Sustainable or impact investing is a strategy asset managers including hedge funds, private equity, venture capital, and corporate finance use to invest in companies that practice habits that promote sustainability within a social, environmental, or governance concept. Research shows that companies with stronger sustainability initiatives provider higher, long-term returns, in addition to making a positive impact on the world.
Read on to find out how sustainable development investing can become a key strategy for driving portfolio performance.
Sustainable Development Goals Framework for Impact Investing
The United Nations setup the Sustainable Development Goals (SDGs) to provide a clear and measurable framework on the progress of sustainability and human rights as a whole. The SDGs provide a way to understand and measure investors’ real-world impact. It’s a way for socially responsible investors to demonstrate how incorporating such issues as climate change, limiting war making capabilities, and working conditions into their investment approach are contributing to a more just, peaceful, and sustainable world that we want to leave to future generations.
Companies actively supporting renewable energy, sustainable agriculture, healthcare, education, clean water, and conservation within their operations are a few of the criteria that are popular among investors looking to build well-rounded portfolios with impact or ESG investments.
According to the 2020 UNCTAD World Investment Report, in 2019 green bonds grew rapidly to nearly $260 billion, a 51 percent increase. Green bonds include investments in three SDG goals, climate action (SDG 13), affordable and clean energy (SDG 7), and sustainable cities and communities (SDG 11) and are primarily used in energy, buildings, and transportation.
The SDGs continue to encourage the financial services industry and investors to examine investment strategies in companies through another lens – one that promotes equality, freedom, and sustainability, reduces climate change, and provides generous financial returns. Recent analyses, also reported by the Harvard Business Review, consistently show that companies committed to sustainability within their operations are less likely to go bankrupt and more likely to provide higher financial returns.
The last decade proved pivotal for sustainable initiatives. Today, more than half of global exchanges provide guidance to companies listed on the exchange on sustainability reporting. Corporations and investors understand the importance of making decisions that will positively impact the SDG outcomes. However, the biggest challenge lies within obtaining quality and accurate insights on SDG reporting standards.
The 17 Sustainable Development Goals
There are a total of 17 SDGs and 169 associated targets which stemmed from the eight Millennium Development Goals (MDGs), a blueprint from 2000-2015 which guided global development efforts towards eradicating poverty and disease in developing countries.
With measurable achievements like reducing the number of HIV infections by 40 percent and the malaria mortality rate by 58 percent, the success from the MDGs encouraged the UN to set a broader plan for the world from 2016 to 2030. The goal of the SDGs is to continue to tackle poverty, in addition to ensuring more equality, environmental sustainability, and economic development.
The SDGs provide a defined framework for companies to follow and contribute their own efforts to impact the world through 17 goals. In addition, they provide new investment opportunities for retail and institutional investors. Organizations like the Global Impact Investing Network (GIIN) are encouraging investors to use the SDGs as a framework in building and shaping their portfolios, and many institutional investors are now tracking their existing portfolios against these goals.
The long-term implications of the SDGs are that corporations will behave more ethically by providing a sustainable growth model. Additionally, the world will become a better place for humans and the quality of life will improve. Furthermore, research has shown that corporations that practice sustainability reap the benefits of long-term and higher returns. The SDGs offer a clear and measurable level of participation in a global effort to maintain and progress the health of humanity as a whole.
Using No-Code NLP AI for Fast and Accurate SDG Insights
Investors are looking at companies that claim to be following SDG initiatives; however, the ongoing scaling of unstructured data in the form of news, blogs, and social means investors must sift through massive amounts of data tto identify whether corporations are really incorporating SDG practices within business operations.
This is where No-Code NLP AI can help investors quickly identify clean and accurate data around companies that are effectively furthering the SDGs.
The image below shows how AI can extract specific words related to the SDGs from large amounts of data, track sentiment, and record the number of signals over time. These can be pulled from specific data sets and specific companies. Renewable energy, innovation, and economic growth are a few SDGs that companies are prioritizing according to the “Event Hits Word Count” image below.
Financial analysts can use the information to identify the number of signals around a specific SDG. The image below shows the breakdown of the number of signals between different SDGs. For example, this image shows that affordable and clean energy is a priority for many companies within their business operations and has the most number of signals compared to other events.
Accern NoCodeNLP Platform
The Accern NoCodeNLP Platform uses pre-assembled data sources – global news and public data and content from leading data providers including FactSet, Morningstar, Dow Jones, Naviga, and more – so that analysts and data teams can build ESG-focused NLP models with historical and real-time information.
The Platform analyzes over 26 ESG events that come out-of-box including but not limited to fuel management, supply chain, employee health, safety, and wellbeing, labor relations, social impact, and business ethics, investors and financial firms can identify a company’s ESG practices by calculating accurate ESG sentiment scores.
Schedule a demo to learn more about the Accern NoCodeNLP Platform and how it can drive sustainable-focused insights for your investment portfolio.