In the 2030 Agenda for Sustainable Development[1], the United Nations (UN) has set out an action plan that includes the most important global issues for a more sustainable future. These range from fighting poverty and hunger to combating climate change and creating a peaceful and just society. To this end, the UN defined 17 goals to address common global challenges: the Sustainable Development Goals (SDGs). 
Learn more about the UN Sustainable Development Goals
Investments in Sustainable Development Goals
SDG funds are thematic funds specifically targeted at companies that are associated with a positive contribution to meeting the UN Sustainable Development Goals.
Xtrackers and MSCI have developed a state-of-the-art range of SDG-aligned equity indices positioned to provide a unique range of passive exposures. This gives investors the opportunity to invest directly in companies that can contribute to the Sustainable Development Goals (SDGs)[2].
Innovative approaches for SDG Investing
Xtrackers ETFs making sustainable development goals investable: from January 2023 (press release january 23) investors have access to a total of seven different exposures - both single and multi-theme SDGs.
Implementing global SDGs together
The UN Sustainable Development Goals include 169 targets and 231 indicators to measure progress towards the goals. Like the 2030 Agenda, the SDGs cover a wide range of sustainability issues. Some of the accompanying targets are very specific and quantifiable, while others are formulated more broadly and qualitatively. Companies can contribute to the achievement of the SDGs by producing products or providing services that contribute to the achievement of one or more of the 17 goals as well as by aligning their operations, for example with respect to labour rights and health and safety measures. For each SDG, more specific sub-targets have been defined. While some targets are aimed at governmental policy making, our experts estimate that companies can contribute to around half of these targets through their products and services as well as corporate behavior (source: DWS calculations).
Exposure to single and multi-theme SDGs
Xtrackers provides the world’s first product range offering investors granular (i.e. single theme SDGs) access to companies associated with a positive contribution to SDGs. Investors can choose between products that relate to multiple SDGs[3] or various single SDGs, which are combined with a thematic approach. In addition all company stocks in the equity funds are subject to an ESG Screened Methodology, including an ESG exclusion criteria.
Xtrackers single-theme SDGs: Your investment solutions
Xtrackers ETFs track indices which combine MSCI SDG Alignment (75% index weight) with the MSCI thematic engine (25% index weight). Single-theme solutions to drive SDG alignment might be:
A bottom-up stock selection
The selection of company stocks in Xtrackers SDG ETFs is based on the MSCI ACWI IMI universe comprising of small, mid and large capitalisation stocks from global markets deemed investible by MSCI. The selection combines ESG data, thematic revenue and SDG alignment data from the index provider MSCI. The following criteria are taken into account:
- companies with >50% SDG aligned revenues towards the targeted SDG and companies that have >50% revenue aligned with the relevant theme are eligible for single SDG Xtrackers ETFs
- only companies with >50% SDG aligned revenues towards all 17 SDGs are eligible for Multi-theme SDG Xtrackers ETF
- companies are weighted according to their relevance vis-à-vis the SDG/theme, with a priority given to companies with higher SDG relevance
- Companies misaligned with any of the 17 SDG goals are excluded
Investing with SDG-aligned indexing solutions
SDG investments can be understood as a form of thematic investing. The fully systematic, methodology powering the MSCI SDG indices provides thematic exposure to companies relevant to achieving the Sustainable Development Goals. The focus is on directing capital - towards companies that are well positioned to positively contribute to the current efforts by the society towards achieving those Sustainable Development Goals.
SDGs: MSCI Sustainable Impact Solutions Metrics
Xtrackers SDG ETFs use the MSCI methodology that links the SDGs to concrete and actionable sub-themes by using SDG aligned revenue metrics. The themes are divided into social categories and environmental categories. An SDG target can achieve environmental and/or social characteristics from one or more sub-themes.
Examples for Sustainable Development Goals
Are SDG Investments sustainable?
Xtrackers SDG ETFs do not have sustainable investment as their objective but do promote environmental and/or social characteristics and therefore qualify as a financial product subject to the disclosure requirements of Article 8(1) of SFDR. This is what you should know about the companies invested in by such Xtrackers SDG ETFs:
Very few companies have their business model entirely based on contributing to the SDG s, but certain companies have a majority of their activities aligned. Xtrackers SDG ETFs aim to focus on these companies.
The indices also aim to exclude companies with poor sustainability metrics or companies whose behaviour is harmful to the achievement of the SDGs, even if some of their activities could be considered aligned with the achievement of these goals.
Sustainable Investment metrics (SI) as per the EU Sustainable Finance Disclosure Regulation (SFDR) are useful to assess the share of sustainable investments achieved by the ETF. Xtrackers SDG ETFs disclose under Art. 8 of SFDR.
