Sustainability and Profitability – Paradox or Partnership? SDGs as an inescapable business truth

Sustainability is a catchphrase that has caught the space on advertising, business plans, product labels as well as mindspace of both, the consumer and the marketeers today like never before. The business case for sustainable development is strong already: it opens up new opportunities and big efficiency gains; it drives innovation; and it enhances reputations. It buys the businesses greater admiration of consumers. It helps the governments achieve their commitments. With a reputation for sustainability, companies attract and retain employees, consumers, B2B customers and investors, and they secure their licence to operate. Whether out of obligation or as an initiative, companies around the globe are thriving and delivering attractive returns to shareholders through their position on sustainability. That is why over 9,000 companies around the world have already signed up to the 10 principles of the UN Global Compact, a guide to sustainable business behaviour.[1]

Sustainable Development Goals opens the 60 biggest market “hot spots” worth up to US$12 trillion a year in business savings and revenue in the four examined economic systems alone by 2030[2]. The total economic prize from implementing the Global Goals could be 2-3 times bigger, assuming that the benefits are captured across the whole economy and accompanied by much higher labour and resource productivity. That’s a fair assumption. Consider that achieving the single goal of gender equality could contribute up to US$28 trillion to global GDP by 2025, according to one estimate.[3] The overall prize is enormous.

Need to make businesses sustainability-focussed:

As Business leader Anand Mahindra had said at the Bloomberg Global Business Forum in New York, in 2017: “SDGs are the single biggest business opportunity for the next couple of decades. To my mind, anyone not looking at these opportunities is going to miss out on growth", business leaders need to strike out in new directions to embrace more sustainable and inclusive economic models and strike out in new directions and embrace an economic model which is not only low-carbon and environmentally sustainable, but also turns poverty, inequality and lack of financial access into new market opportunities for smart, progressive, profit-oriented companies. These complex challenges need the full and combined attention of government, civil society and business. Otherwise, there is no chance of solving them.

Signs of its failure and imperfections in today’s markets are everywhere. Natural disasters triggered by climate change have doubled in frequency since the 1980s.[4] Violence and armed conflict cost the world the equivalent of nine percent of GDP in 2014, while lost biodiversity and ecosystem damage cost an estimated three percent.[5] We continue to invest in high-carbon infrastructure at a rate that could commit us to irreversible, immensely damaging climate change. Social inequality and youth unemployment is worsening in countries across the world, while on average women are still paid 25 percent less than men for comparable work.[6]

Failures in today’s development model are adding to a swelling list of global burdens that threaten future stability and shared prosperity.

On the environmental front, human activity has already pushed the planet beyond four of its nine safety boundaries, the ones for climate change, loss of biosphere integrity, land-system change and altered biogeochemical cycles.[7]

On the social front, there are vast numbers of people who do not have access to basic services such as healthcare, clean water, clean energy and sanitation. In middle-income countries, the growing burden of non-communicable ill health is replacing gains made in the treatment of communicable diseases. Tobacco now kills around 6 million people annually[8], and the global prevalence of obesity doubled between 1980 and 2014[9]. Although improving, many education systems are still failing to deliver access to high quality education. Without urgent action, the prospects for more than 124 million children and young people lacking access to schools[10] and more than 250 million not learning necessary skills are severely diminished.[11] Income inequality in OECD countries is at its highest level for 30 years[12], and Oxfam estimates that the 62 richest people in the world have the same wealth as half the world’s population.[13] Income inequality in OECD countries is at its highest level for 30 years.

On the economic front, many of these burdens are beginning to place important constraints on the world’s future growth prospects. For example, without radical changes in the current food and agriculture system, the cost of biodiversity and ecosystem damage could reach up to 18 percent of global economic output by 2050, up from around US$2 trillion, or 3.1 percent, in 2008.[14] The costs of runaway climate change could be even greater, acting as a risk multiplier across already fragile environmental and social systems.

Finally, there are growing concerns with governance and security related issues. In 2014, the world spent 9.1 percent of its GDP on costs associated with violence.[15] According to the IMF, the cost of bribery is roughly 2 percent of global GDP, and illicit flows from developing countries are over US$1 trillion.[16] The uncertainty created by these burdens makes it hard for businesses to make out the future. This is one reason why so many are treading water. Rather than commit themselves to long-term investments based on today’s flawed growth model, they are sitting on cash, buying back shares or paying high dividends – tactics that attract criticism.

