SDG Portfolio Construction in Times of the EU Taxonomy

This paper discusses the merits of a positive selection methodology for liquid stocks based the Sustainable Development Goals (SDGs). In 2017, the UN formulated its 17 Sustainable Development Goals (UN SDGS, The 17 Goals. Available at https://sdgs.un.org/goals , 2017). Whereas most of the SDG approaches used today are based on the SDGs reporting derived from the sustainability reports, this paper argues that in addition to this valuable information, it is necessary to find the companies that already create at least 70% of their turnover with a theme that corresponds to the SDGs. In addition, the thematic approach can be further evaluated in understanding how the companies have implemented a Theory of Change. Even a positive selection methodology cannot be seen in isolation and has to be complemented by Environmental and Social Governance (ESG) approaches. The author uses a worldwide portfolio that has been screened according to positive SDG selection, theory of change, and ESG criteria. The results show that such a portfolio is able to outperform the market and to dissolve the dichotomy between SDG investing and ESG investing.