Why Business Should Bet on Sustainable Development
What are the Sustainable Development Goals (SDGs), and how can they improve your organization? The SDGs address solutions for 17 major global challenges spanning economic equality, depletion of natural resources, geopolitical instability, environmental destruction, and the various effects of climate change. They outline a goal for economic growth by 2030 and were developed through collaboration between the UN and global leaders from businesses, academia, and NGOs.
As a business leader, your first thought might be that implementing sustainability goals is expensive and can put companies at a cost-disadvantage. While it is true that the achievement of these goals will require enormous capital from businesses and governments, the rewards may well outweigh the costs. Alongside the disruptive business innovations that may stem from sustainability efforts, incorporation of SDG initiatives may lead to higher productivity, better talent pools, more affordable products, greater ecosystem stability, and increased workforce and brand loyalty. Moreover, an increasing amount of capital is being directed to support enterprises that address these goals. If you align your organization with these targets, you will also align yourself with the new flow of global investment.
How do the SDGs add value?
According to the Business and Sustainable Development Commission (BSDC), sustainable business models related to the UN’s Global Goals open up market opportunities upwards of $12 trillion. This is a very conservative number. Some estimates propose that reaching gender parity, alone, would contribute as much as $28 trillion to global GDP by 2025. As the BSDC puts it, “with a reputation for sustainability, companies attract and retain employees, consumers, B2B customers and investors, and they secure their license to operate.”
Companies can address the SDGs through various strategies. EY Global provides an interesting example of how companies stand to gain from the Global Goals: a beverage company, for example, could invest in improving watersheds by helping restore aquifer water after use. This action aligns with SDG №6 (Clean Water and Sanitation) by showing commitment to supplying clean water access to water-stressed communities. Investing in water supplies will help sustain their own franchises in a watershed region, but it also constitutes an investment in their local brand respect and ‘social license’ to operate. As EY puts it, “all companies stand to gain from more resilient communities, reliable access to natural resources, and an educated and healthy population to support their workforce.
How can your company incorporate SDGs:
Businesses can think of the SDGs as a way of producing shared value for stakeholders, to motivate them around shared outcomes. EY Global outlines the following simple steps for incorporating SDGs:
- Determining the levers available to scale impact through changes to business models, procurement strategies, products and services
- Publicly committing to the SDGs to tackle relevant goals
- 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
Regarding specific initiatives, organizations can begin by defining the communities or environments they want to support, and then reinvest in their communities. Companies may first identify underserved areas that might need innovative products/services. Organizations can also stimulate local economic productivity by investing in education, capacity building and employment opportunities. They should also seek energy and water efficiency to promote a circular economy and economic growth without the intense use of natural resources, materials, and carbon. The graphic below is an example of how businesses might set targets and KPIs in line with SDGs relevant to their organizations:
How can companies increase investor interest by adopting SDG initiatives?
Aside from the fact that increased business value will spur investor interest, today, there is also greater investor demand for non-financial information. According to EY’s Sustainable Development Goals report,
“The sustainability performance and contributions of companies to the SDGs are becoming an important value driver for investors. During a single decade, defining the value of a company has shifted from a pure tangible perspective to an integrated approach. Today, 80% of a company’s value is determined by looking at intangible aspects. Integrating the SDGs in the core business and reporting cycle enables companies to focus on creating visible shared value.”
Impact investing, for example, is growing exponentially, with nearly $228 billion invested in impact initiatives globally, a number which has doubled since just last year.
Particularly in the MENA region, substantial capital has been mandated for companies/initiatives dedicated to the SDGs. The World Bank, for example, has committed $23.5 billion in 115 projects to help developing countries find solutions to SDG-related endeavors. Many international NGOs, impact investors, and financial institutions are directing money to the region given the particular poignancy of SDG challenges including the refugee crisis, gender disparity in employment, and extreme water scarcity. This may seem obvious, but businesses in the region can do more to align themselves with the SDGs and merit investment.
Aside from creating a business around products or services tackling SDG challenges, companies can simply incorporate more SDG-advancing functions to make themselves more attractive to investors. These might include employing women, employing refugees, working with suppliers operated by members of vulnerable/marginalized groups, working with small and medium sized suppliers, reducing packaging waste, or incorporating energy storage systems. Moreover, companies should gain attention to their SDG initiatives by using social media to share their progress. Importantly, they should also provide reports on SDG progress and SDG related KPIs for investors who want to see defined SDG metrics. This form of effective reporting creates both trust and value.
The cost of reaching development goals is great, but financing models are evolving to meet the need. The UN estimates that the cost of achieving the SDGs will be approximately $3.3 to $4.5 trillion per year. These may be daunting numbers, but as EY states, “we expect to see a redirection of investment flows (both public and private) toward the global developmental challenges framed around the SDGs. We believe that innovative finance models will be developed.” One example of such an innovative financial product is ‘green bonds’. BNP Paribas, which created a green bond as part of one of its own SDG initiatives, says that the bond’s return on investment “will be directly linked to the stock performance of companies included in the Solactive Sustainable Development Goals World Index,” an index of recognized leaders in their industries on socially and environmentally sustainable issues. This is possibly one of the strongest examples of how innovative finance is aligning with sustainable development, and how companies with SDG-advancing business models can directly benefit from this capital.
Leading the Way to Sustainable Development:
According to the BSDC, “over the next 15 years, driving system change in-line with the Global Goals alongside sector peers will be an essential, differentiating skill for a world-class business leader.” But if businesses are to pay living wages and the true cost of their resources, they need assurances that competitors will take similar steps, so as not to bear the burden of competitive disadvantage. It must, therefore, be the onus of business leaders to work openly with regulators, peers, and the civil sector to build an even playing field that adheres with the Global Goals. One such measure proposed by the BSDC is to make fiscal systems more progressive by putting more tax on pollution and underpriced resources and less tax on labour income.
Business leaders can advance the Global Goals while simultaneously directing the movement of capital into sustainable investments. As the BSDC summarizes, all leaders can champion three core initiatives; “transparent, consistent league tables of sustainability performance linked to the Global Goals; wider and more efficient use of blended finance instruments to share risk and attract much more private finance into sustainable infrastructure; and alignment of regulatory reforms in the financial sector with long-term sustainable investment.”
