The Sustainable Development Goals

The SDGs can provide insights for companies on how they can create economic, social and environmental value for their investors and other stakeholders

The goals will allow business to understand and better respond to the risks and opportunities created by rapid change across the various sectors

Investors

interest in understanding how businesses are developing SDG

seek information on the relevance of the SDGs to overall strategies, and thus entities providing relevant SDG data will help investors make informed decisions which can lead to capital being channelled to responsible businesses

reasons why companies should focus on sustainable business practices

the increased future government focus on sustainable business

such business practices often improve performance as they lower operational, reputational and regulatory risk

there are significant business growth opportunities in products and services that address the SDG challenges

the fact that short term, profit based models are reducing in relevance. Companies and their stakeholders are changing how they measure success and this is becoming more than just about profit.

Disclosure

realise that the SDGs will not all be equally relevant to all companies, with boilerplate disclosures having little relevance at all

Good disclosure will qualitatively show how the company’s SDG related activities affect the primary value drivers of the business.

It would be natural to assume that SDG reporting should be based around

the disclosure of information to mitigate business risk and

the drive for improved predictability of investment decisions

However, if there is to be fair presentation, then there should also be disclosure of any negative and positive impacts on society and the environment

expectations will still be focused on companies realising their core business activities with financial sustainability as a prerequisite for attracting investment.

However, institutional investors have a fiduciary duty to act in the best interests of their beneficiaries, and thus have to take into account environmental, social and governance (ESG) factors, which can be financially significant.

Companies utilising more sustainable business practices provide new investment opportunities

screen companies as regards their ESG policies and integrate these factors into their valuation models

themed investing

investors select a company for investment based upon specific ESG policy criteria such as clean technology, green real estate, education and health.

Investors are increasingly factoring impact goals into their decision making whereby they evaluate how successful the company has been in a particular area

for example, the reduction of educational inequality.

This approach can help optimise financial returns and demonstrate their contribution to the SDGs through their portfolios

Investors are increasingly incentivised to promote sustainable economies and markets to improve their long-term financial performance

Institutional investors realise that environmental events can create costs for their portfolio

in the form of insurance premiums, taxes, and the physical cost related with disasters

Social issues can lead to unrest and instability, which carries business risks which may reduce future cash flows and financial returns.

The Global Reporting Initiative (GRI) and the UN Global Compact amongst others, have developed guidance documents that mutually complement each other and create a reference point for companies

Companies should disclose to investors how they have decided on their SDG strategy, philosophy and approach

The approach should be capable of measurable impacts and have a clear description of the material issues and a narrative that links the sustainability issues back to the business model and future outlook of the entity.

For investors, it is important that SDG-related reporting is presented in the context of the strategy, governance, performance and prospects of the entity.

Stakeholders should be engaged from the beginning in order to identify any potential impact with some investors expecting companies to have a stakeholder dialogue that goes beyond financial matters.

Investors often require an understanding of how the entity feels about the relevance of the SGDs to the overall corporate strategy,

and this will include a discussion of any risks and opportunities identified and changes that have occurred in the business model as a result

business risks and opportunities

The SDGs and targets are likely to present some of the greatest business risks and opportunities for companies who should publish material SDG contributions

both positive and negative, as part of their report

For example, an inability to address negative social and environmental impacts may also be directly detrimental to short-term financial value for a business

Investors are increasingly seeking investment opportunities that can make a credible contribution to the realisation of the SDGs

assumption

However, if an investor wants to have a positive impact on working conditions

for example, they cannot assume that any investment in this area is relevant

The investor would need to be provided with additional information such as data on the lowest income workers, any potential income increase and how confident the company is that an increase in income will occur

disclosure of ESG factors will ultimately affect

the cost of capital;

lowering it for sustainable businesses

increasing it for non-sustainable ones

cash flow forecasts

business valuations and growth rates

Investors employ screening strategies, which may involve eliminating companies that have specific features

for example, low pay rates for employees and eliminating them on a ranking basis.

They may also be eliminated on the basis of companies who are contributing or not, to a range of SDGs and targets.

Investors will use SDG-related disclosures to identify risks and opportunities on which they will, or will not, engage with companies.

Investors will see potential business opportunities in those companies that address the risks to people and the environment and those companies that develop new beneficial products, services and investments that may mitigate the business risks related to the SDGs