2020 marks the start of the Decade of Action to deliver on Sustainable Development Goals (SDGs), combatting poverty, inequality and injustice, and climate change by 2030. Following the success of the Millennium Development Goals, SDGs have been adopted as part of the 2030 Agenda for Sustainable Development, signed by 193 countries. The SDGs are comprised of 17 goals and 169 targets such as the elimination of poverty and hunger, combatting climate change, supporting decent work and growth, and creating sustainable cities and communities. For many companies, aligning with SDGs is the next big way to make a positive impact as an organization and attract investment dollars from increasingly climate-active investors. In this article, Irina Gilfanova of Schneider Electric Energy & Sustainability Services details how companies can use SDGs to drive change.
SDGs are being embedded into corporate strategies
The recent rise in global commitments and initiatives for sustainable development, such as the Global Investors for Sustainable Development (GISD) Alliance’s commitment to investing SDGs and reinforcing SDG actions across their portfolios, now requires companies to run the SDG assessment for their business and develop a response strategy. According to a KPMG study on SDG reporting in 2018, 84% of top companies have identified the SDGs that are most relevant to their business.
SDGs are also becoming increasingly important to investors, as they represent a material ESG (environmental, social and governance) perspectives that investors take into account as part of their fiduciary duty. There is a strong business case for investing in companies aligned with the SDGs, which are shown to secure steady returns for investors by creating competitive advantage of their portfolio.
A report “Better Business, Better World” by the Business & Sustainable Development Commission revealed that the business models related to the SDGs could open opportunities worth up to US$12 trillion and increase employment by up to 380 million jobs by 2030. As an example, in 2018, the World Bank, BNP Paribas, and Swiss private bank, SYZ, partnered to offer an equity bond that linked investment returns to the performance of companies in line with SDGs. The return on investment of the bond is directly linked to the stock performance of companies included in the Solactive Sustainable Development Goals World MV Index. According to the report published by PRI and the UN in 2018, 82% of PRI signatories reporting on the effects of ESG factors following integration say it affected their buy/sell decisions.
SDGs serve as a universal framework for businesses to communicate performance, set targets and actions, engage with various stakeholders, including investors, and gain access to new market opportunities. The framework fosters collaboration to solve the world’s most challenging tasks in sustainability. Companies that wish to pursue SDGs and the benefits they bring should follow a series of steps in order to maximize the opportunity.
How business can align their strategy with the SDG framework?
1. Understand the SDGs and link relevant targets to your business activities
The very first step for companies in their SDG journey is to learn more about each of the goals, the relevant targets, and KPIs to see how they are directly and indirectly related to their business activities.
For example, Schneider Electric connected its business activities to all 17 goals via 5 megatrends: Climate, Circular Economy, Ethics, Health & Equity, and Development.
2. Define priorities
Companies should prioritize SDG targets by considering which will have the biggest impact in terms of risk or opportunity in medium- to long-term and which goals the company has the ability to contribute to achieving progress in. It may be that a company is contributing to all of the 17 goals, but when allocating resources and defining the timeline, it is important to start with those targets which create the largest impact. As an example, the Chinese technology company, Huawei, actively worked on developing the ICT Sustainable Development Goals Benchmark. They explored the relationship between ICT and sustainable development and identified the goals with the biggest correlation to the ICT sectors: SDG-4 – Quality of Education, SDG 3 – Good Health & Well-being, SDG 9 – Industry, Innovation and Infrastructure. These sectoral benchmarks can be used as the first step for the company to understand their impacts across different goals.
3. Set the goals.
Once the key SDGs are identified, it is important to link those goals to actual business targets and KPIs to monitor and communicate progress. Quite often, companies may already have existing targets and actions which they can leverage while developing their SDG strategy. Many science-based target (SBT) committed companies use their validated targets to monitor performance on the SDG 13 – Climate Action and SDG 7 – Affordable and Clean Energy. For example, Unilever provided a clear link and details on how their carbon positive targets align with various initiatives such as RE100, SBT, and contribute to the relevant SDGs.
In order to make the SDG strategy viable and effective, companies must integrate these targets into the existing strategy, taking into account business models, procurement and R&D processes, and supply chain transformations. By realigning sustainability strategies to achieve both corporate goals and the SDGs, companies can identify areas where they can draw from existing commitments and projects to contribute positively toward SDGs. Novo Nordisk partnered with Washington and Lee University to analyze how some of their existing programs are impacting SDGs and created an interactive chart showing those connections.
5. Innovate and collaborate
The SDGs provide a framework for innovation, creating business growth opportunities and new business models, products, or services that drive progress toward the goals. Following the framework also helps to identify partners within sectors and across different industries which enable organizations to scale up their efforts and ultimately achieve the goals. As part of their work on SBTs and SDG13 – Climate Action, Nokia identified that Radio Access Networks result in a global energy bill of over $70 billion. To address the need to decouple data growth from energy use, the company developed an innovative AirScale radio base station solution (BTS) for mobile operators, which consumes 28% less power and helps to build zero-emissions networks.
6. Report and communicate
Companies need to be ready to communicate their progress in addressing goals linked to the SDGs. It is crucial to integrate the SDGs in the core business reporting process to avoid duplicated efforts and ensure transparency and accessibility of their performance to various internal and external stakeholders.
Useful tools and methodologies are emerging for companies to understand better how they can contribute to the SDGs in a holistic way.
As an example, in August 2019, three accounting associations (Association of Chartered Certified Accountants (ACCA), Chartered Accountants Australia and New Zealand (CA ANZ) and Institute of Chartered Accountants of Scotland (ICAS)) jointly published SDG disclosure recommendations linking various reporting frameworks including the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Taskforce on Climate related Financial Disclosures (TCFD) and the UK Financial Reporting Council (FRC) aimed at supporting organizations with their reports on progress towards the achievement of the SDGs.
When developing the ICT solution to collect and report SDG-related data it is recommended to make use of existing tools and data, leveraging from overlaps in various reporting requirements, such as TCFD, CDP, DJSI, etc. SDG Compass provides an inventory of various reporting tools which may be helpful when addressing various SDG disclosures. Companies should choose to use tools which are practical, efficient, and capable of creating clear and transparent reports accessible by both external and internal stakeholders, and outline a clear impact to the relevant SDGs.
For example, Nilfisk, a leading manufacturer of professional cleaning equipment, used EcoStruxure™ Resource Advisor, a global cloud-based system, to capture, contain, and visualize their sustainability data used for their CSR report, CDP response and compliance with EU regulations on energy efficiency. The tool was also used as a platform for internal stakeholder engagement.
The global community is facing a challenging task this decade to transition towards a sustainable future. Businesses play crucial in fulfilling this task, by aligning their strategies and vision with the sustainable development goals and targets, driving innovation, and setting the best practices across their value chains.
While the guidance and tools on integrating and reporting on the SDGs continue to develop, the business case for companies is clear. Companies that do not have impactful sustainability commitments or are not aligning their strategy with SDGs are likely to experience increasing stakeholder scrutiny and risk losing access to capital and new market opportunities, driven by investors’ decisions to allocate capital to sustainable business.
This article is written by Irina Gilfanova, Senior Sustainability Consultant, Energy & Sustainability Services, Schneider Electric