Businesses are showing increasing interest in using the Sustainable Development Goals (SDGs) to inform and enhance their social and environmental programs and ultimately their business strategies. The SDGs were adopted by the United Nations in 2015 and include 17 ambitious goals and 169 targets aimed at ending poverty, protecting the planet, and ensuring prosperity for all.
The appeal of the SDGs for companies and financial institutions is that they harmonize the social, environmental, and economic aspects of sustainable development and—perhaps most importantly—provide a clear vision of what the international community wants to achieve. They give meaning and purpose, not just to corporate sustainability programs, but to an organization’s business objectives.
There are also pragmatic business reasons for pursuing the SDGs. Achieving the goals could create over USD 12 trillion per year in business value in clean and efficient energy, affordable housing and access to healthcare, and material efficiency and waste management.
But there are challenges with the SDGs. Although three-quarters of companies under the UN Global Compact say they are taking action to meet the SDGs, this is often for a single goal—usually ones pertaining to creating good jobs, economic growth, health, and well-being. Moreover, some of these companies only choose to report against goals that correspond to existing environmental or social targets.
A few multi-stakeholder organizations have developed SDG reporting frameworks to help companies and financial institutions, including the Cambridge Institute for Sustainable Leadership, the Dutch SDG Investing Agenda, the GRI and UN Global Compact, Earth Security Group with HSBC, and the Sustainable Development Investment framework. Although they are a great first step, some are too generic and lacking in precise metrics, while others are more detailed but struggle to address global goals or the need to create business value.
Building on almost 20 years of experience working with companies and financial institutions on measuring ESG performance and integrating it into business and investment decisions, Trucost considers that a successful SDG framework should be based on the following best practice principles.
- Total value creation: incorporate financial, social, and environmental value creation to assess materiality and quantify impacts.
- Material: focus on SDGs that are financially relevant and where the business has potential to make the most significant positive or negative impact.
- Quantifiable outcomes: include specific metrics that can be measured so that companies and investors can quantify impacts and track performance over time.
- Measurable against targets: focus on contributing toward specific SDGs, taking into account geographic differences.
- Market context: relatable to current responsible investment and ESG reporting frameworks already in use in different sectors.
- Value chain: consider the full range of positive and negative activities across a corporate value chain from supplies of raw materials to manufacturing operations and the use and disposal of products and services.
- Comparable: allow investors and other stakeholders to compare performance within and across industry sectors as well as assets classes.
Trucost believes that an SDG framework based on these principles would strike the right balance between being applicable to a wide range of sectors, yet adaptable to sector-specific issues; holistic to incorporate social, environmental, and economic aspects of sustainable development, yet focused to capture the most significant impacts for a business; idealistic to inspire business leaders and employees, yet pragmatic to make good business sense.
Trucost will set out its thinking on SDGs in more detail in a forthcoming discussion paper entitled Moving Forward with SDGs: Metrics for Action. Go to www.trucost.com for more information.