SDG Alignment

What is SDG alignment?

SDG alignment is the act of connecting what a fund or company does to specific Sustainable Development Goals and, if it is done properly, to the numbered targets underneath them and the indicators underneath those. It is a communication framework first and a measurement discipline second, and the distance between those two is where most of the argument lives.

What exactly are you aligning to?

World leaders meeting at UN Headquarters in New York from 25 to 27 September 2015 adopted the resolution Transforming our world: the 2030 Agenda for Sustainable Development. The text of that agenda announces 17 Sustainable Development Goals with 169 associated targets, describes them as integrated and indivisible, and states that the goals and targets came into effect on 1 January 2016.

Three levels, not one. The goals are the headline, the 169 targets are the commitments, and beneath them sits the global indicator framework maintained by the UN Statistics Division for monitoring progress. That framework lists 251 indicator entries but contains only 234 unique indicators, because thirteen indicators repeat under two or three different targets.

The distinction is the whole practical content of the term. A fund that says it is aligned to Goal 3 has said almost nothing, because Goal 3 covers 13 targets from child mortality to tobacco control. A fund that says it is aligned to target 3.8, achieving universal health coverage including financial risk protection and access to quality essential health-care services and safe, effective, quality and affordable essential medicines and vaccines for all, has made a claim someone can check.

Where the standards come in

The UNDP's SDG Impact Standards for Private Equity Funds, Version 1.0, is the closest thing to an authoritative practice framework for fund managers. It frames an impact management system across four interconnected themes, each with its own Standard: Standard 1 Strategy, embedding foundational elements into purpose and strategy; Standard 2 Management Approach, integrating impact into the management approach; Standard 3 Transparency, disclosing how purpose, strategy, management approach and governance work and reporting on performance; and Standard 4 Governance, reinforcing governance practices. Practice Indicators sit under each Standard to describe what achieving it looks like.

The Standards also state plainly what the framework is for. Among the stated design goals is to promote impact integrity and avoid impact washing, which the document defines as not over- or under-claiming, substantiating impact claims with reliable and relevant data, evidence and measurement, and accounting for all material impacts on people and the planet, assumptions made, gaps and limitations in understanding, trade-offs, and risks that impacts may not occur as expected.

Two of those clauses are unusual and worth noticing. Under-claiming is treated as a failure of integrity, not modesty. And disclosing the risk that an intended impact does not occur is part of the standard, which is a materially higher bar than a portfolio slide with goal icons on it.

The Standards also say who they are for and what they are not. They are written for private equity fund managers committed to contributing positively to sustainable development and achieving the SDGs, and they also provide guidance for others. They comprise four Standards plus Practice Indicators, with a separate glossary and separate guidance material maintained as a dynamic resource. Nothing in that structure issues a certificate, which is the single most common misreading of them in a fundraising deck.

Worked example, arithmetic shown

The portfolio below is hypothetical; the goal, target and indicator counts are not.

A health-technology fund has 18 portfolio companies and builds the mapping in three passes.

Pass one, goal level.

• Goal 3, good health and well-being: 11 companies.
• Goal 7, affordable and clean energy: 4 companies.
• Goal 13, climate action: 3 companies.
• Check the total: 11 + 4 + 3 = 18. Every position is mapped exactly once, with no company claimed under two goals to inflate the count.

Pass two, target level for the Goal 3 cohort.

• Target 3.8, universal health coverage: 7 companies.
• Target 3.4, reducing premature mortality from non-communicable diseases by one third by 2030: 4 companies.
• Check: 7 + 4 = 11, which reconciles to the Goal 3 total.
• Coverage test: Goal 3 has 13 targets, 3.1 through 3.d. The fund is claiming 2 of 13, so it should describe itself as working on two health targets, not on Goal 3.

Pass three, indicator discipline.

• The global framework lists 251 indicator entries.
• It contains 234 unique indicators.
• The difference is 251 minus 234, or 17 entries, produced by 13 indicators that repeat under two or three different targets.
• Consequence for the fund: if it picks indicators off the target lists for both 3.4 and 3.8, it must check whether any indicator it selected appears under both, or it will report the same measurement twice and overstate coverage.

How it shows up in documents

In a fund's own papers, SDG alignment typically appears in four places, and they should agree with each other.

• The private placement memorandum's strategy section, naming the goals and targets the fund intends to contribute to.
• The limited partnership agreement or a side letter, where an LP with an SDG mandate may require target-level reporting or an exclusion list.
• The quarterly or annual LP report, where the indicators actually get numbers next to them.
• The investment committee memo for each deal, which is where target-level alignment either gets tested at entry or quietly skipped.

Under the UNDP Standards the governance theme is not decorative: Standard 4 exists because the other three fail without someone accountable for them. A fund that cannot say which committee signs off on an impact claim has a Standard 4 gap regardless of how good its reporting looks.

Common mistakes

• Claiming goals instead of targets, which is unfalsifiable and therefore worthless in diligence.
• Mapping the portfolio after the fact and calling it a strategy. The Standards put strategy first for a reason.
• Double counting companies across goals so the mapped total exceeds the portfolio.
• Reusing an indicator that appears under two targets and reporting it twice.
• Reporting only positive impacts. The Standards require accounting for all material impacts, assumptions, gaps, trade-offs and the risk that impacts do not occur.
• Treating the Standards as a certification. They are management standards with Practice Indicators, published with separate guidance material, not a badge.

How it relates to adjacent terms

SDG alignment is the taxonomy layer of impact investing: impact investing is the intent, SDG alignment is the shared vocabulary for describing it, and an impact measurement framework is the machinery that produces the numbers. It overlaps with ESG but is not the same thing, because ESG is mostly about how a company operates while SDG alignment is about what its product does in the world. For a fund, the practical difference is that ESG questions can usually be answered by policy and SDG questions cannot.

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