Util – a financial technology company with a focus on sustainability – has published a report ranking the top ten positive- and negative- contributing investment funds for each of the 17 SDGs. The report warns about bundled scores, which it describes as “the Schrödinger’s cat of sustainability,” and calls for an “unbundling” of ESG metrics to optimize investment impact.

The August 2022 publication titled, ‘Impact Investment Leaders and Laggards,’ presents three key findings that can help optimize sustainable investment. First, it calls for unbundling “catchall” concepts of ESG and “planet, people, prosperity,” which, it argues, represent “a suite of different, even conflicting, objectives,” by looking at the data inside “the Schrödinger’s box” for impactful investment. (Read here a guest article about the importance of understanding the data behind indices and rankings the SDG Knowledge Hub published in July.)

The report explains that companies, industries, and funds deliver positive impacts for some Goals – and negative impacts for others, and argues that impacts differ across the economic, social, and environmental pillars of the 2030 Agenda for Sustainable Development. As an illustration, resource extraction affects the social and environmental dimensions negatively while at the same time supporting economic growth in developing countries. Even on a single metric, the report notes, investments can be “good” and “bad.” For example, despite “well-documented abuses,” social media improve women’s healthcare and education.

Second, the report finds that ESG, which is first and foremost a risk mitigation tool, “is biased towards large companies with reporting resource[s] and against those in developing markets, due to perceived social and governance flaws and … data gaps.” As a result, ESG diverts capital flows away from developing countries that are “in most dire need of investment,” leading to financial inequality, jeopardizing poverty eradication efforts, and impeding sustainable development.

Third, the report warns of critical trade-offs in “a very un-green green transition” to a low-carbon economy. It flags that the biggest commonality among positive-contributing funds is exposure to renewable energy, while metals and mining, “upon which renewable development depends entirely, is among the most consistently held industries of negative-contributing funds.” The report observes that while solving climate change is “the lynchpin of global sustainable development,” it is also its “major conundrum.” Consequently, there is a need for sophisticated impact and ESG data to enable investors to better navigate trade-offs, it concludes.

In his introduction to the report, Util’s CEO Patrick Wood Uribe underscores that “[o]nly with comprehensive company, industry, and fund data can tradeoffs be understood and managed, and positive impact optimised.”

The authors of the report “appl[ied] natural-language processing to 120 million peer-reviewed texts to extract relationships between any product and the SDGs, their sub-targets, and an underlying 2,000 concepts.” [Publication: Impact Investment Leaders and Laggards: Highest Positive and Negative Contributing Investment Funds Relative to Each of the 17 UN Sustainable Development Goals] [Publication Landing Page] [Util Insights]