The SDG mirage: How to spot real sustainable outcomes vs marketing spin?

According to Morningstar, global sustainable funds attracted an estimated net USD4.9 billion in Q2 2025. With 72 new sustainable funds launched in just one quarter, total assets in global sustainable strategies have now reached USD3.5 trillion.

Sustainable investing is booming – and getting harder to navigate.

Quarterly global sustainable fund assets (USD billion)

Source: Morningstar Direct. Data as of June 2025.

To differentiate themselves, funds increasingly segment by theme – from “climate leaders” and “net-zero transition” to “socially responsible” and “impact” strategies. The United Nations Sustainable Development Goals (UN SDGs) have become the most common reference point for defining what is “sustainable.” But as SDG labels become more common, investors face a critical challenge: How can you tell the difference between real contribution and clever branding?

The answer lies in applying core principles borrowed from the field of impact investing – even when the investment strategy itself isn’t “impact” by design. Three key concepts help sharpen the lens and assess sustainable outcomes in the real world:

• Intentionality: Are the investee companies actively seeking to contribute to a positive social or environmental outcome through their core business or are the outcomes unintended?
• Additionality: Would these outcomes have happened without the companies’ products or services? This helps determine the companies’ real contribution.
• Measurability: Are there clear metrics to track and report how the outcomes affect the end beneficiary?

Take a firm that installs solar panels only to offset its own energy use – essentially fixing a problem of its own making. While this could be marketed as a “sustainable outcome” by many, this is risk management: no additionality, no broader SDG contribution and no real benefit beyond the company’s operations.

At the aggregate level, thinking like an impact investor can sharpen how equity investors assess credibility of sustainability claims. A useful tool is a theory of change – a framework that maps how a company’s core activities lead to specific outputs (e.g. products or services), which in turn generate measurable outcomes. Applying this lens helps investors move beyond marketing language to identify businesses whose growth is directly tied to delivering credible, positive, real-world outcomes alongside financial performance.

At Global Alpha, our Sustainable Global Small Cap Strategy applies these principles as a framework – not to make impact investments, but to ensure that the companies we invest in generate credible, positive contributions to the SDGs through the sale of their products and services. Our aim remains financial performance, which we do by delivering real-world, positive outcomes, as evidenced in our 2024 Sustainable Global Small Cap Annual Report.

Portfolio spotlight: The North West Company

The North West Company Inc. (NWC CN) is a leading retailer serving remote and underserved communities in Canada, Alaska, the Caribbean and the Pacific. In regions where reliable access to goods and services is limited, NWC delivers food, household essentials and health products – often as the sole provider.

NWC’s impact begins with its extensive distribution network, retail infrastructure and partnerships with governments and organizations focused on food security. Through 230 stores and over 7,000 employees – 44% of which are from Indigenous groups – it delivers affordable, high-quality goods, supports local employment and invests in community initiatives.

Its business model demonstrates:

• Intentionality: NWC’s core strategy targets underserved and rural communities.
• Additionality: In many locations, it operates where no comparable services exist.
• Measurability: Metrics include the number of communities served and local employment created.

The below theory of change showcases how NWC’s activities aim to increase access to essential goods across 190 communities, reduce disparities in access to services and enhance economic self-sufficiency, directly contributing to SDG 11 – Sustainable Cities and Communities.

Source: 2024 Sustainable Global Small Cap Annual Report

NWC exemplifies how small caps can deliver meaningful real-world outcomes in addition to financial returns – and why thoughtful sustainability analysis matters.