Topics in this section: - Sustainable Development Goals alignment sees diversification - SDG funds see growth on retail, institutional interest - Enel join sustainable bond market by aligning with the SDGs - Pension funds drive SDG adoption
Sustainable Development Goals alignment sees diversification
Unique structures such as SDG-linked bonds issued by Enel and Standard Chartered's SDG deposit accounts indicate growing product diversification. Investors are latching onto the SDGs, with at least 10 funds launched this year. DWS, BlackRock and Axa have launched such funds, which typically underweights financials and overweights consumer staples.
SDG funds see growth on retail, institutional interest
At least 10 funds incorporating the UN Sustainable Development Goals were launched or rebranded this year, tapping into growing retail and institutional interest. Assets have grown to over $6 billion, 3.5x that of 2016. SDG funds are similar to ESG funds, but they typically underweight financials, while overweighting sectors such as consumer staples and health care. This is an effort to gain exposure to companies with products that support the SDGs. For example, the iShares Sustainable MSCI Global Impact ETF overweights food, biotech and renewables while underweighting insurance, banking and coal.
Over the last two years, DWS, Axa and Nomura launched funds that seek to incorporate the SDGs. Varying structures are emerging with Standard Chartered offering the first retail banking product through SDG deposit accounts.
Enel join sustainable bond market by aligning with the SDGs
Social and sustainability bonds are catching on, coveted by investors and corporate issuers looking to meet a growing demand for responsible investments. Issuance has been growing from a small base, with $47 billion sold this year, almost 1.6x 2018 levels. Issuers are starting to use the SDGs as a framework, with Enel launching the first SDG-linked bond where the interest rate increases if the company doesn't meet pre-determined sustainability goals. Such a structure is unique as proceeds can be used for general corporate purposes, unlike sustainability bonds from HSBC and ANZ bonds where proceeds are earmarked for specific SDG aligned projects.
Social bonds exclusively finance projects such as public health and education, while those focused on sustainability target a mix of green and social projects.
Pension funds drive SDG adoption
The SDGs offer a tangible sustainable investing framework, with demand growth driven by large asset owners, such as the European pension funds that helped kick-start ESG adoption. Nine large European pension managers are seeking to increase investments in the SDGs, with APG and PGGM setting out frameworks to measure indicators. APG targets investments of 58 billion euros by 2020. Japan's $1.5 trillion government pension fund, GPIF, included the SDGs in its investors' stewardship survey, showing a growing focus that could propel integration.
ESG ETF assets have increased 5x that of 2015, with pension funds the main drivers. A similar focus on the SDGs would help drive such strategies among other asset managers.
