Moving towards the SDGs in the private sector

Decision-makers from both the public and private sectors will convene in September for the 74^th session of the United Nations General Assembly, with climate change and the Sustainable Development Goals (SDGs) as two of the key issues of concern for discussion.

Several events are taking place that mark a potential turning point in commitments towards achieving peace and development goals. The first ever SDG Summit convened at the level of heads of states will take place, illustrating the importance of the SDGs as a global issue. In addition to necessary actions by states, the 2030 Sustainable Development Agenda also recognises, clearly, the resources, technical capacity and will of the private sector towards achieving peace and development.

In that vein, the United Nations Environment Programme (UNEP) will officially launch Principles for Responsible Banking, developed by the banking industry through banking sector members of the Finance Initiative. The Principles provide the first-ever global framework for financial products and services providers to align their business strategy with the SDGs and the Paris Agreement. The rationale for members is that the guidance and the reputational benefits are needed to remain competitive in a fast-changing market. Similar actions are also taking place elsewhere in the private sector ahead of the Climate Action Summit. More than 500 institutional investors of the Climate Action 100+ group who manage $35 trillion in assets, urged governments worldwide to step up action to tackle climate change and achieve the Paris Agreement’s goals. The SDGs and other globally agreed goals have fast become a framework around which companies and investors have been increasingly galvanised.

Sustainability reporting, ESG strategies and the SDGs

A related trend has been the growing importance of sustainability reporting to private companies and investors.  Disclosure and reporting on Environmental, Social and Governance (ESG) or ‘sustainability’ issues and the associate processes – strategy, planning and oversight in particular – have been pointed to as having the potential to be pivotal in assisting companies address the relationship between their operations, impact, and sustainability. Reporting on ESG has becomes an important entry and leverage point for forwarding corporate sustainability. More than three-quarters of the Forbes 2000 companies are reporting use of one of many sustainability reporting frameworks that use the standards.

Better reporting on ESG issues, according to the rationale, translates into more nuanced thinking about the relationship between a company’s financial and non-financial performance and in turn, more sustainable business strategies.

There are ‘themes’, ‘materials’ or ‘capitals’ in the most common sustainability frameworks that assist companies in thinking through how they impact and how they can mitigate negative impacts on their businesses, and drive value in that process. Measuring and reporting sustainability performance includes not only environmental issues, but also labor, land issues, human rights, anti-corruption, inequality and other issues that are known to be drivers of conflict or to be associated with state fragility.

Many of the material issues standards are aligned with the SDGs in sustainability frameworks such as that offered by the Global Reporting Initiative (GRI) and Integrated Reporting Framework (IRF), although the disjointedness and plethora of different frameworks and scores of standards can be confusing for companies and asset owners and make both reporting and interpretation of reporting incredibly challenging.

Beyond the difficulties that many companies have experienced in figuring out how to contribute to SDG targets through ESG or sustainability strategies and standards, there are other challenges in using sustainability and reporting as a means of assisting with addressing peace, human rights and development goals. These include the need for deepening stakeholder engagement, third-party assurances of disclosures and of board level oversight of ESG strategies.

Weaknesses in the availability and use of relevant data in defining and measuring strategy is another challenge that cuts across and underscores most of the others.

Better data to decide what’s material, define strategy and measure outcomes – including towards the SDGs

Materiality is at the heart of sustainability reporting, it is “the threshold at which sustainability topics become sufficiently important that they should be reported”.

Data can help guide better understanding about what is “material,” as well as support associated decision-making. This can be particularly important in fragile states or ‘high risk’ emerging markets where both the potential for negative impact as well as the risks to the company may be greater than in more mature markets, but can also vary greatly between different emerging markets.

Data gathered and analysed during materiality assessments is valuable in not only in informing a deeper understanding of materiality issues but in defining the details of well-designed sustainability strategies, setting of relevant targets, and in measuring the outcomes. More robust metrics can in turn provide clearer insights as to whether company ESG outcomes are actually contributing to the SDGs to which they see themselves aligned.

