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Are Companies Succeeding at the SDGs or at “SDG Washing”?
When 193 member states launched the 17 Sustainable Development Goals (SDGs) at the United Nations in 2015, it was not clear how businesses could contribute to an agenda that covered such wide-ranging topics as eliminating poverty and hunger and promoting peaceful, just, and strong institutions worldwide. Two years later, these fears have proved unfounded as business awareness of and action toward the SDGs is increasing annually. More companies are using the global goals to help set corporate performance targets, and 75% of U.N. Global Compact business participants reported that they are taking action in support of the goals.
This is good news, as the SDGs clearly invite businesses to join the global efforts to “end poverty, protect the planet, and ensure prosperity for all” alongside governments, civil society, and U.N. entities. Some businesses are already integrating SDG actions into their strategies, operations, and long-term goals in a way that creates value for the business without negatively affecting society and the environment in the process. In a 2017 Harvard Business Review article, Bhaskar Chakravorti of the Fletcher School at Tufts University cited Coca-Cola, Gap, Johnson & Johnson, Mastercard, and Unilever as examples of companies that are integrating selected SDGs into the core of their corporate strategies.
The bad news is that corporate “SDG washing” (positively contributing to some of the SDGs while ignoring the negative impact of others) is a substantial risk that may limit a company’s contributions to the SDGs. A company may develop large-scale renewable energy projects in support of Goal 7 — Affordable and Clean Energy — but displace communities and undermine rights to food, access to water, health, culture, and livelihoods in the process. Or, a business might pitch an extensive infrastructure project as a contribution to Goal 9 — Industry, Innovation, and Infrastructure — without changing any aspect of its project planning or business strategy.
Under the guise of supporting the SDGs, tunnel vision (designing and measuring success against a single goal or, even worse, a single target under a goal) and myopia (setting a strategy without understanding the long-term sustainability agenda) may deliver weak or counterproductive contributions to the goals. A company’s support of the SDGs is not necessarily a proxy for doing good. Business leaders who want to support the 2030 Agenda for Sustainable Development in a way that is both strategic and responsible must ask themselves, “We want to leverage our business practice to support the SDGs, but how can we do so in a way that is effective, ambitious, and conscientious?”
A Call for a Principles-Based Approach to the SDGs
Support for the SDGs must take full account of their effects, both positive and negative, across the value chain. A crucial starting point for this effort is the Ten Principles of the U.N. Global Compact, the world’s largest voluntary corporate sustainability initiative. Since its launch in 2000, the U.N. Global Compact has grown to more than 9,500 business signatories in more than 160 countries. Twenty-eight percent of Fortune 500 companies now participate in the U.N. Global Compact.
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Signatories to the U.N. Global Compact agree to adhere to and report annually on progress in implementing 10 principles grouped within the categories of human rights, labor, environment, and anti-corruption. As stated in the U.N. Global Compact’s “Guide to Corporate Sustainability,” published in 2015, the “principles are about far more than compliance. They provide common ground for partners, a moral code for employees, an accountability measure for critics. A growing number of companies are … finding real value in actively addressing social, environmental, and governance issues.” In fact, a growing body of evidence affirms that effective management of material environmental, social, and governance (ESG) issues contributes positively to financial performance.
The Ten Principles of the U.N. Global Compact are derived from the following international declarations and conventions: the Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. They represent universal norms set out by the United Nations to guide responsible business practice and should shape the way companies approach the SDGs.
Using the Ten Principles to Guide SDG Action
The Ten Principles enable businesses to see how their actions influence interconnected SDGs. A leader who asks whether a new infrastructure project is consistent with the Ten Principles would consider how the project affects the local community, the environment, and the workers and would determine whether the project detracts from or furthers Goal 8 (Decent Work and Economic Growth) and Goal 13 (Climate Action).
Businesses can also use the Ten Principles to assess SDG opportunities that arise with SDG projects. For instance, a company developing new climate technologies that contribute to Goal 13 (Climate Action) may recognize that the technologies could also create new jobs for and train women, helping achieve both Goal 5 (Gender Equality) and Goal 8 (Decent Work and Economic Growth).
Businesses also need to embrace Goal 17 (Partnerships for the Goals). By working in tandem with the public sector and civil society, companies can develop the capabilities needed to fully realize the business opportunities created by the other 16 SDGs, which also provides benefits to the world.
The SDGs and the Investing Community
In the U.N.’s preamble to the 2030 Agenda for Sustainable Development, the organization recognizes that “private business activity, investment, and innovation are major drivers of productivity, inclusive economic growth, and job creation.” U.N. Secretary-General António Guterres further made this case when he told the business community in 2017 that “[o]ur shared challenge is to translate this universal and holistic framework into ambitious action and innovative solutions.”
Achieving the SDGs requires support from the business community to close the funding gap of $2.5 trillion per year, or about an expected 50% of the total $115 trillion cost of funding the goals. The investment community, too, is beginning to ask questions about what companies are doing to support the goals. The U.N.-supported Principles for Responsible Investment (PRI), whose signatories represent one-third of global private capital, encourages investors to consider the SDGs when making investment decisions because they “represent the globally agreed world’s most pressing environmental, social, and economic issues and as such serve as a list of the material ESG factors that should be considered as part of an investor’s fiduciary duty.”
We agree with the PRI that the SDGs are useful for framing the material ESG issues that are important to investors. They do so for companies as well. But, for the 2030 Agenda to be achieved, materiality needs to be viewed from a principles-based perspective that acknowledges the interconnections of the SDGs. Only in this way can both companies and investors most effectively contribute to the SDGs.