Data providers apply many diverse approaches when assessing the impact of the UN Sustainable Development Goals (SDG), a German study has found, prompting it to call for a standardised approach to measure impact.
The DVFA Commission on Sustainable Investing (the Society of Investment Professionals in Germany), which authored the report, works on sustainability standards.
Companies are increasingly aligning their sustainability reports with the SDGs, which the UN created in 2015 to address global challenges.
As their importance has been on the rise, the report provides an overview on available methods to measure the goals, analysis tools and data providers.
The commission said it promotes companies’ alignment with the SDGs, as it is the “first time that companies and financial markets have a common language towards a purpose-driven goal”.
It reviewed 12 data providers on their approaches to measure the SDGs, as they offer their tools to a large number of clients.
The approaches are based on:
- Ratings/scales/scores (Inrate, ISS ESG, Trucost, Vigeo Eiris)
- Revenues (MSCI ESG Research, Inrate, Sustainalytics, Trucost)
- Impact numbers/quantitative calculations (Impact-Cubed, imug, Trucost)
- Classification of themes/product & services (SEB, Vigeo Eiris)
- Impact-themed SDG frameworks (Iris)
- Custom-made SDG reports (Sinzer, South Pole)
As measuring impact is not standardised yet, each data provider applies its own definition or methodology of impact, the report notes.
Most providers use publicly available information with or without internal research, it adds.
The report sees four advantages of using the SDGs:
- Engagement: Using the SDGs to engage with companies on their net impact score or percentage of revenue from SDG-related products and services;
- Risk management: Assessing the impact of a company and – if they fail to meet certain thresholds – potential risks;
- Impact measurement and reporting: Creating impact reporting for investor portfolios, such as the proportion of SDG-aligned investments out of total investments; and,
- Opportunities: Using the SDGs to find companies with high sustainable growth.
The authors also call for a standardised approach when measuring the SDGs to provide more clarity and help accelerate the standardisation of impact metrics among data providers, companies and investors, as well as avert SDG washing.
Consistency and transparency
The main points of the suggested approach are:
- Quote the source of the information;
- Provide information about how numbers have been calculated, if they are estimated;
- Be transparent on the methodology and reasoning of applying the SDGs;
- Be consistent with using impact metrics and explain the reasons for changes in the methodology; and,
- Provide any year-on-year change in the measured impact, either net impact scores or revenues etc, similar to financial statements.
While it offers an overview, the study should not be viewed as a recommendation for any of the named data providers, it said.
- This article first appeared on ESG Clarity’s sister site, Expert Investor