Aligning to the SDGs does not have to mean colossal change. Firms must recognize that the SDGs provide a framework for communicating progress in a globally-recognized language.
Today, the online language learning platform Duolingo has over half a million active learners of Esperanto. That may seem like a lot for a language invented over 130 years ago, with no country to call home. While Esperanto did not become a universal tongue to promote peace and understanding across cultures as its founder envisioned, there is something to be said for creating a shared language to unite people and places around a world vision.
This is exactly what the Sustainable Development Goals (SDGs) have done. As an ambitious set of 17 objectives that outline a path to achieving a more prosperous and sustainable world by 2030, the SDGs have galvanized cross-cultural understanding of a different sort by helping the public, private, and philanthropic sectors speak the same language around social and environmental impact. This common comprehension is critical, as meeting the SDGs calls for an acceleration of collective efforts across sectors.
Why the SDGs matter for the private sector
The private sector has a pivotal role to play in reaching the SDGs. It can help fill the estimated US$2.5 trillion annual SDG funding gap in developing countries, and apply its know-how, entrepreneurial spirit, and technological capacity to develop new solutions for societal challenges.
At the same time, achieving the SDGs is good for business. Estimates show that reaching the SDGs could open up US$12 trillion in new market opportunities in just four areas (agriculture, cities, energy, and health). Also, reaching the gender equality goal‒a particular challenge in Latin America and the Caribbean (LAC)‒could add between US$12-28 trillion annually to global GDP by 2025.
Aligning with the SDGs can give firms a competitive edge when it comes to attracting capital. There has been a significant shift in the investment world, with increasing value being placed on social impact alongside financial returns. This is not limited to the rise in impact investing, which reached an estimated US$228 billion in 2017, with US$36 billion going to LAC. Institutional asset managers, sovereign wealth funds, and private equity firms are increasingly thinking about impact and are offering new investment products accordingly. In fact, according to McKinsey, over 25% of assets under management globally are being invested with environmental, social, and governance considerations in mind.
Firms can also leverage the SDGs to attract and retain talent and customers. Millennials, who will make up roughly 75% of the global workforce by 2025, want to work for employers who are socially engaged and provide them with a sense of purpose. Similarly, customers are increasingly drawn to brands that are environmentally and socially conscious and are willing to pay a premium for it. And, incorporating environmental and social best practices into operations can help firms build consensus in the communities where they operate, helping to mitigate reputational risk.
The SDGs: a roadmap for impact measurement
Aligning to the SDGs does not have to mean colossal change. In fact, many firms engage with the SDGs every day, whether they realize it or not. For example, efforts to improve resource efficiency, adopt new technologies, build sustainable infrastructure, or increase access to finance for small businesses, can all contribute to the goals in different ways.
Yet, in order to capture the value from reporting on these SDG-aligned efforts, firms must recognize that the SDGs provide a framework for communicating progress in a globally-recognized language and are not a substitute for rigorous impact reporting. Firms should adopt methodologies for measuring impact, including metrics and key performance indicators (KPIs) which are relevant to their operations and business strategies, and then link these to specific SDG targets.
This is no easy task: a study of over 700 of the world’s most influential companies found that while 72% included the SDGs in their sustainability reporting, only 23% tracked relevant KPIs. Smaller firms with fewer resources and less experience with institutional reporting have even more hurdles to overcome when it comes to reaping the rewards of impact reporting.
For its part, IDB Invest has integrated the SDGs into its Impact Management Framework, helping clients and co-investors align and measure their contributions to these global goals. For example, IDB Invest is working with Blue like an Orange Sustainable Capital to assess and measure the impact of investments made through their new SDG-focused fund for LAC.
With a shifting social, political, and economic landscape in which financial returns are no longer the only benchmark of success, reporting on the SDGs alongside traditional measures of impact offers businesses and investors an opportunity to join a global conversation that a broader audience of stakeholders is increasingly tuning in to, maybe even Esperanto-speakers.
By Samantha Todd.
This is a guest article published with permission from IDB Invest.