The ins and outs of the SDI Innovation Outlook

In 2015 the United Nations agreed on the 17 Sustainable Development Goals for 2030. Research shows that global financial institutions have the ambition of defining an approach to investing in SDGs. A lack of quality data to identify contributions to the SDGs has been an impediment for investors; companies in turn are struggling to adapt their disclosures to investor needs.

The SDI Asset Owner Platform facilitates investors to address these challenges with a tried and tested standardized taxonomy for investing sustainably, producing the SDI revenue-based Classification. This month, they expanded the family of offerings with the SDI Innovation Outlook.

Pieter Laurens Baljon, Senior Data Scientist at Entis and project lead for the SDI Innovation Outlook, answers questions raised by SDI AOP Research Director James Leaton about this new forward-looking information based on firms’ patents.

What is the SDI Innovation Outlook and for whom is it interesting?
Pieter Laurens: “The SDI Innovation Outlook quantifies and describes the alignment of a company’s patent portfolio with the UN SDGs. Millions of patents are analyzed through the lens of the SDI taxonomy. The resulting data gives an indication of how a company’s technologies and upcoming solutions (Research & Development) will positively contribute to the UN SDGs through future products and services.

James: “The forward-looking data can be used by asset owners and asset managers to methodically assess how far a company’s R&D strategy is set up to realize a company’s sustainable product ambitions. This information can serve as valuable input, for example during the portfolio construction process to identify companies that have the potential for increased future returns, or for engagement over business strategy and investment in sustainable innovation”.

Why forward looking metrics?
Pieter Laurens: “Most ESG metrics are about the past or present while investors ask for a forward-looking metric of sustainability. The SDI Outlook measures companies’ innovation focus. It offers new insights for understanding companies’ strategic alignment with the SDG’s, industry peer comparison, improved SDI portfolio construction, and de-risking of portfolios.

James: “The data can be accessed in terms of investment themes around technologies, which provides useful signals to think about opportunities for value creation. It will also help investors look beyond the usual suspects to gain exposure to future innovation.”

What is the link to the SDI classification?
Pieter Laurens: “The new patent-based approach measures companies’ innovation focus through the lens of the SDI taxonomy; just as the classification measures it for company output. The metric is a combination of scores on 130 technology themes, that are linked to the SDI taxonomy through the product categories that are the basis for the SDI classification. The metric shows the share of SDG patents weighted by their importance. More than 20 million patents are reviewed regularly ­weekly by using large-scale network analysis and proprietary statistical models. The SDI Innovation Outlook provides a detailed company profile for the over 2,500 firms in the SDI universe that have a sufficiently large patent portfolio.

James: “The SDI AOP Classifications is about where the company is now, whereas the SDI Innovation Outlook is about where the company is headed. The data from the SDI Innovation Outlook provides granular insights for specific themes and technologies, it provides historical trends in portfolios and takes the quality and importance of individual patents into account. The two are complementary”.

Which use cases do you see using the data from the Innovation Outlook?
Pieter Laurens: “The granularity of the SDI AOP data set allows investors to use this forward-looking data set in portfolio decision making processes and to generate portfolio insights, such as the concentration of companies whose R&D is focused on sustainable solutions. The data set also enables an in-depth drill down into each individual company, to facilitate peer comparisons”.

What makes the SDI Innovation Outlook unique in the data landscape?
Pieter Laurens: “There are three aspects that make the Innovation Outlook unique:

1. It’s asset owner led: the SDI AOP is established and backed by leading asset owners (APG, AustralianSuper, BCI and PGGM), offering a unique proposition for specific SDG-related research.
2. It’s based on the SDI taxonomy: the taxonomy leads to a consistent way to look at outputs (classification data) and innovation. The taxonomy is established and maintained by the SDI AOP to cover solutions that contribute to the SDGs and encodes the rules for identifying SDIs.
3. It’s quality and transparency: the analysis incorporates the quality and importance of individual patents, takes historical trends into account, and provides granular insights for specific themes and technologies.

James Leaton adds “The Innovation Outlook’s grounding in the SDI taxonomy gives it a unique position in the data landscape. The SDI AOP uses revenues associated with a company’s products and services as starting points to classify which companies qualify as SDI. With the SDI Innovation Outlook we add a new patent-based SDI metric measuring companies’ innovation focus by the patents they hold and the impact of these patents through the lens of the SDI taxonomy. This results in a consistent way to look at revenues and patents which supports our mission to set a global standard for investing into the sustainable development goals and accelerate the market adoption of Sustainable Development Investments (SDIs)”.

Our global distributor Qontigo also publshed a blog post on the SDI Innovation Outlook. 

Would you like to learn more about our services are sign up as a subscriber Get in touch with our distribution partner Qontigo sdi@qontigo.com