ESG integration for institutional investors

Project description

This project reviews the ESG and SDG integration activities of the world’s largest public pension and sovereign wealth funds, with an aim to identify the emerging trends, best practices and practical tools for sustainability integration for institutional investors.

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As “universal owners” with large shareholdings in companies across a huge range of sectors and markets, public pension and sovereign wealth funds are in a unique position to drive ESG inclusion along the investment chain through active and responsible ownership. 

These institutional investors are increasingly embracing sustainability in their investment decision. Their sustainable investment strategies are evolving from relatively simple approaches (such as exclusion or negative screening) to more sophisticated ones, and are moving from process-based responsible investment to sustainability-dedicated investment, with impact investment (including SDG-themed investment) on a rapid rise.

Despite this progress, only one in four of the world’s 80 largest public pension and sovereign wealth funds published a sustainable or responsible investment report in 2019. This shows that these institutional investors still have a long way to go on ESG integration 15 years after the creation of the Principles for Responsible Investment (PRI). 

By reviewing the annual sustainable investment reports of these funds, the project aims to identify a rich pool of best practices for sustainability integration.

The first report of this project was published in September 2020 and the review will be updated annually to track developments and progress on ESG integration by the world’s largest public institutional investors.nn

Outputs and related links

Based on the best practices of the 20 frontrunner funds, the project proposes a framework that can be used by institutional investors and asset managers to act on sustainability in-line with their operational model and strategic priorities. 

Download the 2020 report:How public pension and sovereign wealth funds mainstream sustainability” 

Sustainable fund database

Project description

This project will build a comprehensive global sustainable fund database covering all asset classes, regions and strategies, and provide unique insights into their exposure of the largest funds to potential sustainability risks and their alignment with the SDGs.

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The world sustainable finance market has witnessed an explosion of sustainable investment funds. However, lack of transparency and the huge variance in terms of their sustainability integration approach and quality have not only led to “green-washing” or “SDG-washing” concerns, but also make it difficult to gauge the size of the market, with estimates of assets of sustainable funds ranging from $3 trillion to $30 trillion USD.

UNCTAD estimates that there are close to 3,100 sustainable funds worldwide. Among them, sustainability-dedicated investment funds targeting ESG or SDG-related themes or sectors, such as clean energy, clean technology, sustainable agriculture and food security could be in the range of $1.2-1.3 trillion. It consists mainly of green bonds, sustainability-themed equity funds and social bonds. Responsible investment funds, referring to general investment funds that behave responsibly in their investing strategies and operations but not directly targeting ESG and SDG-related areas, could be of the magnitude of $29 trillion.

The sustainable fund database will bring more transparency and consistency to the sustainable fund market, and provide sustainable investors with a readily available information with respect to their sustainability, alignment with the UN SDGs and potential risks. The database will be launched towards the end of 2020 and updated regularly.

Outputs and related links

SDG Investment taxonomy

Project description

By involving industry partners and key stakeholder, this project will propose an SDG Investment Taxonomy that defines what investments are qualified for SDG investment, based on leading international standards that are verifiable, practical and already tested in the market, and taking into account necessary safeguards against potential ESG risks.

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UNCTAD first estimated investment requirements for achieving the SDGs in its 2014 World Investment Report, as an input to their formulation, which projected the annual investment gap for developing countries at $2.5 trillion between 2015 and 2030.

In December 2019, the UN General Assembly resolution on “Promoting investments for sustainable development” (A/RES/74/199) requested UNCTAD to inform its next session “on the gaps and challenges faced and the progress made in promoting investments for sustainable development as well as concrete recommendations for the advancement of investment for the implementation of the 2030 Agenda”.

As part of UNCTAD’s efforts in monitoring investment flows to the SDGs, the SDG Investment Taxonomy aims to provide a practical framework to assess the SDG alignment at the portfolio level for institutional investors. It will bring more transparency and consistency to SDG investment in the global financial market, and help build an international ecosystem for SDG investment.

UNCTAD will propose the framework of the taxonomy in Q4 2020, and then start a consultation process with the financial industry to improve and finalize it.

Outputs and related links

SDG integration best practice case studies

Project description

This project aims to identify best practices, practical tools and lessons learned by institutional investors and asset managers in integrating the SDGs in their investment decision making.

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Although an increasing number of institutional investors are committed to investing in the SDGs, specific integration and reporting of portfolio alignment with the SDGs remains weak. This partly reflects the lack of a SDG investment taxonomy and standards at the fund level, despite standards and criteria existing at the project/activity level in certain SDG-related areas (e.g. EU Taxonomy) and at company level (UNCTAD’s International Standards of Accounting and Reporting SDG contribution indicators). This also reflects lack of practical tools and useful frameworks for SDG integration, especially given that the SDGs are mainly designed as a policy instrument for governments rather than for the private sectors.

This project aims to support institutional investment in capacity building in SDG integration by providing them with best practices and necessary toolkits, based on experiences of market frontrunners.

Outputs and related links.

  • SDG integration best practice case study series (2021)