The role of Sustainable Development Goals (SDGs) in the new generation of comprehensive corporate reporting
Written by Andrés Melendro, Sustainability Manager.
The private sector’s progressive adoption of the SDGs
Ever since Agenda 2030 was released in 2015, the UN Global Compact and more recently UNDP through its SDG Impact initiative have been eager to find ways to embed the SDGs in the DNA of the private sector’s sustainability disclosure. In fact, reaching such ambitious and transversal goals requires private commitment reflected by companies’ consistent actions to progress against the SDGs.
As a result, sustainability standard-setters, which aim at harmonizing the way companies disclose their impacts -positive or negative- on people, the planet and prosperity have naturally taken up the challenge of including the “SDG language” in their requirements.
Tearing down the Berlin wall between financial and sustainability reporting
In parallel, as sustainability gains recognition as a key set of variables directly impacting market risk and business valuation, financial standard-setters like the IFRS Foundation have also been trying to connect the dots by integrating sustainability into their reports.
These two major evolutions of corporate reporting are highly visible in the recent “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting” written by the main sustainability standard-setters and framework creators (CDP, CDSB, GRI, IIRC and SASB). This declaration is a major landmark in the 30-year long history of sustainability reporting. As corporate (financial and sustainability) standard-setters reinvent their frameworks to make them compatible or even to unify them and put an end to the “alphabet soup of metrics”, referring to the multiplicity of standards and the complexity of navigating them all. ALLCOT strongly supports this initiative and argues that this is the right timing to fully articulate corporate reporting with the SDGs.
Comprehensive corporate reporting should erase the conceptual wall lying between sustainability and financial reporting, but also make sure transparent disclosure of present impacts is complemented by ambitious goal-setting.
The rationale for embedding the SDGs in comprehensive reporting
Sustainability disclosure standards are meant to gather precise, consistent and comparable company-reported information which shareholders and stakeholders, such as clients, potential employees or investors can use to make decisions about the company.
In the current trend towards ESG (environment, society and governance) standards and metrics consolidation, it can seem paradoxical to advocate for the inclusion of an additional framework, the SDGs. In fact, the SDGs are not completely equivalent to other sustainability or ESG frameworks. First, besides metrics SDGs are a call to action, to track progress toward common and absolute goals, beyond just making public information about current performance. Second, the SDGs enable companies to better account for their dependency on people and planet by focusing on external stakeholders. That dependency must also be linked to financial information.
From market-based to planet-based benchmarks
Sustainability ratings systems and rankings, such as the CDP, classify companies by comparing them to their peers. These benchmarks are useful, yet they lack an absolute view of what must be achieved to achieve sustainable development. In the SDG logic, ambition must be absolute rather than relative to current company and industry performance. Initiatives such as Science-based targets and Future-fit business are aligned with the view that systemic conditions should define the thresholds within which society and business must operate to maintain a planetary balance.
ALLCOT’s SDG services aim at shifting business practice from just quoting a general qualitative alignment with SDGs or using the SDGs to report current activities differently, by translating sustainability information to the “SDG language”, towards using them to set ambitious goals. This way sustainability can be embedded into decision making, as advocated by the SDG Impact Standards and certified by their SDG Impact Seal. The time has come for the new generation of comprehensive corporate reporting that recognizes that no enterprise can create value in the 21st century if it ignores the wellbeing of the social and natural systems upon which it relies.