Sustainability through Engagement, Empowerment, & Mobilisation
Further to the assumptions mentioned in the Universal ESG Metrics page,
Hypothesis:
An entity's total dir/indirect impacts towards its one Purpose = Sum of its total dir/indirect impacts towards the 16 SDGs through their multi-stakeholder focus, leaving aside the 17th that is actually created to support the achievement of the other 16.
Real-economy large corporations
Assumptions:
There are standardised sectoral IPs for each SDG with their definition, goals, pathways and weightage into the SDG standardised by sector.
For a company, its each SDG's weightage in its one Purpose, in other words, the entity's ideal relative focus across 16 SDGs standardised by sector.
Known:
IP's target declared in alignment with its sectoral pathway
SDG consists of IPs, and their weightage into the SDG are standardised by sector
Ideal weightage of each SDG in its one purpose, in other words - the entity’s ideal relative focus across 16 SDGs standardised by sector = Ideal weighted %SDG
Targeted weightage of each SDG in its one purpose in other words - the entity’s targeted relative focus across 16 SDGs for the period declared (at the start of the cycle upon measuring its actual (from its previous cycle) relative focus across 16 SDGs and having noted its Ideal value based on its sector) = Targeted weighted %SDG
IP data Actual
Calculate at the end of the period (say every year):
IP %achievement = (IP data Actual / IP target declared) *100. (max 100%)
For SDG %achievement
say SDG1 consists of IP1 & IP2 and = % a of IP1 + %b of IP2
Then, SDG1 %achievement = %a * IP1 %achievement + %b * IP2 %achievement
say SDG2 consists of IP3 & IP4 and = % c of IP3 + %d of IP4
Then, SDG2 %achievement = %c * IP3 %achievement + %d * IP4 %achievement
….
Then,
weighted SDG1 %achievement = Targeted weighted %SDG1 * SDG1 %achievement
weighted SDG2 %achievement = Targeted weighted %SDG2 * SDG2 %achievement
….
Sum of weighted SDGs %achievement -> denotes %of total impact towards one purpose achieved and is universal and comparable across companies and their sectors.
The actual relative focus across SDGs for the entity will be arrived at by calculating its weightage from the sum of all weighted SDG %achievements. -> this information will be useful for planning in the next cycle
Leading Financial Institutions (FIs)
Assumptions:
FI's financed-IP value is derived from its underlying companies' and assets' IPs (which ultimately needs to be arrived at from some real economy companies' IP data in proportion to investments made into or planned for) in proportion to investments made into or planned for and its own IP data. Then, they are called Actual financed-IP or Planned financed-IP.
FIs are standardised by Categories
FI’s SDGs consist of which financed-IPs and their weightage in the SDG standardised by FI's Category.
Ideal financed-IP per unit of FI's turnover (planned or actual) standardised by category
For an FI, its each SDG's weightage in its one Purpose; in other words, FI's ideal relative focus across 16 SDGs standardised by FI's Category
Known:
FI’s targets for its own IPs
FI’s own IP data
wrt underlying company's (directly or as an underlying company for the asset when assets are from real economy companies)
IP target Comp (it is the proportionate value of the IP target Comp overall)
IP data Actual Comp (it is the proportionate value of the IP data Actual Comp overall)
proportionate value of IP target Comp is calculated from considering % Comp's Planned Funds, was planned for investment by FI
proportionate value of IP data Actual Comp is calculated from considering % Comp's Actual Funds invested, were invested in by FI
Calculate at the start of the period, FI's planned relative focus across 16 SDGs
Planned financed-IP ( for the FI in consideration or its assets when they are from the real economy companies directly, but if not, they need to be calculated for the underlying FI first and then added just like the IP target Comp. The chain continues till the real economy company becomes the underlying asset ultimately)
Planned financed-IP = sum of ( IP target Comp ) + FI’s target for its own IP +additional tightness in targets may include considerations from FI's other plans
Ideal planned financed-IP = FIs Planned turnover * Ideal financed-IP per unit of FI's planned turnover as per its category
Planning %efficiency financed-IP = Planned financed-IP / Ideal planned financed-IP
FI's SDG1 Planning %efficiency
Planning %efficiency financed-IP1 * IP1's % contribution in SDG1 +
Planning %efficiency financed-IP2 * IP2's % contribution in SDG1 +
......
(here, the idea is to prevent portfolio greening and encourage planning for NZ transition of underlying companies and assets, note the max value of Planning %efficiency financed-IP will be 1 )
Now FI's weighted planned %SDG1 = Ideal weighted %SDG1 * SDG1 Planning %efficiency. (from FI's Ideal relative focus across 16 SDGs based on its category)
Likewise, calculate all FI's weighted planned %SDGs...
To arrive at the targeted relative focus across 16 SDGs for the FI calculate for each SDG as
FI's weighted planned %SDG1 weightage = FI's weighted planned %SDG1 / Sum of (FI's weighted planned %SDGs)
Calculate at the end of the period (say every year), FI's Actual relative focus across 16 SDGs:
FI's Actual financed-IP ( for the FI in consideration or its assets when they are from the real economy companies directly, but if not, they need to be calculated for the underlying FI first and then added here just like the IP data Actual Comp. The chain continues till the real economy company becomes the underlying asset ultimately)
Actual financed-IP = sum of ( IP data Actual Comp ) + FI’s own IP data
Ideal actual financed-IP = Ideal financed-IP per unit of actual turnover based on the category of FI * FI's actual turnover for the reporting period
Actual financed-IP %achievement = Actual financed-IP / Ideal actual financed-IP * 100 (max 100%)
FI's SDG1 %achievement
Actual financed-IP1 %achievement * IP1's % contribution in SDG1 +
Actual financed-IP2 %achievement * IP2's % contribution in SDG1 +
......
(here, the idea is to prevent portfolio greening and encourage NZ transition of underlying companies and assets, note the max value of Actual financed-IP %achievement will be 1 )
FI's weighted SDG1 %achievement = FI's SDG1 %achievement * Ideal weighted %SDG1 (from FI's Ideal relative focus across 16 SDGs)
Likewise, calculate all weighted SDG %achievements...
The Sum of FI's weighted SDG %achievements - > denotes % total impacts direct or as-financed towards its one purpose achieved, and it is universal and comparable across FIs and their categories
The actual relative focus across SDGs for the FI will be arrived at by calculating its weightage from the sum of all weighted SDG %achievements for the FI -> this information will be useful for the planning for next cycle
read more about these universal ESG metrics here.
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There could be various use cases of this quantitative universal ESG metrics with comparable sustainability performance, including those in designing Indexes, funds, bonds and any other sustainable finance instrument.
Entities' quantitative Universal ESG Metrics with comparable Sustainability Performance derived from when entities aiming for their fair share of the SDGs © 2020 by Seema Sutradhar is licensed under CC BY-SA 4.0