This document is being provided for the exclusive use of Eric BORREMANS - Pictet Asset Management - generated at 2018-04-27 12:07:41 360 Report $Com panySectorName$ $StoryName$EG_3 R SDGs Impact Screener Thematic & Impact Investing 18 April 2018 x Global goals: more than a rebranding What’s it all about? The UN’s global long-term sustainability objectives, also known as its Sustainable Development Goals (SDGs), still look like a wish list to try to save the world by 2030 by shaping discourse and communications. At first glance, they do not seem particularly relevant for capital markets in terms of Main author investment risks or returns. Thus, it is unclear whether they have any teeth Samuel Mary and can serve to inform stock analysis beyond a simple reframing of what is Senior Sustainability Research Analyst already being done by using a new, slick term. However, we continue to think [email protected] they are relevant, and in this report, we examine why that is the case by +44 207 621 5190 exploring which SDGs matter most, as well as when, where, and how they create actionable investment opportunities linked to innovative businesses, ESG research team in addition to serving as a base for sector and company insight. Biographies at the end of the report IMPORTANT. Please refer to the last page of this report for keplercheuvreux.com “Important disclosures” and analyst(s) certifications. This research is the product of Kepler Cheuvreux, which is authorised and regulated by the Autorité des Marchés Financiers in France. This document is being provided for the exclusive use of Eric BORREMANS - Pictet Asset Management - generated at 2018-04-27 12:07:41 Thematic & Impact Investing 360 in 1 minute The case for SDGs as a catalyst: a reality check The United Nations’ (UN) comprehensive policy agenda for global long- term sustainability objectives (from gender equality to climate change), which is also known as its Sustainable Development Goals, SDGs, or Global Goals, may be one of the hottest terms in the ESG space. While their legitimacy in terms of investment research and decisions remains disputed, we build on our past research and a flurry of initiatives to assess whether it would be beneficial to look at companies’ risks-return profiles in connection with their sustainability impacts. Beyond communications, our assessment of actions initiated by policy- makers, companies and investors further emphasises that the SDGs are set to become an increasingly common reference point, not least as governmental frameworks are being built up in relation to these issues. One example is the European Commission’s action plan on sustainable finance. More importantly, our assessment reinforces our belief that there is mounting supportive evidence that value can be found in: 1) the common language; 2) system thinking and broadening of ESG perspectives to all relevant sustainability issues, including insights into interdependencies and overlooked sustainability themes like biodiversity, forest and land degradation, or the oceans; 3) clearer links between company goals and policy agendas; 4) impact metrics and “net” assessments, including the lifecycle approach, priority setting and the balance of positive and negative externalities; and 5) pushing out the time horizon (the year 2030 is on the radar). Debunking myths regarding SDG investability Regarding opportunities, we estimate the total SDG-linked revenue figure for groups under our coverage at roughly 4-11% of the total (for EUR1.5trn in market cap, or 16% of our total universe), based on past research, whose mapping of companies’ exposure was underpinned by context-based research over the impact credentials. These are mainly related to environmental and health themes. Nonetheless, we still urge caution when it comes to the true size of the investment universe with the greatest “impact”, based on more demanding definitions and impact metrics (tangible connections with UN priorities). Translating SDGs into sector and company insights We also draw on our flagship bottom-up product (ESG profiles) to show how a simplified “SDG scoring” system and quantitative modelling could harness our conclusions at the universe, sector, or company level, using case studies in the Chemicals and Utilities sectors. This enables us to produce a comprehensive spectrum mapping (from “top” to “worst” stocks based on their estimated alignment with the SDGs targets). 2 keplercheuvreux.com This document is being provided for the exclusive use of Eric BORREMANS - Pictet Asset Management - generated at 2018-04-27 12:07:41 Thematic & Impact Investing Contents Reintroducing the SDGs 4 It sounds like a plan 4 Governments and the SDGs 7 The case 7 Tangible changes 14 The priorities 18 Companies and the SDGs 19 The case 19 Tangible changes 22 The priorities 31 Investors and SDGs 34 The case 34 Tangible changes 36 Priorities 42 KECH and the SDGs 43 The case 43 Tangible changes 45 Priorities 50 Glossary 77 Research ratings and important disclosure 79 Legal and disclosure information 81 3 keplercheuvreux.com This document is being provided for the exclusive use of Eric BORREMANS - Pictet Asset Management - generated at 2018-04-27 12:07:41 Thematic & Impact Investing Reintroducing the SDGs The UN’s global long-term sustainability objectives, also known as its Sustainable We have been here Development Goals (SDGs), still look like a wish list to try to save the world by before 2030 by shaping discourse and communications. At first glance, they do not seem particularly relevant for capital markets in terms of investment risks or rewards. In other words, do they really have any bite, or are they just bark? While we have already explored this question in our past research (starting formally in 2013 with the Millennium Development Goals in our Investors’ Impact Integrated = I3 report), the proliferation of initiatives and the evolving nature of related investor approaches lead us to take a closer, fresh look at this issue in light of recent developments. It sounds like a plan What are the SDGs? A global guide to the future policy direction. The 17 Sustainable Development Goals (SDGs), supported by 169 targets, make up the UN’s roadmap to 2030 across both environmental and social policy objectives. Essentially, they can be likened to an UN global roadmap to aspiration or compass that is intended to guide policymakers across the globe when 2030 across both environmental and shaping their sustainability-related strategies to achieve a long-term and inclusive social policy “green” growth i.e. save the world while making humans richer and the economic objectives system more equitable. To put it differently, we see the official endorsement of such a high-level list as intended to sow the seeds of their potential realisation (application of the “self-fulfilling” prophecy principle). Table 1: UN Sustainable Development Goals (SDGs) Number Goal People Goal 1 End poverty in all its forms everywhere. Goal 2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture. Goal 3 Ensure healthy lives and promote wellbeing for all at all ages. Goal 4 Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. Goal 5 Achieve gender equality and empower all women and girls. Goal 6 Ensure availability and sustainable management of water and sanitation for all. Prosperity Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all. Goal 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Goal 9 Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation. Goal 10 Reduce inequality within and among countries. Planet Goal 11 Make cities and human settlements inclusive, safe, resilient and sustainable. Goal 12 Ensure sustainable consumption and production patterns. Goal 13 Take urgent action to combat climate change and its impacts. Goal 14 Conserve and sustainably use the oceans, seas and marine resources for sustainable development. Goal 15 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt. and reverse land degradation and halt biodiversity loss. Peace Goal 16 Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels. Partnership Goal 17 Strengthen the means of implementation and revitalise the global partnership for sustainable development. Source: UN (link) 4 keplercheuvreux.com This document is being provided for the exclusive use of Eric BORREMANS - Pictet Asset Management - generated at 2018-04-27 12:07:41 Thematic & Impact Investing How do they differ from previous international goals (the MDGs)? While the SDGs differ from the previous MDGs in almost every possible way, they do represent something of a continuation. They were approved by the UN General From “Millennium” to “Sustainable”: more Assembly in September 2015 and became effective as of 1 January 2016. The SDGs than a change in succeeded the eight Millennium Development Goals (MDGs) that were focused on wording, e.g. development assistance and access to basic needs. The SDGs are broader in their companies are now on remits and consultation, as they include businesses (overall, partnerships are being board emphasised as critical and are actually reflected in one of the goals,