SDG Investments: Opportunities & risks
Thematic investing is becoming increasingly important for investors and can be a useful way to invest directly in companies that are in line with certain themes. Investors should note that the Xtrackers ETFs are not capital protected, the value of your investment may go down as well as up. Investor capital may be at risk up to a total loss.
The table below provides an overview of the risk-reward profile that can arise for investors.
Opportunities |
Risks |
|
|---|---|---|
Macro |
Current efforts are made by the society towards achieving Sustainable Development Goals, thereby creating new potential areas of economic growth | Thematic indices are less diversified than broad benchmark indices and therefore more exposed to concentration risks. The performance of SDG relevant companies may also be driven by the evolution of the perceived relevance of such SDG(s) by societies or Governments |
Micro |
SDG-relevant companies are well positioned to benefit from such new potential areas of economic growth and may provide investment opportunities | SDG relevant companies are stocks subject to specific regulatory, operational and local financial risks.This can materiallv affect vour equitv returns in phases where markets go down or even up |
FAQs: SDG Investing
What are the UN Sustainable Development Goals?
The 17 Sustainable Development Goals (SDGs), also called Global Goals are:
- Goal 1: No poverty
- Goal 2: Zero hunger (No hunger)
- Goal 3: Good health and well-being
- Goal 4: Quality education
- Goal 5: Gender equality
- Goal 6: Clean water and sanitation
- Goal 7: Affordable and clean energy
- Goal 8: Decent work and economic growth
- Goal 9: Industry, Innovation and Infrastructure
- Goal 10: Reduced inequality
- Goal 11: Sustainable cities and communities
- Goal 12: Responsible consumption and production
- Goal 13: Climate action
- Goal 14: Life below water
- Goal 15: Life on land
- Goal 16: Peace, justice and strong institutions
- Goal 17: Partnership for the goals
Who can help to achieve SDGs?
According to DWS experts, it can be assumed that, while almost all SDGs require action from governments or quasi-governmental organisations, corporations can play a significant part in achieving at least half of all targets. This is not solely limited to products and services but also includes corporate behaviours with respect to governance, use of resources, or waste disposal. Many goals require efforts from governments and corporations alike. For some goals, even individual citizens can directly contribute, e.g. with respect to reducing food waste or ending discrimination.
What is the difference between SDG and ESG?
What are SDGs? |
What is ESG? |
|---|---|
|
The SDGs are part of the 2030 Agenda for Sustainable Development (17 goals to be achieved as part of the transition to a more sustainable and equitable future). SDG relevant companies are usually few (less than 100 globally) for a defined SDG, when strict relevance criteria are applied |
ESG includes various criteria (Environmental, Social, Governance) to assess the sustainability performance of companies against these criteria. ESG criteria can be applied to broad as well as concentrated benchmarks. |
Which exclusions are applied to the products?
The products apply the following exclusions, based on the MSCI ESG Screened methodology and supplemented with product-specific exclusions based on SDG alignment data and country classifications:
- UN Global Compact Violators, MSCI Controversies: score of 0 (red flags)
- MSCI ESG Rating below BB
- Companies that are Strongly Misaligned and Misaligned on any 17 goals
- Companies without SDG Alignment, MSCI ESG Rating, MSSCI ESG Controversies assessment
- Country exclusions: certain EM countries such as India, Russia and Saudi Arabia
- Tobacco and tobacco-related products (>0 producers, >5% distribution, retail & supply)
- Controversial weapons
- Nuclear weapons
- Conventional weapons (>5% producers) & (>10% weapons systems, suppliers & distribution)
- Civilian firearms (>0% producers, >5% production & distribution)
- Thermal Coal Mining and Power Generation (>5%)
- Oil Sands Extraction (>5%)
Methodology for the multi-theme SDG index available here
Methodology example for a single-goal SDG index available here
1. With the 2030 Agenda, the United Nations (UN) has established a common plan for peace and prosperity. The document was adopted by all UN member states in 2015 and offers 17 for Sustainable Development Goals to fight the most important global issues. Please see Sustainable Development Goals | United Nations Development Programme (undp.org) for further details.
2. MSCI Sustainable Impact Solutions measure revenue exposure to Sustainable Impact Solutions which represents the total of all revenues derived from any of the following social and environmental impact themes including nutrition, sanitation, major diseases treatment, SME finance, education or affordable real estate, alternative energy, energy efficiency, green building, pollution prevention and sustainable water as determined by MSCI
3. Offering broad coverage of several key themes: Basic needs, empowerment, climate change, natural capital, governance. More information
5. MSCI ESG engine used to construct Circular Transition Universe; market cap weighted