CONTRIBUTORS
John Levy
Director of Impact, Franklin Real Asset Advisors
Raymond Jacobs
Managing Director Europe, Franklin Real Asset Advisors
The United Nations’ Sustainable Development Goals (SDGs) are a powerful organizational and communications tool for institutional investors and asset managers as they are universally accepted across multiple facets of society. But the SDGs are vulnerable to misuse, misrepresentation and dilution. Investors need to ensure that when a product is labelled as “aligned with the SDGs” that it moves beyond just alignment and makes a real contribution to positive social and environmental outcomes. In this article we explain how we have approached this challenge with an investment in affordable housing, one of the main sectors within social infrastructure.
From Alignment to Contribution
Our duty as investors is to raise the level of discussion and focus on how we achieve new and better results. In our experience, that starts with an understanding of which SDGs are being addressed, but then turns attention to how we contribute to the achievement of the goals.
Fortunately, behind each goal there are anywhere from 5 to 19 “targets” that speak in greater specificity about sought-after outcomes. And behind each target are “indicators”, which are the data points used to track progress towards each target. Backed by these targets, we can define which specific actions – or contributions – we can perform. Because the contributions are often measurable, KPIs can be used to monitor progress and improvement. Finally, using research and logic models, the KPIs can be mapped against the indicators tracked by the UN.
For our social infrastructure strategy – managed by Franklin Real Asset Advisors - the SDGs and their targets and indicators are not simply a communication tool but inform our entire investment process and are integrated in the Impact Management Model. For example, in screening and due diligence, the potential to contribute to SDGs and their targets is analyzed. During our full due diligence process, we identify theories of change backed by key performance indicators and case studies that demonstrate the degree of progress against the Sustainable Development Goals and Targets, which are then used in tracking and reporting. Finally, we prioritize opportunities to manage the assets in ways that will advance the SDGs.
When assessing an investment in affordable housing, we will explore the multiple ways an investment can be impactful. We can express a full theory of change that is guided by the SDGs, as shown in the below graphic.
Exhibit: Contributing to the SDGs through an investment in Affordable Housing
Source: United Nations Sustainable Development Goals and Franklin Templeton. For illustrative purposes only.
Conclusion
The leadership of field building organizations and practitioners shows that a more disciplined path to achieving impact, and not just hoping for alignment, is possible. Our own efforts in Impact Measurement and Management have been significant and involved consultation with outside experts, system design, testing and implementation by a dedicated impact team. Our early learnings suggest the added discipline of impact management makes for a more robust investment process and creates transparency and authenticity around how we can and cannot contribute to communities and the environment.
The impact investing space is growing and evolving rapidly, and as we advance our understanding of what it means to contribute to the SDGs we will be better equipped to allocate capital to the most attractive investments with the highest potential for meaningful impact.