Portfolio Explorer: what is in the Trust?

The Sustainable Development Goals (SDGs) are the globally agreed set of goals for all countries to meet the UN 2030 agenda for sustainable development and link to other global sustainability objectives like the Paris Agreement.

They provide a desired end point for the 17 goals through 169 targets and were created for policy makers rather than investors. However, end points are not themselves solutions and mapping investments to the SDGs gives significant room to make assumptions on how companies are contributing to the goals which may or may not be sound.

The portfolio managers believe mapping formal investment objectives to the SDGs can lead to several issues including:

• Lack of balance between positive SDG impacts and risks and issues each company faces
• Lack of portfolio transparency
• Simplistic and overly-broad approaches to tagging company contributions
• A lack of information on the approach and process

The portfolio managers’ SDG mapping is an outcome of their bottom-up investment process. They map each investee company to a maximum of two SDGs that they believe are most related to each company. When considering their mapping, they aim to look beyond the 17 goals to the more specific targets.

Generally speaking, Project Drawdown’s climate solutions and the portfolio managers’ human development pillars fit neatly with the objectives of the SDGs while also focusing on the practical solutions which companies can demonstrate a contribution to. The portfolio managers see these different views as complementary.

The United Nations Human Development Index (HDI) was created ‘to emphasise that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone’.

The Human Development Index works well as a high-level measure. Countries that score well on it tend to be delivering for their citizens; the reverse also holds true. However, like all metrics it has its limitations. Many companies that the portfolio managers believe contribute to human development and to positive social outcomes do not map directly to any of the index’s constituent components – income, education and health. So they spent time thinking about how they could expand this idea.

Taking inspiration from many different sources, Stewart Investors determined 12 broad pillars1 that they believe encapsulate the essence of human development.

These pillars cover a range of areas that they believe to be central to the spirit of sustainable human development – and quality of life – for people around the world, particularly in emerging markets. Most are self-explanatory and link back in clear ways to Amartya Sen’s concept of ‘development as freedom’2 and the Human Development Index.

Some of the contributions that the companies the Trust invests in are making may not seem groundbreaking but they are no less powerful or important to sustainable human development.

They include the provision of essential medicines in Bangladesh, mortgages to first-time buyers in India, gas cookers in rural China and safe low-toxicity paint in India. All of these are helping and will continue to help hundreds of millions of people in emerging markets to live longer, better and healthier lives.

Founded in 2014, Project Drawdown®3 is a non-profit organisation that seeks to help the world reach 'drawdown' — the future point in time when levels of greenhouse gases in the atmosphere stop climbing and start to steadily decline. Project Drawdown’s deeply researched collection of c.90 climate change solutions, which if scaled up, can deliver the Paris Agreement’s 1.5^oC temperature goal. The full set of solutions along with the research that backs them are publicly available on www.drawdown.org

Drawdown’s solutions offer both breadth and depth of decarbonisation enabling investments. This unique view helps the portfolio managers to understand the role investee companies can play in the decarbonisation of the economy. When grouping these c.90 solutions, the portfolio managers have identified eight areas that according to Project Drawdown can deliver more than 1,600 gigatons of emissions abatement (reductions). 4 In investment terms, the abatement potential for these technologies can be thought as “ total addressable markets", with some offering significant growth potential for companies (tailwinds), while on the flipside pointing to significant declines in some existing industries and practices (headwinds).

Project 'Drawdown' - the future point in time when levels of greenhouse gases in the atmosphere stop climbing and start to steadily decline.

We believe that the opportunities for positive climate change investment must be looked at in conjunction with other sustainable development challenges. These eight areas and the underlying solutions show the cross-cutting nature of the climate challenge and consequent opportunities. All investee companies are assessed and if they contribute to positive environmental outcomes they are mapped to Project Drawdown climate solutions.