Mapping Portfolio Impact to the SDGs: A Practical Guide for Impact Investors
You’ve likely heard of the Sustainable Development Goals (SDGs), which were announced by the United Nations in 2015 to guide global efforts to end poverty, protect the environment, and improve opportunities for all. But had you also heard that businesses and investors have a key role to play in achieving these goals? Ban Ki-moon, the former UN Secretary General, stated that, “Business is a vital partner in achieving the Sustainable Development Goals.” And indeed, the SDGs explicitly call on businesses to join governments and civil society in solving the global development challenges addressed by the SDGs.
If businesses need to act, then so do their investors. The Global Impact Investing Network (GIIN) has called on the impact investing community to align its efforts with the SDGs: “[T]he GIIN welcomes the unique role that impact investing will play in achieving these goals and building a sustainable future. We urge all investors to contribute directly to the SDGs’ success.” Heeding this call, we have taken the first step — but not the last step — in determining how the Mercy Corps Social Venture Fund’s investment activities are contributing to the SDGs and have published the results of our analysis in our first Social Venture Fund Impact Report.
And since lots of people are trying to figure this out, we thought we’d write down what we did, why we did it and what we’re thinking of trying next.
We did this analysis in part to understand how our investments fit within the SDG framework and to communicate more clearly about how the Social Venture Fund (SVF) is contributing to shared global goals and commitments. More broadly, we believe that the SDGs are a powerful means of fostering greater collaboration among different actors, and by aligning with the SDGs, we hope that our fund can be part of a larger effort to address the world’s most significant challenges. Impact investors alone can’t achieve the SDGs, but when investors act in conjunction with local policymakers, civil society organizations, the broader capital markets, and other actors, we can create systems-level change. And within the impact investment community, when multiple investors rally around the SDGs, they can be a positive force to drive more capital towards achieving them.
This blog describes the process we used to map our investments to the SDGs. As with many first attempts, this was a process of learning-by-doing, but also a process that raised more questions about how we can improve our analysis in future reports. Our approach was informed by the work of other impact investors, and we look forward to continuing to learn from our peers about how to strengthen our analysis.
Our Process of Mapping Investments to SDGs
So how did we conduct this first analysis? We began with the objective of mapping each company in our investment portfolio to the SDGs on which they may be having an impact. We did this by determining whether a company was likely making a contribution to one or more specific targets underlying each Goal. This process involved the following steps:
First, we reviewed the 169 targets that underlie the 17 Goals to determine which targets are relevant to the businesses in SVF’s portfolio. Many of these targets call for government policy actions and do not have any explicit role for businesses, so we excluded these from our list of relevant targets. For instance, Goal 2, which deals with ending hunger, includes this policy-related target: “Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round.” Leaving out such policy-related targets, as well as other targets that do not have a clear role for businesses, left us with a list of just over 40 out of the 169 targets that we think are relevant to the types of ventures and sectors in which we invest. It was not always clear whether a target was relevant, however, so we used our best judgement in compiling this list and erred on the side of over-inclusion.
Second, we reviewed the activities of each company in which we’ve invested in order to determine which companies could be contributing to progress on the relevant targets we identified under each Goal. For example, Goal 2 includes the following target to which businesses can contribute: “By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment.” Several companies in our portfolio work directly with smallholder farmers in various ways that are relevant to this target, from helping them gain secure title to their land to providing information that will help these farmers increase their productivity. An example is FarmDrive, which creates credit reports on smallholder farmers that can help them to access loans from agricultural input providers and banks. This aligns with the target’s focus on the provision of financial services and “other productive… inputs” as means of increasing agricultural productivity and incomes. This step of our process was the most challenging, as it was not always clear how to interpret a target’s relevance to an individual business. In our next annual analysis, we will revisit our interpretation of the targets and reassess their relevance to each company.
In conducting this “mapping” of company activities to SDG targets, we focused on the direct impact that each company has on relevant targets, though we recognize that ventures have a wide range of indirect impacts. In a few cases, we noted where there was a clear case of a company having an indirect impact on achieving a Goal. For instance, Vasham, which helps smallholder maize farmers increase their income, has a goal that these farmers will use a portion of their additional income to send their children to school. If farmers actually do this (and Vasham intends to track whether this is the case), the company would indirectly contribute to Goal 4 on ensuring education for all.
In addition, we mapped a company to a Goal if it addressed at least one target underlying that Goal. In some cases, a company’s mission and activities clearly have a much greater impact on one Goal than on any of the others, but we did not call out this distinction. Nor did we consider the magnitude of a company’s contribution to a specific Goal based on the number of the Goal’s underlying targets it is addressing (or based on the quantifiable impact it is having, as described below).
Third, we sent our analysis to the companies in our portfolio and asked them to review it and provide feedback, both to verify that their business activities contributed to the targets we had identified and to make sure we were not missing any relevant targets. This led to some refinements of our mapping. We anticipate making more refinements in our next annual mapping, particularly as companies grow, pivot, and/or introduce new products or services that could change how they contribute to various SDG targets.
Finally, we published the results of our mapping, at the portfolio level and at the individual company level, in our Impact Report. We determined that collectively the companies in our investment portfolio could be contributing to 13 of the 17 SDGs and that each company in which we invested is contributing to several of the Goals.
This is as far as our analysis went for our first Impact Report. We know we can do much more, however.
Ideally we would like to quantify — or at least approximate — the impact that each company is having on achieving the relevant targets in the countries in which it operates. In addition to establishing 169 underlying targets, the UN has developed a list of 232 indicators that can be used to measure progress on the SDG targets. The challenge for investors like us is that many of these indicators are not designed to be reported on by individual companies but rather by governments at a national level. For instance, Target 7.2 (“By 2030, increase substantially the share of renewable energy in the global energy mix”) can be measured using indicator 7.2.1, “Renewable energy share in the total final energy consumption.” Our investee NewLight Africa is selling a significant number of solar lights in rural Kenya, but it cannot report on its direct contribution to Target 7.2 using this indicator, in part because so many other factors also influence the share of renewable energy in a nation’s total energy consumption.
As next steps, we would like to determine which of these indicators we could use to measure the impacts of the companies in our portfolio. For such indicators, we would then assess which companies in our portfolio are collecting the right data to do so. We might then be able to quantify how each venture is contributing to the achievement of specific targets at a country level. And with this analysis in hand, we can become more intentional and impactful in directing our capital to future investment opportunities that can help achieve the SDGs.
Helpful References
While the UN has asked the private sector to contribute to the SDGs, it has not provided a clear pathway for doing so. Other actors have jumped into this gap to provide guidance to businesses and investors. We found that the GIIN’s report on the role of impact investing, the SDG Compass, and the Impact Management Project’s guidance were all helpful in informing our analysis. And we reviewed how other impact investment funds are assessing their contributions to the SDGs. Among others, Sonen Capital has produced especially helpful analysis in its impact reports, and the impact reports published by Aavishkaar and Bridges Fund Management provided inspiration by demonstrating clearly how their investments map to various SDGs.
If you have ideas on how impact investors like us can improve our analysis of how investments align with the SDGs, please send along your thoughts!
