How to Report SDG Prioritisation

In recognition of ESG’s importance in driving value, incorporating ESG into business strategy has been an uptrend according to a McKinsey report. An indispensable part of the ESG transition for businesses is an impact strategy. This implies acquiring an understanding of the actual and potential impacts the business activities or relationships have on the people, planet, and society, as well as taking informed and concrete actions to manage their impacts.

We have discussed why impacts matter to businesses, and the four steps of how businesses and investors should approach impact management. This four-step approach to impact management begins with an impact strategy for enterprises, which needs to include ‘Principled Prioritisation’, according to internationally recognized standards such as the UN Impact Standards and the GRI. This article introduces some useful tools that enterprises can use to achieve and report ‘Principled Prioritisation’, showcasing how their business strategy aligns with the SDGs.

Based on the UN Global Impact and GRI, ‘Principled Prioritisation’ is a process through which businesses prioritize SDGs based on the assessment of risks and benefits to people and the environment. In other words, a materiality assessment is required. Such an assessment helps businesses prioritize investments, executive sponsorship, risk management, and stakeholder engagement. ‘Principled Prioritisation’ is aligned with recommendations from the United Nations Guiding Principles on Business and Human Rights (UNGPs), UN Global Compact’s Principles, the OECD Guidelines for Multinational Enterprises, and the OECD Due Diligence Guidance for Responsible Business Conduct.

Each SDG listed by the UN contains specific targets with corresponding indicators. As recommended by the UN Global Impact, principle prioritization requires the review of each prioritized SDG at the target level, instead of only at the goal level, for more focused effort and optimized outcomes.

In order to better visualize the chosen SDG targets’ materiality, Materiality Prioritisation Matrix and SDG mapping can be used.

Materiality Prioritisation Matrix

This tool ranks businesses’ or investments’ impacts according to social stakeholder- and financial materiality.

It is often emphasized that businesses should engage with social stakeholders, including those that are or could potentially be affected by the impacts and the public, to identify impacts, their scope, scale, and likelihood, as well as locate the best mitigation approaches. However, as investors and shareholders are also stakeholders, financial materiality ought also to be taken into account during principled prioritization. The important note here, however, is that companies include more than financial stakeholders in the process.

The above are examples of the materiality matrix from Verizon and Cisco. The Y axis measures stakeholder materiality while the X axis represents the financial materiality of impacts. Stakeholder materiality reflects the significance of impact seen from the perspectives of stakeholders. Financial materiality is defined as the degree to which changes in impacts would affect the business’s net income or ability to produce. The logic is to prioritize impacts or outcomes that are considered highly important for both social and financial stakeholders.

SDG Mapping

After identifying impacts material to social stakeholders, and/or the business’s financial performance, the identified impacts should be considered in relation to the SDGs, for SDG prioritization. This can be done via SDG Mapping during reporting.

The above image shows an example of SDG Mapping by Nestle, which showcased how the company’s corporate social responsibility efforts tie to the UN SDGs.

In the guidelines provided by The UN Global Impact and GRI, businesses should align sustainability reporting on impacts and their SDG goals with SDGs targets, to enable assessment of their performance on SDG commitments. Using the map helps businesses show the connection between their business strategy and the SDGs through beneficial products, which is consistent with Entry Point B for Principled Prioritisation in the UN Global Impact guidelines.