Solutions are urgently needed, starting now and accelerating over the period. Business as usual is not an option: choosing to “kick the can down the road” over the next four years will put impossible environmental and social strains on a stuttering global economy. But if enough leaders act now and collectively, we can forge a different path, one that eases the burden on finite resources and includes those currently left behind or excluded from the market, helping to address today's political grievances.

SDG’s Impact on Businesses:

The SDGs accomplish two things: they align and interconnect social and environmental priorities such as poverty, inequality, and climate change; and they provide businesses with clear guidelines and targets for addressing them. This has been very valuable to the business community, who are now embracing the idea of “okay, now we know what we need to do.”

The goals have also created a common language for describing key challenges that need to be solved holistically. For forward-looking companies, they lay out a comprehensive road map for tackling global challenges and, in so doing, identify the biggest business opportunities ahead.

Big competitive advantages are gained by companies who champion and integrate the SDGs.

Getting ahead of market opportunity is the biggest potential advantage. Better Business, Better World, by the Business and Sustainable Development Commission, identifies $12 trillion worth of business opportunity in the SDGs, from large-scale technological reform in farming to electric vehicles and car sharing. The SDGs point towards key future markets, and delivering products and services that meet the needs of these markets will drive competitive advantage.

The level of international consensus for the SDGs is unprecedented – it’s been decades since so many countries have agreed so quickly to anything. Governments of the world are saying to the business community that “this is the future.” Businesses that aren’t aligned to this market opportunity, are investing in yesterday’s markets instead of tomorrow’s.

There are many future markets and opportunities associated with the SDGs that companies need to identify too. These opportunities range from agricultural efficiency, renewable energy and water solutions through education and health, and span both the developed world and emerging or low-income economies. The most exciting opportunities are at the intersection of social and environmental needs – bringing renewable energy to those experiencing energy poverty, improving nutrition for those struggling with hunger – because they create markets that improve lives while reducing impact on our severely stressed natural resources.

These intersections offer fantastic growth opportunities for companies that embrace them and the investors that support those companies. Markets will shrink for companies who utilize natural resources to provide products or services that are of limited societal value.

Coordinated Global Action: Building Partnerships

There are coordinated global efforts which are being taken at international and national levels between international bodies, governments, businesses and non-state actors. These are instrumental in realising the goal of SDGs while ensuring that businesses remain sustainable, balancing economic and ecological goals.

The Business and Sustainable Development Commission was launched in Davos in 2016. It brings together leaders from business, finance, civil society, labour, and international organisations, with the twin aims of mapping the economic prize that could be available to business if the UN Sustainable Development Goals are achieved, and describing how business can contribute to delivering these goals.

Building those partnerships is not simply a response to the political tides flowing so strongly against what is seen as unaccountable globalisation today. It’s also an acknowledgment that the tensions between business and society will remain as each grapples with the changes ahead brought on by disruptive advances in technologies like artificial intelligence and automation. Technology has the potential to drive a better, more sustainable economy for all, but only if there is a continuous dialogue between the innovators and society. Business is a bridge for that conversation. It can apply the capital and skills needed to scale new ideas, taking them from the garage or lab to where they have local and global impact

Challenges:

However, there are several challenges that companies may face in implementing the SDGs. The sheer scope of 17 SDGs and 169 tasks is hard to get one’s head around. The temptation is to believe that, by simply mapping what you are doing to contribute to the SDGs, you are doing better. But the reality is, mapping your activities is not the same as fundamentally changing your business model. Going beyond simple mapping, and addressing the true spirit of the SDGs – providing products and services that improve lives and, in parallel, reduce our impact on the planet – is the real goal.

Importance of Communication

Companies would need to better communicate the SDGs across different levels of their business. There are two things businesses can do.

First, emphasize that the SDGs are not only great for society and the planet, but they are a tremendous business opportunity.

Second, there should not be a focus too much on addressing the individual goals. Instead, companies need to connect all the SDGs together into a single narrative. The SDGs aim to raise the well-being of society, within the constraints of the planet’s resources. That’s what the SDGs are all about – how you are contributing towards the bigger global mission, rather than just thinking “have we reduced our water usage?”

Case examples:

Science Based Targets (SBT) Initiative

SDG13, “Climate Action,” doesn’t specify the amount of carbon reduction. It points directly to the Paris Agreement, which says we must keep the global temperature rise to below 2 degrees Celsius, and ideally aim for 1.5 degrees. This is a global-level goal, but is of limited value to a specific company. The SBT Initiative defines methodologies and pathways for individual sectors and businesses to achieve the global target of 2 degrees, or better. With SBTs, a business no longer has to guess how it can do its part to meet the global target – there is a defined methodology that sectors can follow.

