Turning negative into a positive – what's new in the August 2022 release
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SDI AOP Research Director James Leaton answers questions on the enhancements delivered alongside the August 2022 data release How does the SDI AOP think about negative contributions to SDGs? |
We surveyed our user community to understand which products should be assessed as an initial priority, for negative contributions. There is less information available about the negative aspects, as most companies will not highlight this type of impact, but this does not affect our revenue-based approach. For us, the SDGs are the ultimate reference point and that is what we continue to tie any analysis back to. We have deliberately not netted the positive and negative contributions, as we believe this does not reflect the complexity of considering impacts across different SDGs. It was critical for us that we maintained our core principle of transparency to enable users to understand the underlying revenue streams.
What has been the outcome in terms of the classification of companies?
Across our universe of nearly 9,000 entities, we have classified around 600 as having a material level (>10%) of negative products or services. Beyond this, there are around 150 further companies which have less than 10% of revenues generated by negative contributions. Our SDI taxonomy has identified just over 2,000 entities which have over 10% of revenues from SDG-aligned products and services.
Distribution of SDI and negative classification across our universe:
Source: SDI AOP
Within the negative classifications, the most prevalent area was under SDG7 in relation to fossil fuel related products and services, with around a third of these being coal related, two-thirds being oil & gas. We then saw similar numbers of entities with material exposure to SDG 12 for single use plastics or landfill and SDG 3 for tobacco or gambling.
Distribution of negative products & services classifications
Source: SDI AOP
Interestingly there are relatively few cases - less than one hundred - where entities had a product mix containing both a material positive and negative contribution to the SDGs. This was most common amongst utilities, but also seen in packaging companies and other industrial firms.
What other research themes have you been working on?
We performed a thematic review across sectors on low carbon transition technologies. This involved reviewing whether hybrid cars are sufficiently contributing to emissions reductions, as well as considering emerging technologies like hydrogen and fusion which could generate revenues in the future. One major addition was the assessment of critical minerals suppliers who produce things like lithium or rare earths, which are essential for the manufacture of batteries and renewables.
We have applied a proportionality factor to ensure we are not overstating the contribution, but think that including this supply chain is consistent with identifying exposure to the solutions. We worked with mining analysts to understand the value chain and how to capture different minerals. Many users will also consider the operational impacts indicated by the warning flag alongside the product benefits.
What other functions have you made available to users of the data?
We have regular sessions with our community of users where the asset owners and asset managers share some of the challenges they are facing, whether that be research dilemmas or practical problems. We know that subscribers are interested in what has changed in each data release, so we have made that easier to understand by having new entities or changes in revenues or classifications clearly identified in the data files. Mapping to fixed income entities is always a challenge, so our delivery partner Qontigo has also created a file which facilitates that.
What is next on the research agenda?
Aside from the ongoing evolution of the main SDI Taxonomy we are working on extending our products in a number of directions. Firstly, we will add more fixed income coverage for high yield and emerging markets which should take our universe up to around 10,000 entities. We have also been working with our research partner Entis to develop more forward-looking datapoints. This is looking really promising with information relating to R&D activities having applications for identifying alpha potential.
Do you have questions related to the development and maintenance of the SDI taxonomy and guidance, SDI definitions and classification methodology or our research initiatives?
Please send an email to info@sdi-aop.org
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