What are the UN Sustainability Development Goals or SDGs?
Sustainability as a concept is derived from nature. Natural ecosystems have a continuous process that is productive, diverse, and enough to sustain the ecosystem without excessive depletion of resources. Sustainability rests on three pillars, social, economic, and environmental. Irreconcilable demands or conflicting priorities between the three lead to long-term impacts on the environment within which social and economic pillars exist. UN’s sustainability goals are an effort toward reconciling the demands of the three pillars and creating a better future for the planet and the people.
UN adopted the 17 Sustainability Development Goals on 1st January 2016 as a part of its 2030 Agenda for Sustainable Development. These universally applicable goals were to mobilize countries to create all-inclusive action plans to end poverty, fight inequalities and tackle climate change.
Each of the 17 SDGs has a range of targets, a total of 169 spread across the 17 goals. There are 230 indicators against which the progress is to be measured. These global indicators for SDG goals were developed by the Inter-Agency and Expert Group on SDG Indicators (IAEG-SDGs) One can assess the Sustainable Development Goals Report 2022 here.
The UN SDG List of 17 Goals are:
- No Poverty
- Zero Hunger
- Good Health and Well-Being
- Quality Education
- Gender Equality
- Clean Water and Sanitation
- Affordable and Clean Energy
- Decent Work and Economic Growth
- Industry, Innovation, and Infrastructure
- Reduced Inequalities
- Sustainable Cities and Communities
- Responsible Consumption and Production
- Climate Action
- Life Below Water
- Life on Land
- Peace and Justice Strong Institutions
- Partnerships for the Goals
2030 UN Sustainability Goals were adopted by UN member states in 2015, with a plan to implement them over the years and achieve those goals by 2030. But with less than a decade remaining, several of these goals remain unattainable. Climate change has shifted the goalpost further on other critical aspects of sustainable development. The 2030 target is achievable only when serious actions are taken towards those goals by all relevant stakeholders, of which businesses are extremely important players.
Before we dive further to explore how companies can make a difference to the UN SDGs it will be helpful to understand the correlation between SDGs and ESGs.
The Distinction and Relationship between SDG and ESG
We saw above how SDGs are global goals that aim for responsible economic growth that is inclusive and protects the planet, climate, and people. ESG, however, is the environmental, social, and governance goals of a company and concerns itself more with the process and measurements. A good analogy could be SDGs being the destination and ESG the road leading to it.
An example could be the pharmaceutical giant GlaxoSmithKline has 40% women Board Members that display their commitment towards gender equality which is SDG Goal 5.
Apple relies on solar and wind power for its production facilities instead of fossil fuels and claims to be running on 100% clean energy which is a commitment towards UN SDG Responsible Consumption and Production. In another example, Bosch dedicates 50% of its research and development budget to support sustainable technologies which are SDG 9 Industry, Innovation, and Infrastructure
UN SDG Goals are the foundation on which ESG frameworks stand, and ESG goals find anchorage in the impact a business creates outside the shareholder community that transcends profit-making.
Why are SDGs Relevant for Companies?
SDGs are goals that impact the entire planet with the 8 billion people inhabiting it. These goals are difficult to achieve unless the large corporations, businesses, and conglomerates along with regimes of countries and political leaders are not committed to them.
The Business & Sustainable Development Commission released a report in 2017 stating that SDGs could generate US$12 trillion in business savings and revenue. Investment and growth opportunities lie across four sectors, energy, cities, food and agriculture, and health and well-being. SDGs have the potential to create around 380 million jobs across sectors within the proposed timeline for achieving these goals.
The recent efforts by companies toward SDG goals have been encouraging but there is a vast disparity in the choice of goals. As per Trucost ESG analysis, 65% of companies have a business model aligned with SDG’s Goals.
However, goals like “Peace, Justice and Strong Institutions, Quality Education, Life on land, Life Under Water, Responsible Consumption and Production and Reduced Inequalities” have seen less than 5 % commitment from businesses with “Life Under Water” being addressed by zero % of companies.
Businesses need to look at SDGs not from an ESG compliance perspective alone as SDGs themselves are not legally binding but also as opportunities for growth and innovation.
