Why the UN’s Sustainable Development Goals are good news for business

Jun 02, 2020
Caroline Pope considers the UN’s Sustainable Development Goals and their relevance as a framework to rebuild resilient companies as the economy emerges from the COVID-19 crisis.

At present, the full impact of COVID-19 on the Irish and global economy is not yet clear. However, the ability of society to work together towards a common goal has been recognised and should form part of the recovery. In 2015, the United Nations Sustainable Development Goals (UN SDGs) were adopted by all member states. Their purpose is to coordinate efforts to improve human lives, protect the environment, and ensure the sustainable development of our societies.

Sustainability may not be the most obvious lens through which one should assess the abnormal events of recent months. Yet trends are emerging, which may make business leaders think more deeply about sustainability in the context of their organisations. Below, we outline three of these factors.

  • The UN SDGs drive increased resilience. There is growing evidence that businesses that have already aligned their strategy with the UN SDGs are more resilient to an economic shock.
  • The UN SDGs are not going away. The future business landscape is uncertain, but increasing evidence points to an operating environment that favours businesses that align with the principles of sustainability.
  • A business strategy aligned with the UN SDGs can create value. Aligning a business strategy with the UN SDGs may seem like a daunting process, but there are well-understood methodologies that can be applied.

The UN SDGs drive increased resilience 

Businesses that align their core strategy with the UN SDGs (also known as ‘sustainable businesses’) take a broader, stakeholder-based view of their activities. As a result, these businesses tend to demonstrate a deeper understanding of oft-overlooked or under-valued areas of their companies, such as supply chains, and their degree of interconnectedness with society in general. This broader understanding, which is the result of UN SDG alignment, can position them to respond more rapidly to the threats that COVID-19 represents to their stakeholders.

In particular, supply chains are coming under increasing pressure due to the global nature of COVID-19, combined with the increasingly international scope of business. The advice from supply chain experts such as Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield University, is to “urgently review their supply chain to find out how exposed they are… it’s still common for businesses to just deal with a central HQ of a supplier and not know what route the supplies they need are taking”. Full alignment with UN SDG 10, Reduced Inequalities, will drive businesses towards total supply chain transparency; they will know each factory where their inputs are processed and all the intermediate steps along the way. These businesses are in a much better position than those rushing to uncover their true supply chain risks amid a crisis. This seemingly serendipitous point illustrates a key feature of SDG alignment: it is consistent with well-managed operations.

Alignment with SDGs has also made companies more resilient. For example, there has been a paradigm shift for many businesses since COVID-19 emerged as they have sought to facilitate organisation-wide remote-working to prevent activity grinding to a halt. Contrast this with sustainable businesses such as Vodafone who, in recent years, saw remote working as a means of advancing Goal 5, Gender Equality, and have already invested in the infrastructure to facilitate this.

Finally, sustainable businesses enjoyed a higher degree of investor confidence before the economy shut down and seem to continue to enjoy a higher degree of investor confidence as the shut-down continues. Figures published by Funds Europe suggest that values of European sustainable funds dropped by 10.6%, compared with the “overall European fund universe” which declined by 16.2%. Robeco, the global asset manager, has also found a positive relationship between lower credit risk and sector alignment with SDGs. The RobecoSAM Global SDG Credits strategy outperformed the Bloomberg Barclays Global Aggregate Corporate Index by +90 basis points in March of this year. To compound these data points, the UN Principles for Responsible Investment (UN PRI) membership group recommends that all signatories (which represents $86.3 trillion in assets under management) support sustainable companies through the crisis in the interest of public health and long-term economic performance, even if that limits short-term returns.

The UN SDGs are not going away

The existential threat of COVID-19 has brought into sharp focus other threats of a similar scale, such as climate change and social inequality. The global response to COVID-19 has shown that there is a willingness to embrace long-term changes and drive towards a common goal. This sense of spirit will likely fade as the crisis abates, but it is unlikely to disappear totally. Companies that genuinely embedded purpose before March 2020 are likely to experience favourable trade winds from an upturn due to the opportunity for reflection (and social media opinions) by customers and employees during the lockdown.

