Just 40% of global companies reporting on UN Sustainable Development Goals

04 April 2018 Consultancy.uk

As the world attempts to adapt a seemingly contradictory growth-based economy to sustainability measures, aligning business practice with the UN’s Sustainable Development Goals remains a thorny issue for those in direct violation of the outcomes, while businesses in general continue to underreport their efforts. According to a new report, just 40% of the world’s businesses are reporting according to the goals, with the UK higher than average at 60%, and the US well below that at 31%.

The US’ decision to pull out of the Paris Agreement spurred global reinvestment in highly polluting forms of energy, which, given the likely long-term outcome of such investments, and the continued support of the accord from all other signatories, place shareholders at risk in multiple senses. Meanwhile, wider concerns across value chains, from labour violations to corruption, continue to drive efforts to improve supply chain transparency.

One effort to transform the footprint of companies is the UN’s Sustainable Development Goals (SDGs). These goals are often interdependent, and target, among others, the reduction of various negative social and environmental outcomes, including the impact of business practices – particularly externalities that are cost posts – as well as spurring businesses to support regional efforts that create mutual benefits; or through philanthropy and high impact projects.

Performance by region

A new report from KPMG aims to uncover in how far companies are reporting on their business’ alignment with the SDGs. Companies have an interest in such efforts as part of their wider corporate responsibility efforts. The report is based on data from reporting by the top 250 global companies.

When it comes to reporting on SDGs the survey found that European companies in the top 250 globally are considerably more likely to have the SDGs as part of their wider corporate reporting. Globally the average is 40%, while in Germany, 83% of companies report on SDGs, compared to 63% in France. US-based multinationals are the least likely to report among the top five, at 31% of those surveyed. The UK saw its results place it firmly in the mid-range of SDG reporters, at 60%.

The groups least likely to report on SDG are also those that have sometimes disproportionate effect on a particular goal. Oil & gas companies are the least likely industry sector to report, at 28%, followed by the industrial sector, manufacturing & metals, at 30%. Financial services firms, which tend to have large investment or financial interests in the former two industries, come in third to last at 37% of respondents. Utilities and automotive are the top of the rung, at 58% apiece.

SDG report card

However, the research also sought to identify how companies are performing when it comes to their reporting – when they do report. The analysis ranks three indicators each in three categories between D and A on their respective overall performance*.

In terms of understanding the SDGs, companies tend to underperform with a D ranking, in making a business case (where there is one) for SDG actions. Discussing the SDGs in leadership messages from CEO/Chair’s message was ranked a C, and is considered relatively low-hanging fruit in terms of improvement effort required. Companies collectively were ranked A- in terms of assessing the business’s impacts on the SDGs, largely because only positive outcomes are reported, while areas of negative impact garner less (or even no) mention in the report.

In terms of prioritising the SDG, companies are effectively prioritising the SDGs most relevant to their respective business, allowing for stronger responses to higher impact areas. The firm notes that, given the 17 total goals, specific focus on areas where the business makes the most impact is more effective. Few companies however, say how they are prioritising the SDGs that they do support, with a B score noted as leaving room for improvement. Few companies are going above and beyond the call of the targets – with considerable opportunity to create positive social and environmental outcomes above the current SDGs.

Which SDs are most and least prioritised by the G250

Companies are increasingly focused on key areas – which tend to have global impacts – such as climate action, reported by 64% of respondents, and decent work and economic growth, reported by 59% of respondents. Other issues with relatively high profiles include good health and wellbeing, at 55%, responsible consumption and production, at 54%, and gender equality, at 52%.

Improvement to global energy infrastructure focused on sustainability was noted as important by 48% of respondents, in line with industry, innovation and infrastructure development. Sustainable cities and communities was reported on by 46% of respondents.

* A: performed by >70% of companies; B: performed by more than >50% of companies; C: performed by >30% of companies; and D: performed by <30% of companies.

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.