The SBT initiative also provides businesses with a longer-term objective, and the ability to implement transformational solutions for reducing carbon emissions. By thinking “what do we need to do by 2030 or 2050,” businesses can break away from making incremental changes and put in place the right components of a long-term solution now.

Businesses Response to SDG-supporting Initiatives is translating into success.

Companies that have adopted SBT Initiative early are all SDG-fluent and their companies are taking on leadership roles – from providing low-impact supply chain solutions, to educating their employees on environmental topics, to developing products that are aligned with the aims of the SDGs.

As the SDGs are increasingly adopted across government, society and the private sector, it is enabling upwards of 10 billion people to thrive together on our one and only planet.

References:

[1] Economic systems are defined as areas of economic activity with common value drivers. For example, the food and agriculture economic system embraces all the economic activities that deliver value in the provision of food to consumers, from fertilisers and farm production to logistics and grocery retail services.

[2] See: https://www.unglobalcompact.org/what-is-gc/mission/principles.

[3] Woetzel, J., Madgavkar, A., Ellingrud, K., Labaye, E., Devillard, S., Kutcher, E., Manyika, J., Dobbs, R., and Krishnan, M., 2015. The Power of Parity: How advancing women’s equality can add $12 trillion to global growth. McKinsey Global Institute. Available at: https://www.mckinsey.com/global-themes/employment-and-growth/how-advancingwomens-equality-can-add-12-trillion-to-global-growth.

[4] Food and Agriculture Organization of the United Nations (FAO), 2015. The impact of disasters on agriculture and food security. Available at: https://www.fao.org/3/a-i5128e.pdf.

[5] AlphaBeta analysis for the Business and Sustainable Development Commission, based on data from: Institute for Economics and Peace, 2015. Global Peace Index 2015. Available at: https://economicsandpeace.org/wp-content/ uploads/2015/06/Global-Peace-Index-Report-2015_0.pdf.

[6] AlphaBeta analysis for the Business and Sustainable Development Commission, based on data from: United Nations Environment Programme, 2010. The Economics of Ecosystems and Biodiversity (TEEB). Available at: https://www.teebweb.org/

[7] Stockholm Resilience Centre, 2015. Planetary Boundaries - an update. Available at: https://www. stockholmresilience.org/research/research-news/2015-01-15-planetary-boundaries---an-update.html.

[8] World Health Organization (WHO), 2016. Fact sheet: Tobacco, June 2016. Available at: https://www.who.int/ mediacentre/factsheets/fs339/en/.

[9] WHO, 2016. Fact sheet: Obesity and overweight, June 2016. Available at: https://www.who.int/mediacentre/ factsheets/fs311/en/.

[10] The United Nations Educational, Scientific and Cultural Organization (UNESCO), 2015. Institute for Statistics and the Education for All Global Monitoring Report, 2015. A growing number of children and adolescents are out of school as aid fails to meet the mark. Policy Paper 22 / Fact Sheet 31, July. Availalble at: https://www.uis.unesco.org/ Library/Documents/fs31-out-of-school-children-and-adolescents-en.pdf

[11] UNESCO, 2014. Teaching and Learning: Achieving quality for all. 2013/4 Education for All Global Monitoring Report. Available at: https://unesdoc.unesco.org/images/0022/002256/225654e.pdf.

[12] Organisation for Economic Co-operation and Development (OECD), 2014. Focus on Inequality and Growth: Does income inequality hurt economic growth?. Available at: https://www.oecd.org/social/Focus-Inequality-andGrowth-2014.pdf.

[13] Oxfam, 2016. An Economy for the 1%: How privilege and power in the economy drive extreme inequality and how this can be stopped. 210 Oxfam Briefing Paper, 16 January. Available at: https://www.oxfam.org/sites/www.oxfam. org/files/file_attachments/bp210-economy-one-percent-tax-havens-180116-en_0.pdf.

[14] AlphaBeta analysis for the Business and Sustainable Development Commission, based on data from:United Nations Environment Programme, 2010. The Economics of Ecosystems and Biodiversity (TEEB). Available at: https://www.teebweb.org/

[15] AlphaBeta analysis for the Business and Sustainable Development Commission, based on data from: Institute for Economics and Peace, 2015. Global Peace Index 2015. Available at: https://economicsandpeace.org/wp-content/ uploads/2015/06/Global-Peace-Index-Report-2015_0.pdf.

[16] International Monetary Fund (IMF), 2016.Corruption: Costs and Mitigating Strategies. IMF Staff Discussion Note, May. Available at: https://www.imf.org/external/pubs/ft/sdn/2016/sdn1605.pdf.