Patents Present a Path to SDG Alignment
Investor feedback to SDI AOP highlights demand for forward-looking insights on technology trends to meet sustainability objectives.
Asset owners and managers have long signalled their desire for information from portfolio companies to better understand their future sustainability – in terms of environmental and social risks and impacts – as well as profitability.
The Sustainable Development Investments Asset Owner Platform (SDI AOP) has responded to growing demand for data on company alignment with the UN Sustainable Development Goals (SDGs) by augmenting its Innovation Outlook tool with a ten-year historical dataset of new patent submissions.
The existing tool already quantifies and describes the alignment of companies’ patent portfolios with sustainability themes – such as climate and health, or the SDGs – indicating how a company’s future products and services will positively contribute to better social and environmental outcomes.
Formally launching next month, the extension aims to provide investors with a more comprehensive picture, helping them to analyse in greater depth technology trends related to the transition of companies’ patent portfolios towards sustainability solutions, which can support efforts to achieve the SDGs.
“Patents is a forward-looking metric that enhances our existing products and services classification data, telling users where the R&D of the company is going and to what extent is aligned with the SDGs,” Pieter Laurens Baljon, Senior Data Scientist at Entis, SDI AOP’s AI partner, told ESG Investor.
The expanded dataset offers patent portfolio analysis looking at 130 technology themes with 20 million patents covering more than ten years of global patent registrations. These themes cover 11 SDGs, including SDG 3 (good health and well-being), SDG 7 (affordable and clean energy), and SDG 13 (climate action).
The SDGs are 17 wide-ranging goals comprising 169 targets that all 191 UN member states have pledged to achieve by 2030. SDI AOP has noted the “increasing appetite” globally for investments in the SDGs.
“We found a great need for historical data from institutional investors, with active asset managers wanting to test their strategies against this data,” said Baljon. “For companies to become more sustainable and successfully transition we need solutions that get us closer to the SDGs, and in a lot of cases those solutions will come from technology.”
James Leaton, Research Director at SDI AOP, said the historical data on patents presents users with “real detail” to help evaluate company profiles, as well as to consider the “transition story of a particular company and how that matches with what they’re hearing from the firm”.
He added that the platform holds regular feedback sessions with users to ascertain their priorities and demands, feeding into developments made by SDI AOP, including the enhanced dataset.
Emerging trends
Jointly established APG Asset Management, AustralianSuper, British Columbia Investment Management Corporation and PGGM in 2020, SDI AOP offers solutions to help investors incorporate sustainability factors into their investment processes.
In addition to the four founders, the platform has more than 20 members comprising asset owners – including Canada’s CDPQ, Australia’s HESTA, and Denmark’s Velliv – and asset managers, such as Blackrock, Legal & General Investment Management, and UBS. SDI AOP estimates that users have aligned more than US$1 trillion of their AUM with its data.
The platform’s overarching objective is to set a global standard to identify the contributions of companies to the SDGs through products and services which support end-beneficiaries’ investment outcomes.
SDI AOP’s taxonomy and a patent coding system are used in combination to identify which groups of patents can potentially contribute to the SDGs.
“Once we have narrowed the patents down, we apply AI to help us differentiate how the technology is applied to ensure it matches the specific types of product or use we are looking for,” said Leaton. “For example, we are only looking for ‘advanced’ biofuel technologies so we must identify the types of process which would qualify.”
Baljon highlighted that patents are also critical for companies developing new technologies to “protect their position [and] benefit in the long term from the transition that’s inevitably going to happen”.
“We’re certainly seeing an increase in patenting, especially in China and the Asian markets,” Baljon added. “It also reflects a major trend towards intangibles.”
A recent report from fintech startup Climate Aligned showed progress made by companies in emerging markets in aligning their business models with SDGs. The research – published in association with the Impact Disclosure Taskforce – assessed 268 representative companies across 24 countries in MSCI’s Emerging Markets Index, including Asian nations, finding that 97% were already engaged in disclosing SDG metrics.
Disclosure of environmental metrics was found to be strong, with more than 90% of entities reporting on metrics included under SDG 7 and SDG 13, both of which are among the goals covered by SDI AOP’s tool. The global financing gap for achieving the SDGs in emerging markets is estimated to be US$4 trillion annually.
The report also noted that investors can utilise a technology-led approach to assess SDG-based disclosure alignment, including identifying data gaps, while reducing the need for “extensive new reporting”.
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