The Ten Principles of the UN Global Compact
UN’s Ten principles of Global Compact are founded on the principles and value of responsible business practices which meet the threshold of human rights, labor, environment, and anti-corruption. Companies owe a responsibility towards the planet and the communities within which they operate and can’t afford to have practices in conflict with either of them.
Here’s an overview of the Ten Principles of the UN Global Compact:
- Principle 1 states businesses should respect and protect the internationally proclaimed human rights
- Principle 2 takes it a step further to point out that companies should not be complicit in human rights abuse
- Principles 3,4,5 and 6 discuss labor, recognition of the right to collective bargaining, eliminating forced labor, abolition of child labor, and eliminating discrimination in employment
- Principles 7, 8, and 9 address the environment and urge businesses to adopt a precious precautionary approach to environmental challenges, promote environmentally responsible initiatives, and develop and adopt environmentally friendly technologies.
- The tenth principle addresses corruption and suggests businesses not partake in extortion or bribery.
These principles appeal to ethical consciousness and conduct business responsibly while ensuring the safety of the environment and communities. But altruism alone cannot encourage a business to divert its capital and resources to SDGs. Investors and markets, however, can.
Sustainable Investing and Sustainable Funds
Global sustainable funds attracted USD 32.6 billion of net new money during Q2 of 2022. Sustainable funds have a steady flow in the broader market despite the looming recession, increasing inflation, and an ongoing war.
ESMA’s Markets in Financial Instruments Directive or MiFID underwent amendment and now requires financial advisors to consider the sustainability preferences of their clients. It will also facilitate the adoption of sustainable investment by retail investors. A good example is a climate-themed fund like BNP Paribas Emerging Climate Solutions which targets companies providing solutions to preserve biodiversity in ecosystems and work toward renewable energy production, efficiency, infrastructure, and transportation.
SDGs also offers a roadmap to mitigate Sustainability Risk that arises due to uncertain changes in the social or environmental conditions within which a business operates. ESG objectives can only be achieved when the sustainability risks associated with them are manageable.
How can Companies Act on SDG Goals and Make a Difference?
SDG goals you choose to align with should be closest to the problems your business is trying to solve and have a positive impact on the immediate environment and community. These goals should have fewer risks and better opportunities and growth for your shareholders.
Some aspects that companies can consider and incorporate into their business strategies to align with UN SDGs are:
- Developing products and processes aligned with SDG goals
- Leveraging the business model to contribute towards the UN SDGs
- Optimizing the value chain with local partnerships and ethical sourcing
- Improving workplace productivity and focusing on employee well-being
- Innovating and leveraging technology to solve problems
- Invest in skilling the workforce, global educational initiatives, and developing future capacity
- Empowering women, diversifying the workforce, and retaining and nurturing talent
- Water usage in the supply chain and working towards clean water and sanitation
- Opting for clean energy
- Inclusive and sustainable economic growth
- Sponsoring research in the areas of sustainability
- Invest in new markets and target new customer groups to reduce inequality
- Improving environmental health resource efficiency
- Assessing climate risk and impact
- Recycling for business continuity
- Financial data transparency
- Public-Private Partnership
ESG Goals of an organization aligned with the UN SDGs have the potential to optimize impact initiatives and ESG investment. SDGs help companies have an ESG program that meets regulatory and financial compliance while being ethical and responsible. SDG alignment can also improve the quality of ESG-related data collection through standardization, better relevancy, and measurability. In the long run, it leads to improved sustainability and ESG KPIs, better financial reporting and compliance, effective ESG materiality assessment, and creating long-term value for all stakeholders.
The Path to the Future Will be Paved by SDGs
UN SDGs require accelerated action by all stakeholders to meet the ambitious 2030 goal at global, local, and individual levels. Investing in sustainable technologies, solutions, products, and services will lead to shared prosperity and better the lives of people and the health of the planet. The estimated cost of SDGs across sectors is $5-7 trillion, but it also means opportunities for business. Financial disclosure mandates like TCFD, the recently proposed CSRD, and ESG compliance indicate that SDGs have been mainstreamed and are here to stay.