Only one-quarter of the companies surveyed by The Conference Board in 2018 reported that they aligned and timed their materiality assessments to feed into strategy planning. They note, “materiality assessment only serving reporting purposes identifies issues material to ongoing sustainability practices but not necessarily material to the overall business.”

However, we do see some companies reaching for a deeper understanding of the material issues, prioritisation according to both external and internal stakeholder interests and leveraging them to help business with risk management. Beyond risk, this process also promises to identify new opportunities, including those that SDG partnerships may bring, and guide efficient resource allocation. Challenges include deciding what from the masses of data produced by a company can provide the strategic insights required. Drawing upon and modeling with highly contextual data – for example from local markets  – is also critical in robust materiality assessments for global companies – as not all issues will be equally material across all markets, and there is a greater propensity for change in such markets. Future trends also need to be built into assessments and strategy – again underscoring the need for not only local, but also forward-looking, intelligent data and analysis.

Human Rights strategies and disclosures

If we look at human rights, as a broad sustainability theme that is of particular relevance in high-risk markets, and as a salient foundational issue in assisting achievement of the SDGs in fragile states, human rights are incorporated not only in the UN Guiding Principles Reporting Framework, but also in the Global Compact CoP, GRI and Integrated Reporting frameworks.

However, the Corporate Human Rights Bench Mark (CHRB) 2018 review of 200 + corporations noted that while 78 per cent of the companies evaluated made public statements of commitment to human rights, “companies lack the fundamental commitments and systems needed to avoid causing adverse human rights impacts, or to provide remedy after an impact has occurred”.

Only about half of the companies disclosed details of the integration of human rights into their risk management systems and into monitoring. Roughly the same percentage of companies detailed in their reporting how human rights policy commitments are communicated in business relationships, although two thirds of companies were able to describe how human rights were considered when managing business relationships.

The provision of remedies and effective grievance mechanisms for violations of human rights is another area particularly important for the protection of human rights, as well as for reputation risk mitigation, where companies fell short. This can be especially important in contexts where national or local justice systems are not effective or accessible to citizens. In these contexts ensuring access to remedy is also particularly important for a broad stakeholder group, beyond company workers.

Of the human rights themes explored in the CHRB, were land rights, another challenge in many fragile contexts or emerging markets. Again, companies scored poorly. The CHRB looked at whether a company described or demonstrated its approach to identify legitimate tenure rights holders, particular those of vulnerable rights holders. The 2018 assessment found that all the agricultural companies, and 80 per cent of extractive companies scored zero points for addressing land rights in their own operations. Payment of a “living wage” and gender equality were also human rights thematic areas that were generally seen as key industry risks, yet the assessed companies scored poorly on them.

Again, the collection of relevant data to assist in deciding what is material, in what ways, how they can be mitigated, the setting of relevant targets and the systematic measurement of progress would go a long way towards helping companies achieve their stated commitment towards protecting and advancing human rights.

Moving forward

More information and greater transparency in sustainability disclosures is also critical in facilitating change through accountability and stakeholder feedback. Stakeholder feedback – from government, civil society, investors, suppliers, consumers, clients – provides valuable insights, and in materiality assessments can change the way in which material issues are viewed and addressed.  Making data publically available can help companies also to learn better from each other, as well as from the public sector. Investors also note that data is crucial for them to continue playing the role that they have in safeguarding human rights and sustainability issues more broadly, “reporting and disclosure means everything to us; without this we can’t prioritise … The data is often not there for us to understand.”

The Global Reporting Initiative, one of the most widely used frameworks globally, notes that reporting, in their view, is central to bringing about such change in corporate behavior. Whilst reporting has increased over the last decade, the GRI believes that reporting has not yet had a significant impact on bringing about change towards sustainable economies.

For a majority of companies, the way in which they are governed, business models and choices of products and services offered have not yet changed significantly. Whilst current sustainability reporting has not fully tapped into the power of the private sector for transformation change and progress towards the SDGs, reporting that is driven by intelligent data used to inform strategy that manages impacts and drives real value, develop targets and KPIs or indicators that are relevant and are comparable between companies and within sectors, will help greatly in bringing about that change.