SDG Bonds: Creating a World of Opportunity for Issuers and Investors

Earlier this year Gavin Power and I highlighted a quiet but profound pivot underway in sustainable investing, with fixed income emerging as a crucial component in global efforts to make the planet healthier and more productive. The United Nations has already provided the framework with the 2015 Sustainable Development Goals (SDGs), and investors like PIMCO stand ready to provide much needed financing to support these targets, which include bolstering infrastructure, ending poverty and making the planet greener. But to achieve these ambitious goals, we believe bond issuers, whether they are governments or companies, have an essential part to play by aligning debt issuance to specifically support the SDGs.

We believe that formally integrating sustainability analysis across the investment community will be critical in the years ahead. This effort should help strengthen investors’ assessment of risk and return, and also help the investment community become an active participant in creating positive societal change. However, to really achieve this, we will need investors and issuers to work together to deepen and broaden the market beyond green bonds to fully support the UN Sustainable Development Goals.

At PIMCO, we have been hard at work formalizing our sustainability analysis across the fixed income asset classes (see examples of our ESG analysis of sovereign bonds, global financials and utilities). These efforts help to improve the depth and rigor of our investment analysis, but as we deepen this research we also want to be able to track the impact of these efforts over time. We believe the SDGs give us the framework to do that.

A framework for measuring impact: the UN Sustainable Development Goals

The 17 SDGs (see Figure 1) cover a wide range of sustainability issues, across poverty, inequality, access to health and education as well as dealing with the impact of climate change.

Sustainable Development Goals

These goals are deliberately broad, which is both a strength and a potential weakness. The strength is that the SDGs encompass not just climate risks but also other key areas where progress needs to be made to create a more inclusive, sustainable society. However, by being so broad they also create a challenge – how do investors and issuers grapple with measuring such a broad array of metrics?