[MUSIC] The next step is to assign an ABC goal type for each SDG outcome you prioritized. This gives you a way of understanding and communicating the type of impact you aim to achieve. The impact management project, in consultation with over 2000 global practitioners developed the ABC goal levels. They are A act to avoid harm, B benefit stakeholders, C contribute to solutions and investments that are unable to be classified as an AB or C are in the may or does cause harm category. For investors wanting to convey that their investments are contributing to the SDGs. The ABC gold types are becoming an important label. In fact, the SDG impact standards ask investors to identify all positive and negative material impacts and to have specific goals to reduce harm for all negative outcomes. Setting an AB or C goal type can clarify your thinking about your goal with each SDG outcome. The ACB goal types are shortcuts. They are an imperfect but practical solution to categorizing the types of impact in a portfolio. In lieu of more developed ratings or valuation techniques. They will help you discern and describe the scope of the change your investments intend to make and give you some help in determining how to manage outcomes. They're just goals at this stage, figuring out if the goals have been met comes later when you can collect data to support them. Also, the ABCs are not a way of ranking or rating investments or outcomes. As you'll see, there is a role for all three goal levels A B and C in achieving the STG. We also want to acknowledge up front that the ABC framework is relatively new and best practices are in flux. More investors are starting to label the outcomes of their portfolios, but as of this recording most have not. This means most investments have material but unmanaged negative impacts. And would be provisionally classified as mayor does cause harm. As you'll see, it takes commitment to active management of your most material SDG outcomes to set an A B or C goal. So how do you begin setting these goals? There are a few fundamental questions to help you start setting goals for your SDG outcomes. One, how does the outcome the investment seeks to achieve relate to a threshold level of performance for sustainable development? Two, how does the investments target performance on this outcome relate to its previous performance or to others performance in the market? Three, how substantial is the change in outcome for the population served by the investment? Four and last, how underserved on this specific outcome is the population targeted by the investment? Let's start with the concept of a threshold and goals for target performance related to that threshold. A threshold is a societal norm or ecological level deemed good enough by stakeholders. For many outcomes, you might already have a general idea of what a good enough threshold maybe and can intuit when performance is above the threshold. In short, when the result is positive or below the threshold when the result is negative. Paying workers under the living wage, increasing carbon dioxide emissions as you scale manufacturing negative outcomes. Vaccinating the last 3% of your population or bringing forth grade literacy up from 85 to 90 positive outcomes. The fundamental purpose of the SDGs galvanized efforts to move outcomes from below the threshold for sustainable development to above it. And many of the SDG is defined the relevant threshold quite clearly. Let's look at how each goal level relates to that threshold for sustainable development. And a level investment goal intends to reduce negative outcomes. So a populations outcome is currently below the threshold, and the investment seeks to improve that outcome. Yet it will likely remain below the threshold for sustainable development. An investment that seeks to reduce the use of virgin plastic in the packaging industry might be a good example. Having any virgin plastic and use is still negative, but investments and companies reducing it in their supply chain is an A level goal. A B level investment goal is one that provides tangible benefits to stakeholders. Where the current impact on stakeholders is above the threshold for sustainable development and will remain above. Another way to say this is that be investments favor socially and environmentally sustainable businesses that are optimizing for positive effects. An example might be an investment in a telemarketing firm that provides a living wage, flexible hours, medical benefits and paid family leave to all workers. Note, most B corporations have significant B level impacts on their stakeholders, as showing evidence of positive stakeholder impact is the underlying requirement to become a certified B corporation. A C level investment goal seeks to address a market failure where the target population is underserved by current solutions around that SDG outcome. A C level investment seeks to move an outcome for a certain stakeholder group from below the threshold to above the threshold for sustainable development. >> In addition, the change is intended to be substantial. Either a small change for many or a large change for few. An example could be investing in a maternity clinic that seeks to reduce the infant mortality rate for low income women in South Africa to below 2.5%. This is a high bar for a sea level investment. It requires effort on the part of the investe to isolate evidence of a substantial change through dedicated data collection and performance management. If your investments are not likely to collect data at this granular level or have too many interlocking activities to isolate their contributions. You should look toward A level or B level goals instead. Finally remember that if you are the invest, E can't assign an A B or C gaol or haven't done any analysis. Your investment is in the default does or may cause harm category. We've developed a flow chart to help demonstrate how answering questions can help you and your investors assign ABC goal levels. The questions include, how does the target performance relate to the thresholds for sustainable development? What is the degree of changing outcome targeted? And how underserved was the target population before the investments actions were taken. With this conceptual understanding of the distinctions between ABC goal levels. You should be able to start categorizing your objectives for each SDG outcome. Are you aiming to reduce a harmful outcome? You probably want A level investments. Are you supporting a continuation of beneficial outcomes for stakeholders? Probably be level investments. Are you seeking to contribute to deep, substantial change that brings an outcome for an underserved population over the threshold for sustainable development? Sounds like you want to target sea level investments and of course you might want to target all three for some SDG outcomes. There are three additional factors you may consider when setting the impact goal level for your investments. First, all ABC goal levels can be used to achieve sustainable development