Sustainability can appear to be a concept difficult to pin down and engage with. But analysis of its benefits by economists and others makes for interesting reading:
- Higher margins, market valuation, creditworthiness – companies participating in the UN Global Compact have higher environmental, social and governance (ESG) scores than non-participants. Higher ESG scores lead to:
- up to 12.4% higher margin premiums
- up to 19% higher market valuation premiums
- a positive impact on creditworthiness assessments in the long term.
- closing the gender pay gap alone could add US$28 trillion to global GDP
- bold climate action could yield a direct economic gain of US$26 trillion.
• Investors are listening:
- 7% higher return on equity (ROE)
- 25% of assets under management fall into the category of sustainable investments
- 20x expected growth over the next decade, to $250bn.
• A new way of managing risks:
- 1,400 multinational businesses have set an internal carbon price
- central banks have formally identified climate-related risk as one of the key threats facing the financial sector
- there is growing consensus around the materiality of sustainability.
• Young people want change:
- millennials are twice as likely as the overall investor population to invest in companies targeting social or environmental goals
- 75% say their investments can influence climate change.
The way forward
Our research at Luminous indicates that although corporates are aware of the SDGs, there are three main barriers to effective reporting of them. The first is ‘SDG-washing’, where the goals become a superficial exercise with no link to the corporate strategy and there is no reporting of performance or setting of targets.
Secondly, a large proportion of companies are focusing on the positive contributions alone and not taking into account trade-offs and negative effects. For example, a business may develop renewable energy solutions in support of ‘Goal 7: Affordable and Clean Energy’ but displace communities and undermine access to food and water in the process of establishing a hydro-electric power station.
Finally, some businesses are trying to tackle all 17 goals, which is not realistic. To avoid the pitfalls of reporting in this area, companies should consider setting up an internal working group, comprising relevant functions from across the business, such as finance, risk, strategy and, if in existence, sustainability.
Creating specific programmes for addressing SDGs should not be necessary – companies ought to be able to use their existing strategic framework ensuring that the working group defines which goals map against the strategic priorities, taking into consideration both positive and negative impacts.
To tackle SDG-washing, businesses need to look at corporate objectives, targets and KPIs, and performance data. Tangible commitments to the SDGs are the best way to demonstrate authentic engagement to employees, investors and other key stakeholders.
If you would like to know more about choosing which of the SDGs to align with your company’s strategy and how to measure and report your success at achieving them, please get in touch at email@example.com