Not having clear objectives in life is one of the best ways to make sure you are not going really far. In the corporate world, focusing on a few financial targets (net profit, gross margin, return on equity) is allowing to rely on significant references and literature that are helping in defining the objectives you may want to achieve.
Taking a holistic approach to manage your company and understand as well your social and environmental objectives to be reached is a more difficult task. How do companies are defining such objectives?
Sustainable Development Goals (SDG’s) are representing a significant framework of reference that can be used in this case. The 17 goals have been fixed by the United Nations in 2015 and are referring to the most pressing social and environmental needs of the world. Each goal has specific targets to be achieved over the coming 15 years.
Such goals are representing as well a significant business opportunity. According to the WEF business could unlock 12 trillion USD in market opportunities by 2030 by reaching the UN’s Sustainable Development Goals while creating 380 million jobs worldwide.
Among the 17 SDGs, number 8 “decent work and economic growth”, is possibly the one that resonates the most in corporate boardrooms and with shareholders as it aims to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”.
Quality growth is the most important requirement
The target of the SDG is to provide at least 7% yearly gross domestic growth in the least developed countries. Thus, it is legitimizing the companies to invest and thrive in such countries through investments that are attractive for shareholders.
However, SDG 8 requires “quality growth”, in this sense growth is meant to improve performance but not to the detriment of the people or the environment. The objective is to decouple growth from the environmental and social degradation. For example, Unilever in 2010 declared the willingness to double revenues by 2020 while halving its impact.
The limits of the current financial models
Contributing to the SDG would be allowing companies to grow while effectively integrating the sustainability perspective into their operational model. According to a recent study, approximately 80% of the market value of companies is represented by intangibles elements such as human and natural capital or reputation.
EVOLUTION OVER TIME OF IMPORTANCE OF INTANGIBLE ASSETS IN MARKET VALUE
With the current reporting framework and business models, the ability of companies to identify and monitor their different intangible capital is significantly restricted. This is significantly limiting the ability of companies to understand and manage the different value drivers that are determining their market values.
The growth required by SDG 8 has a “triple bottom line” perspective, where the social and environmental elements are considered together with the financial implications. The social and environmental capital are representing a relevant part of the mentioned intangible assets. Thus, the approach would enhance the ability of companies in managing their market value.
The way forward
To harvest such opportunity, the objective is a vision in which the social and environmental considerations are fully integrated into the operating business model of the companies. Where the social and environmental implications are considered and monitored together with the financial and economic perspective. Because what gets measured gets managed.
What about the other SDG’s?
Opening up the discussion to the 17 SDG’s, the question for the companies is to understand to which of them they could positively contribute. The 17 goals are significantly different and for each of them, different competencies are required. Interested in seeing inspirational stories on how companies were actively engaged in reaching the SDG’s? Check out the following database:
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Michele Soavi is an independent consultant supporting companies in creating value and innovating from a financial, social and environmental perspective by leveraging on the analysis of their business model, financial information and data.