Integrating SDGs in business and investment strategies - Moving beyond the thematic box-ticking exercise

Often more a communication tool than a strategy tool

The use of the UN Sustainable Development Goals (SDGs) and their 17 colourful boxes has now become mainstream in the communication materials of many companies, funds and asset managers. However, it is less clear if they are used as a tool to drive companies’ strategies or to select and measure the impact of investments. In reality, a recent study by PwC found that most companies and investors actually use already established elements of their CSR or responsible investment policies, and reference them against SDGs where they can. SDG13 (Climate Action) is still the one most broadly presented as a priority – even if in many instances the new SDG lens has indeed pushed companies to widen their focus and discover additional priorities to address today’s global issues.

The business and investor case for SDG integration

It’s worth reminding that the SDGs were not originally intended to form the basis of a corporate strategy or an investment process. Most of the 169 indicators used to measure progress against the 17 SDGs are directed at global challenges that investors and companies have no direct mechanism to address. However, it is also widely acknowledged that companies can make essential contributions to the SDGs, by minimising negative impacts of their activities on society and the environment, and by providing products and services with positive impacts. In the same vein, there is a strong case for investors to focus on opportunities aligned with the SDGs –to better address the values of their clients, develop sustainable financial products that enable them to stand out in the marketplace, and more importantly to raise new capital to help close the “SDG financing gap”, which the UN estimates to be at USD 5-7 trillion annually. A recent report by Citi Group, titled “UN Sustainable Development Goals: Pathways to Success” identifies a wide range of impactful investment opportunities for each goal.

The temptation of “cherry-picking” and “SDG-washing” in the absence of a consistent reporting framework

The problem is that there is not, for the moment, any consistent reporting framework for companies and investors to measure and report on their contribution to the SDGs. In this context, it can be relatively easy to use existing CSR and ESG methodologies and to add the SDGs on top. It is also easy to apply positive SDG filters to business activities and portfolios, or to select specific goals and targets that a company or investor wants their audience to focus on – without an objective assessment of negative impacts. As such, trying to compare organisations’ performance and hold them accountable for the SDGs would be a cumbersome exercise.

Moving forward, organisations should avoid “cherry picking” or randomly selecting which goals they’re going to focus on. Digging deeper into the targets of the different SDGs will reveal just how connected to the business they are and how they will affect performance over the short and longer term. That insight requires a more robust and sophisticated level of reporting on the SDGs than currently exists. For example, one could think that SDG16 (Peace, Justice and Strong Institutions) is not very relevant for most businesses and more the responsibility of governments. Yet one of the key targets within that goal is 16.5, which aims to “substantially reduce corruption and bribery in all their forms” – a governance imperative for any global company.

There are some efforts worth following, such as the UN Global Compact and GRI’s Analysis of the Goals and Targets – which lists all possible relevant business actions to help achieve each target. This has the potential to encourage more and more companies to move away from a simple box-ticking exercise and to identify and act and report on the full range of SDG targets that link with their activities and value chains. Similarly, the investment community recognises there is a need to better understand how it can measure contributions and progress toward achieving the SDGs.

What gets measured, gets done – but how can that be done?

If stakeholders wish to compare performance between investors, companies or sectors, they will need to use comparable metrics – so the need for agreed performance metrics for the SDGs could never be stronger. The challenge here is – how to avoid imposing a heavy reporting burden on those organisations that are doing the work, and how to keep metrics lean and simple, when faced with the breadth and depth of the SDGs?

Even the most advanced organisations and asset managers, which have started applying intentionality and additionality criteria, and developing theories of change, only often manage to produce outreach- and output-level indicators, such as number of people reached, or products distributed, or qualitative information. They still struggle to produce outcome-level indicators, in terms of changes brought in people’s lives, on society or the environment. For example, how do you measure the impact of building handwashing facilities in a specific location, in terms of hygiene behaviour change, and then in terms of reduced water-borne diseases? There is also the concern not to bother operational managers with extra reporting requirements, especially small and medium enterprises with limited capacity for data collection.

It’s worth noting that most detailed reporting tends to be related to operations and indicators where there is already decent track record of reporting – often because of regulation or existing measurement frameworks such as GRI or CDP, or because business contributions are more obvious and easier to capture. But apart from obvious indicators such as reduction in GHG emissions (Climate Action), percentage of women in management positions (Gender Equality) and number of jobs created (Decent Work and Economic Growth), overall business and investor reporting on SDG-related indicators is often still at a qualitative or anecdotal level.

As relevant disclosure standards and guidelines emerge, such as the SDG Compass online inventory of business disclosures, we expect that more and more companies and investors will be able to measure and report on their progress in relation to specific SDG targets. Rather than establishing new heavy data collection and reporting systems, this type of initiative should help them identify existing data that can be used to demonstrate performance on the SDG targets – for example, existing information in purchasing systems about traceability of raw materials, which can be linked to the sustainable management of forests (SDG target 15.2). And if data is too difficult to find, they can still be encouraged to report as precisely as possible on their management approach – by providing narrative information on how and why they identify, analyse and respond to their actual and potential contributions to the different goals and targets.