What are the SDGs? Goal 7: Affordable and Clean Energy
The United Nations (UN) Sustainable Development Goals (SDGs) are a framework for achieving a better and more sustainable future for all people and our planet. The 17 Goals address global challenges related to poverty, inequality, health, climate, environmental degradation, peace, and justice.
1 Established in 2015, the Goals have a 15 year time horizon with 169 associated targets and 232 indicators for achievement by 2030.
2 The Goals serve as a call to action to developed and developing nations to mobilize all sectors to collaborate their efforts to tackle the world’s greatest challenges. While the Goals are central for government and non-profit organizations worldwide, the private sector also has a key role to play in financing the estimated USD five to seven trillion needed for achievement.
3 Goal 7: Affordable and Clean Energy Offsetting the negative effects of climate change is one of the cross-cutting themes that is addressed in the Goals. Goal 7 directly targets this theme:
Goal 7: Affordable and Clean Energy – Ensure access to affordable, reliable, sustainable, and
modern energy for all.
Individual targets for Goal 7 include universal access to affordable, reliable, and modern energy services, substantially increase the share of renewable energy in the global energy mix, double the global rate of improvement in energy efficiency, facilitate access and investments in clean energy research and innovation such as renewables and cleaner fossil-fuel technology, and expand infrastructure for supplying modern and sustainable energy services across the globe.
4 Several additional Goals compliment 7 in the effort to better the environment and tackle climate change including Goal 6: Clean Water and Sanitation, 12: Responsible Consumption and Production, 13: Climate Action, and 15: Life on Land.
Why is this important for investors?
From a financial perspective, there is a growing body of research showing that integration of
corporate environmental practices positively affects the financial performance of companies in both developed and developing countries.
5 The International Energy Agency reports that fossil fuel usage in 2050 will be one third of today’s level, with renewables replacing them as the largest energy source.
6 Some companies have recognized that there are business and economic risks associated with fossil fuels and are investing internally in energy efficiency and infrastructure. As more
corporations make the shift to integrate wind, solar, and hydro power sources, those who wait may be at risk for higher energy costs in the future as well as a negative image associated with polluting.
7 The RE100, a commitment to 100 percent renewable energy usage, currently has 156 signatories including Apple, Goldman Sachs, Walmart, Wells Fargo, and other industry leaders.
8 From a values perspective, many investors and clients cared about environmental protection and combating climate change long before the rollout of the SDGs in 2015. There are more ways than ever for clients to engage in climate action by expressing their values through investment choices. Clients who care about the environment can access investment opportunities that aim to improve clean energy initiatives and divest from chemical emissions and practices that are detrimental to the planet. Connecting environmentally-focused investments with the Goals gives clients the opportunity to partake in the UN’s global effort alongside a wide spectrum of partners. Investing in Goal 7 Equity: Public and private equity hold the greatest number of investment opportunities that contribute to Goal 7. A public company can be analyzed for its contribution to, or reversal of the Goal 7. Internal environmental practices (the ‘E’ in ‘ESG’) can be measured by gathering data on the usage of traditional versus renewable energy, energy supply used to power data centers, purchase of renewable energy certificates (RECs), R&D allocation to expanding alternative energy resources, and so forth. Some companies have long term goals for energy management with annual targets for increasing clean energy usage and carbon reduction, at times with the objective to become carbon neutral and/or use 100% renewable energy over time. Clients may choose to exclude companies with harmful practices from their portfolio and/or invest in public companies with products and services that contribute directly to the Goal.
There are a range of investment opportunities in public and private equity that focus on growth of the affordable and clean energy space. Investible opportunities include companies producing products and/or providing services to build alternative energy products, technology to manage energy usage, innovation to create clean energy products, and building infrastructure for new energy sources. Clients can choose to invest in funds or companies with a broad clean energy mandate or with a specific technology niche, geographic area, or alternative energy type.
Fixed Income: Opportunities also exist in the fixed income space to provide capital to Goal 7.
Green bonds, which have been in circulation for roughly a decade, were created to fund projects addressing mitigation and adaptation solutions for climate change. Green bonds are issued by institutions, government entities, and corporations to lend capital to projects across the globe to enhance green infrastructure and innovation. 9 There is also a demand for municipal bonds that implement projects through an environmentally beneficial process with positive long-term, sustainable outcomes. Local governments have the ability to integrate climate-friendly practices into building infrastructure, transportation, water and sanitation systems, and alternative energy usage. 10 While some exist, there are fewer opportunities for quality investments in alternatives and real assets that align with Goal 7.
Client Portfolio A client cares deeply about protecting the environment and slowing down the negative effects of climate change. She has been gifting to charitable organizations that advance Goal 7 for several years and decided that it makes sense to integrate these values into her investment portfolio as well. Her portfolio consists of public equities, fixed income, and she is interested in making several private investments. An implementation plan includes moving public equities to a mutual fund comprised of companies whose goods and services drive progress of the SDGs, and a fund that consists of companies selling various alternative energy products. Her modified fixed income investments are comprised of investment grade green bonds and municipal bonds that focus on increasing the local alternative energy mix and building infrastructure for clean energy projects. She chooses to invest in one private equity fund that provides funding for small-scale renewable energy projects.