Sustainability

Business and the Sustainable Development Goals – part 1

In this two-part series BWD’s Managing Director Derryn Heilbuth discusses why she believes the business community is ripe for the take-up of the Sustainable Development Goals. The articles are based on a lecture she delivered to students undertaking the Master of Sustainability degree at the University of Sydney.

The first time I ever talked to a group of people about the Sustainable Development Goals (SDGs), Cape Town, a city on the same latitude as Sydney, was within months of becoming the first major metropolis in modern history to run out of water.

And while Sydney enjoys some advantages over Cape Town, the factors that led to the impending crisis should sound familiar: harsher droughts driven by climate change; an infrastructure backlog, and a rapidly growing demand for services from a booming population.

I spent 10 years working as a journalist in Cape Town. It is a city I know well – and still hold a great deal of affection for.

For me – and I’m sure for many others – the situation in Cape Town sheeted home more than ever before, the importance of the SDGs. And it turned SDG No 6: Clean Water and Sanitation, from an icon in a sustainability report to an alarming reality.

The SDGs, as most people by now would know, were launched in September 2015. Given that we only have a little over a decade to achieve some very ambitious goals, I think it’s fair to ask how Australia is doing ?

According to a report released by the National Sustainable Development Council, we’re performing relatively well in health (SDG 3) and education (SDG 4). But the results for reducing inequalities (SDG 10) and climate action (SDG 13) are notably poor, and we’ve a considerable way to go to achieve the other goals.

The report assessed each indicator. . . there are 232 of them. . . attached to the 17 goals to determine if Australia is on track to meet the 169 targets by 2030.

What it found was that 35% are on track, 23% need improvement, 18% need a breakthrough to be achieved, and 24% are off track.

It also found that almost every goal has at least one target where an important indicator is either off track or will require a significant breakthrough to be achieved.

These include – among others:

  • obesity levels (goal 2)
  • energy and water affordability (goals 6 and 7)
  • household debt, stagnant wages growth and underemployment (goal 8)
  • investment in research and development (goal 9)
  • income inequality and distribution of wealth (goal 10)
  • housing affordability (and 11)
  • hazardous waste generation (goal 12) and
  • greenhouse gas emissions (goal 13)

 

 

In short, if Australia is to help build a better world with no one left behind; if we are to promote prosperity, fight inequalities and protect the planet, we’ve a lot of work still to do to.

And given that the business sector is one of the major players in the achievement of the goals, we aren’t going to achieve them without a radical change from business as usual.

Which is why it’s unfortunate that the Sustainable Development Goals have yet to engage the minds and attentions of most of our boardrooms and executive teams,  or to be factored into most business strategy discussions in Australia. For it’s in the strategy meetings that we need these discussions to be taking place.

Of course there are some exceptions and I will touch on those later.

So that’s the bad news. 

But there is good news. And it’s this: I think the business environment is ripe for their take up.

Why do I say this?

Well, after the unprecedented climate events in recent times, and the growing demand from investors for climate-related financial disclosure, there would be few boards around the country that would not be addressing – or at least talking about addressing — Goal No 13: Climate Action.

From our experience working with some of Australia’s largest companies, there is no doubt that we have initiatives like the Task Force on Climate-related Financial Disclosure to thank for this.

The Task Force was established in late 2015 by the G20 Financial Stability Board. It was set up to develop a voluntary and consistent disclosure framework for climate-related information. This would better help investors, companies and regulators understand climate-related issues and their potential financial impacts.

In June 2017 the Task Force released its final report which recommends that organisations adopt the TCFD disclosures in their mainstream financial filings.

The framework covers four areas: governance, strategy, risk management, and metrics and targets.

Increasingly, investors and other stakeholders want to understand how organisations are considering the impact of climate change on their business from a strategic risk perspective in the short, medium and longer terms. And though the TCFD framework is voluntary, businesses are starting to respond to that demand.

The second reason I say business is ripe for the take up of the goals is that artificial intelligence, robotics and machine learning are forcing executive teams to re-examine their business models in the acknowledgement that the future of business, of work and of their workforces will be vastly different in even five years’ time.

Instead of “markets”, these business models are going to have to understand the “ecosystems” in which they now operate.

They’re going to have to understand how they capture and create value – not only for shareholders, but for all stakeholders.

They’re going to have to find ways to help their people think more creatively.

And, finally, they’re going to have to take a longer-term approach so they’re able to navigate uncertainty and build resilience.

The third reason I say that business is ripe for the take up of the goals is that there are some very powerful voices calling for business to take a different approach to the future. The most notable of these is Larry Fink, CEO of Blackrock, the largest asset manager in the world, and closer to home, the largest investor in our largest company the Commonwealth Bank.

In his much-talked-about 2018 Letter to CEOs, Fink said governments were failing to prepare for the future on issues ranging from retirement and infrastructure to automation and worker retraining.

“As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society . . .

Finks says companies must ask themselves:

… What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world?”

When the CEO of a company with $5 trillion dollars under management, and which has major investments in most major companies in most major countries begins to talk like this, we know that the times are truly changing.

So for those of us who have been working in sustainability since the early 2000s, 2018 marked something of a turning point.

To date – and much to our frustration – the sustainability conversation has largely been relegated to the margins of business strategy.

A 2017 study, for example, found there was only a 29% alignment between the risks disclosed in a company’s risk filings and those disclosed as material issues in the sustainability report.

Even more concerning was the finding that 35% of companies had no alignment between the risks deemed “material” in the sustainability report and those disclosed in their legal risk filing.

There are many reasons for this.

But the key ones include the fact that ESG risks are uncertain; they tend to play out over the long-term; they’re difficult to quantify in monetary term; and they’re often viewed by boards as less significant than ‘traditional’ operational or financial risks.

The SDGs I believe have the capacity to change this.

For the first time ever, any business, anywhere in the world, has an easy-to-understand, actionable and uniform framework by which to judge its environmental, social and governance efforts. And – more importantly – guide and communicate its strategic decision-making.

Previous tools and mechanisms like the GRI have been useful in helping direct the global sustainability conversation. But GRI has largely been directed at disclosure and reporting – not transformative global change.

By contrast, the SDGs enjoy the support of every one of the UN’s 193-member states – a rare example of unanimous support in an infamously fractious organisation.

Unlike their predecessor, the Millennium Development Goals, the SDGs explicitly call on all businesses to apply their creativity and innovation to solving sustainable development challenges.

They present an opportunity for business-led solutions and technologies to be developed and implemented to address the world’s biggest sustainable development challenges.

Of course, if they’re to be taken seriously, the SDGs create greater obligations for business.

But these obligations shouldn’t be framed in the negative. The goals are pregnant with opportunity.

They force us to reimagine the role of business in society by demanding that we shift our mindset and ambition from “incremental” to “exponential”.

Already we’re seeing examples of how the goals are helping organisations leave behind the “take-make-waste model” of the 20th Century and move towards the circular model of the 21st Century. Dell, Timberland, Energizer, Levi Strauss, Unilever and Ikea – are just some of the companies experimenting with new business models.

We have a long way to go, of course. Only six percent of the materials we consume globally gets recycled into circular flows.

But by underlining that the design of our economy and society should be restorative and regenerative, the SDGs are offering a new way for business to do business.

Next week: Find out which companies in Australia – and globally – are embracing the challenge of the SDGs.