Companies are facing challenges that limit their potential to grow, such as scarce natural resources, weak financial markets, limited local buying power and lack of qualified talent. We see a clear business case for companies to harness the SDGs to create opportunities to address these challenges across four key themes: growth, risk, capital and purpose.
Business growth in general is tied to the achievement of the SDGs at a macro level; however, to take action at a local level, companies should identify how they can contribute to meeting the goals in a way that drives financial performance in the markets they operate in.
While SDGs Nos. 8, 9 and 12 refer directly to economic growth, employment, sustainable industrialization, innovation and sustainable production, many of the other SDGs also offer business advantages through expanding into new markets, attracting talent and reducing risk from operations.
For example, when beverage companies invest in improved watersheds by working to replenish the aquifer water they use, thereby also committing to provide access to clean water to people in those water-stressed regions, their strategy aligns with SDG No.6 – Clean Water and Sanitation. While providing water supplies to sustain their bottling franchises near those watersheds, they are also investing in their social license to operate and thus strengthen their brands in these communities.
All companies stand to gain from more resilient communities, reliable access to natural resources and an educated and healthy population to support their workforce. By helping drive progress toward these outcomes and creating shared value, companies can help to secure their ability to generate capital and shareholder value over the long-term.
A report by the Business & Sustainable Development Commission revealed that sustainable business models related to the SDGs could open economic opportunities worth up to US$12 trillion and increase employment by up to 380 million jobs by 2030.2
Companies may not be able to continue to create capital over the long term if natural, social, financial and manufactured capital is being eroded elsewhere. Each SDG represents a risk area that is already presenting challenges to businesses and society, and these risks are likely to only continue and grow if not addressed.
Supply chains are particularly exposed to the effects of climate change and depletion of natural resources, which align with SDG Nos. 12, 13, 14 and 15. Geopolitical instability (SDG No. 16), inequality (SDG No. 10) and lack of development in some regions (SDG Nos. 1, 2, 3 and 4) limit the potential of these emerging markets. Addressing these and other risks can make good business sense as stakeholders hold companies accountable for their role in creating or exacerbating these risks. Companies are able to maintain their social license to operate by responding to stakeholder needs in these areas.
Investors are increasingly paying attention to environmental, social and governance (ESG) risks when making investment decisions. According to the third EY Investor Survey (2017),3 weak corporate governance, poor environmental performance, resource scarcity, climate change and human rights risks are most likely to alter investors’ decisions.
The surveyed investors use a wide range of nonfinancial information across all stages of their investment decision-making. Companies that publicly commit to the SDGs, link their strategic priorities to the SDGs, and measure, communicate and report on their progress toward the SDGs, send a strong message to investors about their capabilities to manage ESG risks and create competitive advantages related to ESG performance. Assisting communities to achieve the SDGs also creates opportunities for investors to manage their own risks and build out their portfolios.
We expect to see a redirection of investment flows (both public and private) toward the global developmental challenges framed around the SDGs. The UN estimates that the cost of achieving the SDGs will be approximately US$3.3 - US$4.5 trillion per year.4 We believe that innovative finance models will be developed, based on our experience with:
- Climate finance where government and private sector cash has flowed to projects through climate-focused multilateral public funds
- Innovative private sector financial products, such as green bonds that have been launched
The World Bank has committed US$23.5 billion through 115 projects to help developing countries find solutions to SDG-aligned challenges.5 It also recently released €163 million worth of equity-index linked sustainability bonds financed by institutional investors in Europe to support the financing of such projects. According to BNP Paribas, who arranged the bond as part of its own SDG initiative, the return on investment of the bonds is directly linked to the stock performance of companies included in the Solactive Sustainable Development Goals World Index of recognized leaders in their industries on socially and environmentally sustainable issues. This example demonstrates how companies with SDG-aligned business models can benefit directly from new sources of capital.6
The SDGs will likely have an important impact on the purpose of many companies around the world. Contributing to the SDGs is a way to create shared value for all stakeholders and therefore businesses will be a strong driving force to galvanize stakeholders around a common shared outcome. When companies focus on a purpose that is rooted in creating value for others, improving the world we live in and inspiring the organization at all levels, they may increase their ability to drive profits and create sustainable value. The SDGs can focus a company’s purpose on challenges that act as a catalyst for innovation, engage and motivate employees, open up new markets and opportunities and may future-proof the company against a wide range of risks.
For purpose to be activated, to resonate and ultimately to reach its potential, purpose should have business relevance, be implementable and have a transformational impact. The SDGs can help a company define its aspirational purpose in a way that is relevant and inspiring to stakeholders, allow purpose to become the foundation for its strategy and ignite long-lasting positive change that may increase shareholder value over the long term.