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The YvesBlue Public Equity SDG Model
The YvesBlue Public Equity SDG Model
How does the SDG model work?
Written by Heather
Updated over a week ago

The United Nations Sustainable Development Goals were originally envisioned as a guide to help countries grow more sustainably. However, the 17 goals have been broadly adopted by the financial sector as the industry works to shift capital toward people and earth-friendly investments.

The YvesBlue model for matching companies to UN’s Sustainable Development Goals (SDG) themes continues to evolve. YB started with an approach that applies select ESG metrics to each SDG and compares each company to the sector average. In an effort to strengthen our model, YB is constantly vetting new data sources and adding to our platform where beneficial to enhance this approach.

The following is the list of indicators YB uses to map alignment with SDGs among public companies, in three steps:

  1. Rank each company metric against its industry group

  2. Average the relevant metric rankings for each SDG

  3. Adjustment for a reality check:

    1. If the ranking average is in the top quarter (>75%) it is a positive alignment, if it is in the bottom quartile (<25%) it is a negative alignment

Notice that several SDGs do not map well to the public markets, such as SDG 1: No Poverty. In cases such as this, we utilize them in more restricted circumstances, e.g., for companies engaged in Casinos/Gambling. SDG 4: Quality Education is also one of these examples, however, we have seen compelling evidence that the proliferation of advertising online is a negative for education and have applied this to companies that rely primarily on advertising like Facebook. Though the opposite argument could be made, we see the primary business line as unsustainable in this area because of the lack of controls on the competition for page view.

Scoring Methodology

1. YB selects individual metrics from the ESG datasets that align with the SDGs.

  • Each SDG is assigned metrics as proxies for thematic alignment

  • To ensure consistency and comparability across companies, YB uses the sector-based Z-score values from the ESG data.

2. A simple average of the selected proxy metric ranks for each SDG is then converted into an exposure for each company.

  • SDG Exposure: Percentile ranks are then put into quartiles.

  • Total SDG exposure is then calculated as a simple average of the 16* individual SDG exposures.

*The 17th UN SDG [Partnerships for the Goals] does not apply to companies and, as such, is not included in calculations.

3. This rank-based exposure approach makes the following assumptions regarding SDG alignment:

  • Rank >75% (top quartile) = Positive Alignment

  • Rank <25% (bottom quartile) = Negative Alignment

  • Else (middle two quartiles) = Neutral / No Alignment

Challenges to the SDG Methodology

YB performs multiple layers of adjustment to the initially calculated SDG exposures to overcome the following challenges:

  • The reporting gaps discussed earlier leave relatively few metrics with sufficient data to serve as proxies.

  • Dispersion of the sector-based percentile ranks is too tight to completely capture the true range of exposure across companies.

  • Some SDGs are irrelevant for individual sectors, business activities, or companies and do not need exposure values.

  • Analyst insights beyond the scope of Refinitiv-provided metrics can add valuable differentiating information to SDG exposures, especially at the individual company level.

These adjustments are applied in the following order:

  1. Business Activity level multipliers from -2 to 2 for each SDG are applied to company exposures; the adjusted company exposures are then bound between -1 and 1.

  2. Sector level overrides of 0 are applied to company exposures for any SDGs that are not relevant to that sector.

  3. Company level overrides of -1 or 1 are applied where the company’s exposure to an SDG is either strictly negative or positive; respectively – overrides of 0 are applied for any SDGs that are not relevant to that company.

In the YvesBlue Application:

Values can be interpreted as a company’s alignment to each individual UN SDG.

  • +100% = Strict Positive Alignment

  • -100% = Strict Negative Alignment

  • 0% = Neutral / No Alignment

Quartile bands are suggested by YvesBlue for more qualitative alignment comparisons.

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Adjustments to this had to be made in order to correct for instances where the method needed deeper insight. For example, First Solar often has a fairly intensive operational footprint relative to the sector due to the size and throughput of its operations. It sells the renewable energy projects it has on the books and therefore cannot count the energy produced by them. This would have given it a negative score in SDG 7 and 13. That said, First Solar brought solar-thin film technology to the gigawatt-scale with over 25 GW of its cadmium telluride solar panels installed around the world, generating hundreds of gigawatt-hours of clean electricity to the grid. It would not make sense, thus, to have First Solar scoring negatively for SDG 13 Climate Action, as it has been one of the key actors in driving the clean energy revolution since its inception. Therefore, we have a rationale and rubric for adjusting the outcomes for certain companies and industries.

Fund-Level Methodology:

Similar to the ESG Scores, Fund-level SDG Scores are the weighted average of the holdings’ SDG alignments. Typically, fund-level SDG scores have a stronger central tendency from averaging the holdings, so we present the Top/Bottom SDG scores even if they are not top/bottom quartile.

Improvements Coming:

Since the SDGs do not map well to public market industrial activities, the YvesBlue model for mapping 50,000 companies to these categories will be augmented over time with other analytical methods based on a company's core revenues, which will show momentum towards alignment with the SDGs.

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