As societies get over the initial shock of the pandemic and the focus shifts from lockdown to restart, the critical question is how to put the economy and society on a trajectory that lasts. There is a growing consensus in Europe, for example, that the required economic stimulus will have a green hue. In April, the Government of Ireland indicated that it fully supports the EU Green Deal proposed as the central tenet of an economic recovery plan, aligning with 16 other member states. The EU Green Deal provides a roadmap towards a clean, circular economy, restoring biodiversity and cutting pollution. The proposed EU direction of travel is very much aligned with the UN SDGs and this political environment should create an opportunity for businesses that choose to swim with the current.

Investors, such as Blackrock, have signalled that regardless of the COVID-19 pandemic, they still expect companies to continue with their ESG (environmental, social and governance) targets. Blackrock has pledged to vote against the directors and boards of companies that fail to meet its expectations to manage environmental risk in 2020 and called for companies to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework. The asset manager expects companies to publicly report how sustainability risks and opportunities are integrated into business strategy.

In an Irish context, the UN SDG Index report, released in 2019, shows significant challenges to Ireland meeting several key metrics, including SDG 12 (Responsible Consumption and Production), SDG 13 (Climate Action) and SDG 17 (Partnerships). This is due in part to an absence of information, but also reflects our known challenges on climate action.

This was a negative result for Ireland, and there will likely be an emphasis from the Government on these three SDGs as part of the recovery package. While we are all preparing for a change in dialogue and a focus on climate action once the new government is formed, SDG 12 (which focuses on responsible consumption and production) presents a similarly large opportunity. In particular, companies that have already implemented a more circular model for resource management and waste streams are benefiting from a first-mover advantage in the circular economy.

A business strategy aligned to the SDGs can create value 

Given the significant opportunities and risks associated with the UN SDGs, companies that excel at identifying and incorporating these issues into their strategy enjoy a competitive advantage in the marketplace and among institutional investors. It is increasingly clear that sustainability and return on investment are connected.
To help boards understand and shape the total impact of a company’s strategy and operations externally – on the environment, the company’s consumers and employees, the communities in which it operates, and other stakeholders – and internally on the company’s performance, I suggest a five-part framework (refer to Table 2).

unsgds-1

This framework for board oversight recognises that creating long-term value increasingly requires companies to understand the impact of their strategies on key stakeholders – investors, employees, customers, and communities – as well as on the natural resources and supply chains that the company relies on, all of which are fundamental elements of the SDGs. An integrated commercial strategy encourages companies and boards to widen their aperture for a fuller view of sustainability, strategy, and long-term performance.

Wherever the company is on the sustainability journey, this framework can help to drive a robust conversation about what sustainability risks and opportunities may impact the company’s key stakeholders, corporate strategy, and long-term performance, and how they will be addressed.

Aligning with SDGs will help businesses identify risks and opportunities that may have been omitted from previous analysis and will also provide them with a better understanding of their stakeholders and their relevance to those stakeholders. By communicating their progress towards SDGs, companies can enhance their reputation both internally (with employees) and externally (with the broader public); this transparency contributes to enhanced trust and confidence in the companies’ operations and contribution to society. The improved trust may then result in more robust and sustainable economic, environmental, and social performance.
Companies that identify and incorporate these issues into their strategy will stand apart as forward-thinking organisations, future-proofed, well-managed, and able to recover quickest in a post-COVID-19 environment.

In conclusion

The changes we have experienced in the first months of this year will have a devastating impact on the global economy, but this in no way diminishes the relevance of the UN SDGs despite being conceived in a more stable environment. Businesses that have already aligned their strategies and practices have shown enhanced resilience – sometimes in unexpected ways. In the absence of a crystal ball, it is hard to predict the next six months, let alone the next decade. Still, there are many indicators that the operating environment will be even more favourable to businesses that effectively integrate sustainability into their core business strategy.

Organisations that rise to these challenges and show leadership will be rewarded by their stakeholders and gain access to new opportunities. Those that fail to act may put their margins and even their business models at risk.
 
Caroline Pope is Associate Director at KPMG Sustainable Futures, a cross-functional team of experts who help corporate and public sector clients plan and execute programmes addressing environmental, social and governance topics, decarbonisation, and long-term value creation.