and their regulators. Stock exchanges have a unique role in capital markets, as is their listing requirements and guidance that ensure companies file data that is material, meaningful and comparable with their peers. Stock exchanges and their regulators ensure that when an investor analysis a traditional financial indicator, such as a profit and loss statement, they can trust that it’s been calculated in similar ways, whether that company is in Boston, Beijing or Berlin. They must be required to do the same for sustainability indicators.
The body that is best placed strategically to overcome this is IOSCO – the International Organisation of Securities Commissions – which is the influential global hub for all securities regulators. The governments assembled in Malta should instruct IOSCO to develop a consistent and comparable international approach to corporate disclosure of sustainability performance.
Such disclosure is in all companies’ interests, since reporting is one of the most important catalysts for changes that contribute to the long-term health of a business. In addition, it can help focus and make visible efforts towards sustainable development. Vitally, it would also provide the data investors’ need to integrate sustainability issues within their valuations work, and stakeholders to benchmark corporate performance, thereby enabling long-term investment and consumption patterns that support the global goals.
We welcome that the UN’s sustainable development goals refer to finance in a number of places. However, none of them will single-handedly move the markets on a scale required to correct the market failure. We need to reallocate trillions of unsustainable investments into commercial activities that support the delivery of the sdgs. This will require strong action by member states, including a range of fiscal measures, market mechanisms and standards that correct price signals. Governments need to take bold action to correct the market failures around unsustainable growth.
Aviva would like to see the UN provide a ‘home’ for sustainable finance, where investors and policymakers could regularly meet to exchange ideas on how to build more sustainable markets. This initiative would also build the UN’s understanding of finance as a power for good and act as a catalyst to restructure the markets to act sustainably.
We believe consideration should be given to establishing a UN body to coordinate and magnify the existing work of the UN on Sustainable Finance, perhaps via a Resolution at the UN General Assembly. We also propose a UN conference on sustainable finance which would also look at the global architecture and consider an expanded role for the Annual Forum on Financing for Development. This would engage with the private sector, investors and other relevant stakeholders.
If the economy is to be moved on to a truly sustainable basis, then we would expect to see governments taking action to correct the many distortions in the pricing systems on fisheries, freshwater, climate change and natural resource depletion. This is how sustainability issues become relevant to our corporate valuation work and this is how our capital is put to work in the right places.
Steve Waygood is the chief responsible investment officer at Aviva Investors.