Another day, another new impact fund that references the UN’s 17 Sustainable Development Goals (SDGs).
Investors want to have a positive impact through the funds they invest in and the SDGs seem like an established framework to measure that impact by. The problem is the goals are deliberately ambitious, expansive and universal. They have to be, the sustainability challenges we face today are complex and multifaceted. But how can you robustly measure a fund’s impact against a framework that is so broad?
Our concern is that, depending on how liberal your interpretation of each of the goals is, any company within a fund can have a ‘sustainable impact’. Suddenly everything is awesome!
But, the more you force companies to fit in with whatever sustainability theme you seek, the more you actually dilute your exposure to that theme.
Environmental data most readily lends itself to quantitative (impact) analysis. But how to measure the positive social impact of a company’s products and services when few companies themselves attempt to quantify what this impact is? In a desire to show how particular holdings fit the SDGs you can see the temptation to make heroic assumptions
The eighth development goal is particularly susceptible to being used to justify any holding (‘decent work and economic growth’). It exists because, from a broader sustainability perspective, economic development has traditionally underpinned improvements in sanitation, energy access, health, nutrition etc. But it sure does lend itself to being a catchall from an impact reporting perspective….
Here are a couple of companies we like whose products and services are actually awesome, but whose impacts are difficult to quantify:
Chroma Ate (Taiwan)
Chroma Ate is a supplier of precision test and measurement equipment and manufacturing systems. Key growth drivers for the business are testing equipment and intelligent automation lines for EV production and solar testing instruments. The company suggests that 90% of Chroma’s R&D projects promote energy efficiency and CO2 reduction.
Ansys Inc. (US)
Ansys develops and sells software for design analysis and optimization for a variety of industries. Its software accelerates time to market, reduces production costs (waste), improves engineering processes and optimises product quality and safety.