and the SDGs. Each level is valid and important, but there are distinctions to how they relate to SDGs and the work to invest in them. If you want to describe your investment as contributing to the achievement of SDGs. The most relevant impact goal types are usually A and C. A goals because they seek to reduce the negative outcomes that have made the SDG is necessary in the first place. A goals improve outcomes that are currently below the sustainable development threshold. Thereby reducing the need for the global effort set out in the SDGs. C goals because they seek to significantly move an outcome above the threshold for sustainable development in a substantial way for a currently underserved population. C goals represent the deep work needed to ultimately achieve the SDGs. On the other hand, B goal may better be described as aligning with the SDGs because they favor investments already considered socially and environmentally responsible. In some ways, B gaols are the desired end state for all businesses, because in an ideal world where every SDG were achieved. And we had a 100% sustainable global market, all businesses and investments would continue to produce positive benefits for their stakeholders. Second managing to a B or C goals will dictate the kind of data you need to monitor your investment. If you're primarily going to ask the investment to compare itself with its own longitudinal data around an SDG outcome. It controls such as pay level or emissions with less exploration of pierre benchmarks, you're likely talking about an A. If the investor is monitoring a broader set of stakeholder satisfaction for a set of SDG objectives, that could be A B. And if the investment is willing to compare or benchmark itself against the current activity in the market. Track data that can substantiate its contribution and show substantially better outcomes for a specific underserved population, then you could consider it AC. This means you'll want to reserve your C level goals to the ones where your investors are committed to collecting, analyzing and reporting relevant data. So you can monitor and manage your C level outcomes. Finally, we want to make an important note about combining and communicating impact goal levels along the capital chain. As we've said previously, how information can flow up and down the capital chain is a major consideration and managing impact. Many investors work across several ABC levels. They may then choose to report percentages of holdings broken out by each ABC level. Or they may need to roll up the funds A's, B's and C's into a single overall fun level goal to communicate to their stakeholders. Some rules of thumb are emerging about how to do this. First, investors sometimes define a single goal classification for the overall portfolio by the majority level based on financial share. In other words, a portfolio where 45% of holdings work toward a outcomes 35% to be and 20% to C. Would be labeled in A portfolio time will tell how best practices related to portfolio roll up evolve. Second, an emerging standard is that you cannot label an investment as a C if it has any unmitigated harms. That is, outcomes in the desert may cause harm category. Remember the SDG impact standards ask investors to have specific goals to reduce harm for all material negative outcomes. Let's now turn to our example investors and how they might assign ABC goals. Akhil a private equity fund manager is setting goals for a new set of investments and his team has decided to focus on B and C. Targeting different goal levels for outcomes in different industries, for environment, health and education, they want B level outcomes. But for financial inclusion, they want to reach deeper into more underserved markets in India and create more systemic change. So they're setting C level goals for those outcomes. Paula, our pension fund manager must assess her current portfolio to determine what investment goals they're currently filling. What gaps exist and decide what to do overtime to reallocate capital in line with her new goals. Paula decided her 20 billion carve out allocation should aim primarily toward A and B investments. She didn't think it was realistic that she'd be able to obtain the information necessary to identify C level outcomes across such a large portfolio, operating through multiple layers of intermediaries. Her next question was, do we already have any A or B level investments? To answer this question, Paula adapted a process developed by global endowment management or gem and brent's impact plus. That was applied to gems, $10 billion dollar portfolio. Gem is a globally diversified multi manager outsourced CIO. For endowments and other institutions and its portfolio is invested primarily with third party investment managers. In a 2019 report, Gem shared their stakeholder centered approach to categorizing their investments by AB and C. They analyzed impacts on five key stakeholder groups across four dimensions of impact. Awaited scoring system then resulted in a map of the portfolio allocation across the ABCs. Gems approach allowed them to apply a consistent impact framework to investments across geography, asset classes and impact themes. The gem example shows that asset managers like Paula can do deep dives to assess the goal level of their assets. However, most managers will do this more simply asking their investing funds to report their ABC goal level and then do a few quick checks to be sure they believe they're accurate. Once an investment is given a goal type and if the investor agrees with it, other investors can use these goal labels in their goal setting. Other resources you can use to search and or verify the ABC goal level of your portfolio are listed in additional resources to this lesson. Whatever method is chosen, investors should emerge at this point with a target set of ABC goals for each of their SDG outcomes. Either at an overall fund level or at the level of individual holdings in the portfolio. Making it real research with the relevant performance threshold for sustainable development is for your SDG outcomes. You may determine the threshold by asking stakeholders or looking to third party research or policy. Consider the performance you're targeting on SDG outcomes. Are you aiming to reduce harm, benefit stakeholders with performance above the threshold or contribute to solutions in a substantial way for underserved stakeholders? Consider the kind of impact data you currently receive or will ask for in the future. How will this day to help you to manage towards A B or C level outcomes? Remember each ABC goal level has a valid role in sustainable development. A goals are necessary to reduce and eventually avoid harm. B goals that maintain outcomes above the threshold for sustainable development for all stakeholders are the desired end state. And C goals strive for substantial change for stakeholders not adequately served by the current market. At the end of this step, you'll have set an ABC goal for each SDG outcome you have prioritized.
