The six principles

The report details the six principles institutional investors should adopt to incorporate ESG issues into investment analysis and decision-making processes. The principles include seeking appropriate disclosure on ESG issues by entities in which they invest, promoting acceptance and implementation of the principles within the investment industry, and working together to enhance their effectiveness in implementing the principles.

A five-part framework for investors

The report presents a five-part framework to help investors align their investments with the SDGs. The framework covers five parts: identify outcomes, set policies and targets, investors shape outcomes, financial system shapes collective outcomes, and global stakeholders collaborate to achieve outcomes in line with the SDGs.

Identify outcomes

Investors are encouraged to broaden their analysis of individual investees’ ESG issues to include analysing the most important outcomes for society and the environment at a systemic level. A focus on outcomes allows investors to protect their reputation and license-to-operate, identify opportunities in business models, supply chains, and products/services, prepare for legal and regulatory developments, and meet commitments to clients and beneficiaries.

Set policies and targets

Investors must set policies and targets that aim to shape real-world outcomes aligned with the SDGs. The report gives examples of target allocation chosen by investors to achieve specific social goals, which should be accompanied by an approach to monitor the changes in specified outcomes against goals. Investors are advised to build upon existing programmes that integrate ESG factors within their organisations.

Investors shape outcomes

A significant potential for investors to shape outcomes in line with the SDGs exists. ESG incorporation efforts can provide metrics and data and offer lessons on putting the required organisational processes for identifying and understanding positive and negative outcomes in place. External portfolio screening tools can also help identify negative outcomes, such as tools for biodiversity and screening for breaches of the UN Global Compact’s Principles. Investors can engage companies, clients, and beneficiaries on SDG outcomes to align investment mandates with contributing to the SDGs.

Financial system shapes collective outcomes

The financial system shapes the collective outcomes of individual actions. Investors should encourage policymakers to align capital markets with contributing to the SDGs. They should also use tools like the EU taxonomy for sustainable activities to design and manage investment products and strategies focusing on environmentally sustainable economic activities. Investors should determine the way they incorporate SDG-aligned activities into portfolio construction, minimise the negative outcomes and increase the positive outcomes.

Global stakeholders collaborate to achieve outcomes in line with the SDGs

The SDGs set global goals, including for investors, which require collaboration across different asset classes, investment strategies, and financial products. The report gives an example of impact investing, which can be undertaken from an impact-first or financial-first perspective, provided that the impact is achieved. Investors with internal investment portfolios should develop (or source) frameworks, tools, and data to enable investment staff to deliver in line with the policies and targets established.