Current approaches taken by the private sector to sustainability are insufficient; they are atomistic, don’t address the root causes and do not take a holistic systems approach. They are failing people and planet as well as business and investment objectives, fuelling scepticism and concerns about impact washing.
Our future depends on the health of the ecosystem in which we all live, work, produce and sell. But we are not on a sustainable path, and we are a long way from achieving the UN Sustainable Development Goals (SDGs).
The situation is worsening. The triple threats of climate change, a global pandemic and continuing conflicts around the world have ravished government balance sheets, diverted aid budgets, and put pressure on our global food, energy, and financial systems. Recent events have shown us just how interconnected economic, social and environmental outcomes are becoming as we approach the boundaries of our planetary and social systems. The crises we face today are impacting those that can least afford it, sending into reverse the sustainable development gains of recent decades. In the words of the IPCC in their latest report on climate change, “risks are now cascading, compounding and aggregating and responses need to be equal in measure”.
We currently measure the wrong things for the wrong reasons, the approach to sustainability is not complete or comprehensive. Financial institutions primarily look at impact the world has on them rather than the impact they have on the world. The private sector has long held the focus on reporting and aligning current activities to the SDGs in a superficial way to report to investors and access financing rather than managing for impact and making decisions that create better outcomes for people and the planet in the future. We need to change course; we need a fundamental and transformational shift on how business gets done, with purpose and impact at its core.
We need to move beyond the current compliance mindset and solely collecting ESG metrics to satisfy external reporting requirements. Instead, we need to work towards intentionality to integrate sustainability, the SDGs and management of impact into internal business and investment decision-making so that sustainability becomes part of our DNA – based on which we report our approach, goals and progress to external stakeholders.
The private sector has a vested interest and a pivotal role to play in creating a more sustainable future and achieving the SDGs by bringing their capacity, creativity and innovation to developing new business models and investment solutions. In fact, many organizations have already made sustainability pledges but are grappling with how to translate their positive intentions and commitments into decisions, actions, and results.
This strong management practice is the missing piece to successful sustainable investing.
How the SDG Impact Standards and the SDG Impact Standards Assurance Framework can help
The SDG Impact Standards have been designed to address these root causes. They are independent, global management standards, guiding the private sector to make decisions that optimize interrelated economic, social, and environmental impacts. As an overarching internal decision-making framework, it can help make sense of existing sustainability principles, frameworks and tools, as well as fill gaps which are undermining progress towards sustainability and achievement of the SDGs. Having this shared language and approach across the whole economic system, the SDG Impact Standards can connect actors making it easier to innovate and solve persistent problems together.
The SDG Impact Standards are based on four key pillars:
The first pillar is strategy. Embedding sustainability and the SDGs in purpose and strategy is important because it drives attention, focus and resources to what matters most and where the organization can have the most significant impact on important outcomes – including by reducing negative outcomes.
The second is management approach. Integrating responsible business practices and managing for impact into organizational systems and decision-making helps organizations generate multiple pathways enabling them to make more informed choices between those options to optimize their contribution towards sustainability and achievement of the SDGs. Operating with responsibility and sustainably at the core should not be an add on to what business gets done, it’s how all business is done.
The third pillar is transparency. Being transparent is an important element of being accountable to Stakeholders – all interested parties including those affected or potentially affected in the future by the organization’s decisions and activities. It also helps Stakeholders make more informed decisions, for instance about whether they want to work with or for the organization, invest in or lend to the organization, or buy or use the organization’s products and services.
The final pillar is governance. Governance is an essential element of embedding responsible business and managing for impact practices into organizational decision-making. The organization’s informal and formal governance mechanisms define expectations of behaviour, how decisions are made and how the organization holds itself accountable for its decisions and actions in accordance with its values, principles and policies.
To help drive adoption and understanding of the SDG Impact Standards, education and training courses are available. Further, the forthcoming SDG Impact Standards Assurance Framework will enable organizations to get an independent assessment of their progress towards implementing the SDG Impact Standards. Those who meet the minimum evidence requirements will be eligible to apply for the SDG Impact Seal which sets the gold standard for impact management practice, strengthening market credibility and trust in the sustainability claims made by organizations.
Implementing the SDG Impact Standards is good for people, planet, business and investment. They recognize that increasingly, how organizations impact the world around them will determine how the world in turn, impacts them. That placing sustainability, the SDGs and managing for impact at the heart of organizational purpose and management decision making not only has potential to deliver positive outcomes for people and planet, but the business and investment portfolio resilience, sustainability and profitability needed to continue to deliver value, for shareholders, investors and society, for the long-term as well.
The SDG Impact Standards sit nicely beside SDG Financial Products, developed by the Global Ethical Finance Initiative (GEFI), showcasing financial products that incorporate the SDG framework.
Fabienne Michaux is the Director of SDG Impact, a global initiative of the UNDP and part of UNDP’s Sustainable Finance Hub, joining in 2019. Fabienne is the lead developer of the SDG Impact Standards, the first and only independent management standards in the market that places sustainability, the SDGs and managing for impact at the core of operations. She is the co-chair of the Australian Advisory Board on Impact Investing and recently participated as a Working Group Member of the G7 Impact Taskforce and co-chaired the Australian Sustainable Finance Initiative’s working group on making better decisions. She previously enjoyed a 30-year executive career, including 22 years with S&P Global where in her final role she was the Australian Country Head and Head of Developed Markets Asia-Pacific in the credit ratings division. She is also an experienced non-executive director who holds, and has held, numerous board positions in the housing, education, financial and arts sectors.
SDG Financial Products was launched at COP26 by GEFI and showcases commercial financial products that are aligned to the SDG in order to share learnings and grow the ecosystem of SDG aligned financial products across asset classes.
The SDG Impact Standards provide guidance on developing an appropriate strategy, management approach, transparency and governance to assist businesses and investors in contributing positively to sustainable development and achieving the SDGs. The Impact Standards also provide a decision-making framework to make sense of existing relevant principles, frameworks and tools.
