Why should Sustainable Development Goals be part of every business plan?

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On 25 September 2015, a process led by the United Nations (UN) resulted in the 193 Member States adopting 17 global Sustainable Development Goals (SDGs)1 seeking to end poverty, fight inequality and injustice, and tackle climate change by 2030.

The SDGs cover broad challenges such as economic inclusion, diminishing natural resources, geopolitical instability, environmental degradation and the multifaceted impacts of climate change. They define the agenda for inclusive economic growth through to 2030 and were developed with inputs from business, academia and nonprofit organizations globally.

Many companies have also been working to address environmental, social and economic issues. Leading companies have begun to recognize that they can only address the complex sustainability challenges by scaling up their efforts through collaboration with peers, industry and sector organizations, customers, governments, nonprofit organizations and society. The SDGs provide a universal and visionary framework for this global cooperation and action, bringing all stakeholders together to proactively address and solve these challenges.

If the SDGs are to be met, business is likely to play a major role and may also have a lot to gain.

  • What is the business case?

    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.

    Drive growth

    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

    Address risk

    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.

    Attract capital

    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

    Focusing purpose

    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.

Fundamentally, the SDGs provide a historic moment for companies to take society’s challenges and leverage them as opportunities to enhance business growth and long-term competitiveness.
  • What should companies do now?

    Identify and commit

    A critical step for companies will be to identify how the goals directly and indirectly relate to their business. Companies should take a strategic approach and align their corporate priorities with the relevant SDGs to better engage with customers, employees and stakeholders to make a positive impact.

    Companies should consider:

    • Identifying the SDGs that have the biggest impact in terms of risk as well as opportunity over the long term; and where the company has the biggest ability to contribute to the progress toward the goals
    • Determining levers available to scale impact through changes to business models, procurement strategies, products and services
    • Publically committing to the SDGs to tackle relevant goals

    Develop targets and KPIs

    The 17 SDGs are accompanied by 169 specific, global and universally applicable targets. As companies identify their priority SDGs and begin to consider their strategy, they should set their own clear targets and Key Performance Indicators (KPIs) to monitor and communicate progress.

    Companies should consider:

    • Establishing targets and KPIs that are closely aligned with the relevant SDG
    • Aligning any existing targets and monitoring and measurement methods with these new targets and KPIs

    Align sustainability and corporate strategy toward targets

    By working through the process of identifying the most relevant SDGs and setting targets and KPIs, it is important for companies to reassess how well existing practices are aligned with the issues and targets.

    Companies should consider identifying areas where:

    • Business models can be adjusted
    • Products or services are developed
    • Supply chains are transformed
    • Innovation and R&D are refocused
    • Sustainability strategies are re-aligned to achieve both corporate goals and the SDGs

    Create business opportunities

    The SDGs provide a framework for generating revenue, providing business growth opportunities and fostering innovation in products and services. By identifying new business models, products or services that drive progress toward the goals, it is likely that more resilient and prosperous communities will emerge, markets will expand and new ones emerge, and consumer bases will grow.

    Companies should consider:

    • Identifying underserved geographies and segments of society, which could benefit from innovative products and services developed in a sustainable way
    • Investing in education, capacity building and work opportunities to stimulate the economy through increasing the local economic power while preserving the environment
    • Reducing the link between economic growth and intense use of natural resources and materials through energy and water efficiency, lower carbon and circular economy ideas

    Collaborate

    It is unlikely a single company can solve any of these problems on their own and collaboration is vital, both within sectors and across different industries. Collaboration will likely be the main enabler for successfully addressing the SDGs and scaling up efforts.
    Companies should consider:

    • Identifying collaboration opportunities with peers, customers, suppliers, academia, non-profit organizations, and across industries that can lead to mutually beneficial solutions, leverage networks, achieve scale and share responsibility
    • Partnering with governments, cities and civil society to deploy the financial, technological and human resources of business to promote development, stability and trade

    Measure, assess, report and communicate

    Businesses will also likely be held accountable for the impact of their activities and in particular, progress in addressing goals linked to the SDGs. Integrating the SDGs in the core business and reporting cycle can help companies to focus on creating visible shared value.

    Companies should consider:

    • Aligning existing reporting and communication with the SDGs to both discuss performance in the context of the expectations set by the SDGs, and also align disclosures with the language of the SDGs to establish a common dialogue among stakeholders
    • Developing systems to integrate the management of SDG issues into everyday business decision-making

    We recognize that the SDGs may require a new way of thinking by business. The goals are complex, interconnected, and their success likely depends on new partnerships between business, governments and civil society. However, useful tools are emerging for companies to understand better how they can contribute to the SDGs in a holistic way. We are optimistic that the SDGs offer a road map for companies to engage with their internal and external stakeholders on how to create sustainable strategies that can transform not only their business models, products and services, but also the communities where they operate.

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References

1 ”Sustainable development goals,” United Nations, http://www.un.org/sustainabledevelopment/, accessed 17 May 2017.

2 ”Business & Sustainable Development Commission,” http://businesscommission.org/, accessed 17 May 2017.

4 “Building better engagement for the new Sustainable Development,” SDGF, http://www.sdgfund.org/building-better-engagement-new-sustainable-development-goals, accessed 17 May 2017.

5 “Bonds for Sustainable Development,” The World Bank, http://treasury.worldbank.org/cmd/pdf/World-Bank-Investor-Newsletter.pdf, accessed 17 May 2017.

6 “World Bank Launches Financial Instrument to Expand Funding for Sustainable Development Goals,” BNP Paribas, https://group.bnpparibas/en/press-release/world-bank-launches-financial-instrument-expand-funding-sustainable-development-goals, accessed 17 May 2017.