Impact – Corporates are undermining the SDGs by pretending in their reporting!
For the ESG research season 2022 we started to systematically assess the quality of the SDG communication of companies. This is outside the pure ESG risk research process and can be considered as an Impact control. We wanted to measure how serious their communication on SDG contribution is, what substance is there really? This was a result of the 2021 ESG research season that too often showed us how companies were misusing the SDGs to look good while not justifying with details how they were contributing to the 17 goals.
So far this year, with our new systematic approach, we get confirmations for most companies that their work in this area is rather shallow.
Should companies communicate on SDGs?
Why do companies use the SDGs in their communication at all? All the SDGs have targets and specific KPIs. There are 173 targets and 256 KPIs in total. Most companies seem not to be aware of this, were you? The targets and KPIs are made for nations. They can be used on national, regional, and global level and most of them are really targeting issues in developing countries.
The 3 main mistakes companies do in their SDG communication.
- They forget the UN Global Compact
The UN is clear on the point that the first thing to do for companies, is to conduct responsible business and starting by integrating UN Global Compact in their policies. We see a lot of companies jumping the integration of the principles of the UN Global compact, preferring to exhibit the colourful 17 squares in their sustainability reporting and on websites instead as it looks good.
- They base their «contribution» to the sole headline of the SDG
Many companies make a grossly contribution linkage based only on the simple description of the SDG, without looking at the underlying targets that are quite specific. They some kind of create their own SDG targets in reality.
- KPIs, what KPIs?
Very few companies are explicit on the KPIs related to their claimed contribution to the SDGs. We suspect many of them have never come so deep in their understanding of the SDGs. There are many very specific targets and many of them are not directly applicable to companies. We’re ok that companies can make a «translation» of the KPIs to the corporate world, but not all SDG targets and SDG KPIs can be «translated» this way without losing its point.
How should the companies communicate on SDGs, if at all?
They should start in the other end, are there any KPIs that are relevant to our impact on the world around us? If they make their own (ref «translation» here above), they must be justified so the link to the SDG KPIs is clear. If they have the KPI right, the target and the SDG rolls out by itself. Next is to explain what they do to contribute, how and why. The why is very important.
Why do companies contribute to SDGs?
Many companies talk through their communication on SDGs about their positive impact. But companies are obliged to maximise risk adjusted return for their owners, hence any action leading to a «claimed» SDG impact can come from mainly two places. Either the company is making money on a product or service that is leading to the claimed impact or the impact comes from the work to mitigate ESG risks. There is no altruism in this, the companies are not seeking SDG positive impact in itself.
Companies, be transparent and do not pretend
Companies should be transparent on where the claimed SDG contribution comes from (business profit idea or ESG risk mitigation) and rather present the SDG impact as a «side effect» if correctly justified.
Another thing is that all human activity, and hence corporate activity, also have some negative impact on surroundings. We would like that companies communicating on SDGs to also include what SDGs they impact negatively.
It is important to distinguish for companies what SDGs (incl targets and KPIs) they contribute to positively and also the SDGs they contribute to negatively (and hopefully how they work to reduce the negative impact). This total picture is extremely rare to see in our segment of the market.
What does the UN Global Compact say about this?
The UN Global Compact has published a guide that is quite clear of how this should be done correctly: Integrating the Sustainable Development Goals into Corporate Reporting: A Practical Guide (https://www.unglobalcompact.org/library/5628)
To sum it up with few words; understand the SDGs, identify relevant SDG targets and report on it (read identify a correct KPI).
Conclusion on SDGs in corporate communications
If you have not aligned policies to the UN Global Compact, drop all SDG communication. To communicate well on SDGs requires thorough preparation and if you cannot show it with a valid corporate «translated» KPI, drop it. If you communicate on the positive impacts, do not forget to communicate on the negative impacts too. Finally, be transparent about the reasons for your action leading to the claimed SDG impact.
Honestly, we question what consultants are advising the companies to do in this space and we would be interested in having a discussion on this topic.