Sustainable Development Goals Provide Practical Framework for ESG Investing

As asset owners, the voting of corporate proxies is one form of impact we can have on companies. Our votes on shareholder proposals are an effective way to signal confidence in the companies we own or to suggest the need for a change in policies, disclosures or related aspects of a company’s business. The United Nations and organizations like it, are another source of influence on public equities that can help direct solutions to broad challenges faced by society and the environment. The UN formalized these broad challenges in 2015 with the introduction of the 2030 Agenda for Sustainable Development and approval of its accompanying Sustainable Development Goals (SDGs). We believe the SDGs outline important areas of impact and offer a practical framework to complement and support the environmental, social and governance (ESG) considerations we analyze in our research and that guide our proxy voting.

At ClearBridge, we believe the SDGs help align sector and company-specific ESG considerations with broader societal goals. Tackling social and environmental challenges is a core aspect of ESG investing, so mapping how the issues we care about as investors intersect with the targets and goals of the SDGs is a valuable exercise to give our efforts an even broader context. The SDGs encompass a wide range of ESG dimensions as the 17 goals are associated with a total of 169 targets to achieve by 2030.

This alignment of the SDGs with our ESG approach is best illustrated by mapping the SDG targets to the ESG considerations followed by our sectoranalysis. Exhibit 1 summarizes the goals and targets most prevalent across industry sectors and sub-sectors. Considerations related to responsible consumption and production (column 12) are the most common across our coverage universe. Considerations related to climate action (13); affordable and clean energy (7); reduced inequalities (10); clean water and sanitation (6); decent work and economic growth (8); industry, innovation and infrastructure (9); and sustainable cities and communities (11) also are meaningful.

Achievement of the SDGs will require a globally-coordinated effort among the public and private sectors, including governments, NGOs, shareholders and investors. As a leading ESG investor and advocate for ESG best practices among public companies, we believe the SDGs are a globally accepted roadmap to gauge progress that can benefit society and the environment, while motivating companies to create sustainable value. Mapping the SDGs to our own framework of relevant issues helps us understand that the issues we care most about are also the most relevant to achieving the SDGs. Focusing our engagement efforts and proxy voting on these intersections is where we can have the most impact. We will continue to map our ESG considerations to the SDGs and use them to measure progress and motivate change for the better among the companies we own.

Sustainable Development Goals Provide Practical Framework for ESG Investing

Mary Jane McQuillen