The United Nations’ Sustainable Development Goals (SDGs) are arguably the most widely-recognised sustainability targets ever conceived.
Born off the back of the historic Paris climate accord in 2015, the SDGs were introduced as a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. The 17 hopeful targets range from ending poverty and inequality to protecting life on land and below water by the end of this decade.
Nowhere has embraced SDGs with the same relish as Japan has. Across Tokyo, the roulette wheel-like SDG logo can be found everywhere, as a pin on the suits of salarymen or a decorative motif used for children’s playgrounds. But as Kim Schumacher, associate professor at Kyushu Univeristy, pointed out on a recent Eco-Business Podcast, the SDG goals are often used as a virtue-signalling badge that belies genuine effort to address societal problems.
In a recent panel discussion on how Asia’s finance sector can avoid making grandiose sustainability claims, an executive at a large asset management firm contended that the most obvious and common form of greenwashing is “SDG-washing”.
This a concern for Fabienne Michaux, director of SDG Impact, the United Nations Development Programme’s (UNDP) initiative for mobilising private sector capital towards achieving the SDGs.
“We are in a phase now where we have achieved high adoption of the SDGs, but we need to start putting more rigour into making sure that it means something when companies say they are aligned with the SDGs,” Michaux told Eco-Business in a virtual interview from her home in Melbourne.
Progress towards achieving the Goals has been patchy to date – half the Goals are moderately or severely off track, with global hunger, inequality and carbon emissions still rising eight years after the SDGs launched. The United Nations Conference on Trade and Development projects that an additional US$2.5 trillion will be needed each year to achieve the Goals.
To help companies drive genuine impact around the SDGs, the UNDP launched the SDG Impact Standards in 2020, starting with a standard for private equity funds and later with iterations for bonds and enterprises, to guide businesses and investors on how to integrate sustainability into their decision-making.
Michaux’s team are working on an accreditation system for rating how well aligned bonds, private equity fund managers and enterprises are with the SDGs. This will mean that entities will be able to use an SDG Impact seal to make sustainability claims.
We need to put more rigour into making sure that it means something when companies say they are aligned with the SDGs.
Fabienne Michaux, director, SDG Impact, United Nations Development Programme
Michaux is keen to point out that the SDG Impact Standards are not just another disclosure framework for companies to grapple with. The key difference is that the SDG Impact Standards are not focused on disclosure. They are a management tool for helping firms identify where there are sustainable development gaps they can work on solving.
Where disclosure frameworks fall short is in their ability to drive real change, and not be a box-ticking exercise for companies that now need to report their environmental and social impacts to regulators. “The problem with disclosure frameworks is that they don’t actually require companies to change their decision-making,” Michaux said.
While there’s nothing wrong with completing an environmental, social and governance (ESG) report and using it as a financial risk management tool, “dont confuse it with sustainability,” said Michaux.
“There’s still a huge amount of confusion with companies who say: ‘I’m doing my ESG reporting therefore I’m contributing to the SDGs,’” she said.
In this interview, Michaux talks about the need for businesses to integrate sustainability into business strategy, SDG-washing and why Asia Pacific has gone backwards in its progress towards achieving the SDGs.
In a recent conversation with Kim Schumacher, an academic who studies greenwashing, he said that SDG-washing is the most common form of greenwashing he’s observed, particularly in Japan. In what ways have you observed businesses in Asia Pacific SDG-wash?
A lot of SDG-washing is intended, but some of it is simply a result of ignorance. There is capacity-building that needs to be done to develop the skills needed to reduce inadvertent impact-washing and SDG-washing.
There are two elements that really stand out with SDG-washing. The first is, if a company has anything to do with, say, gender or education, they’ll put up a pretty coloured [SDG] tile [on their company website] to signal they are doing something in that area. But the SDGs are really about targeting where the [environmental or social] gaps are biggest and where we need to move performance above the thresholds set by the SDG targets. So while signalling alignment with the SDGs is not a bad thing, we really need companies to be delivering products or services that are genuinely helping to solve the SDGs and address inequality in various forms.
The second element is around the essence of the SDGs – which is that they are indivisible and interconnected; you can’t pick one and not think about the others. Companies tend to pick a few positive intended outcomes, and talk about those. But we don’t always know if they are the most important impacts that an organisation can have, or if these impacts might have negative outcomes for other stakeholders.
The SDGs only came into being in 2015. But they are now pervasive and almost universally recognised. That’s quite a feat, because that certainly wasn’t the case with the Millennium Development Goals [eight goals that UN member states agreed to try to achieve by the year 2015, set in 2000]. We are in a phase now where we have achieved high adoption of the SDGs, but we need to start putting more rigour into making sure that it means something when companies say they are aligned with them.
What has driven such broad uptake of the SDGs?
The SDGs launched at a time when there was growing awareness of the importance of sustainability, and at a time when they were needed. Also, there is an attraction to the simplicity of the Goals that companies have got hooked into; they are accessible and easy to understand. The challenge is, we’ve got to get companies to look below the 17 Goals and on to the 169 targets that sit below those pretty tiles.
Asia Pacific has mostly gone backwards in its progress towards achieving the SDGs. To what extent do you think this is because businesses haven’t galvanised sufficient capital towards addressing sustainability challenges?
There are so many contributing factors. Obviously, the economic fallout from the Covid-19 pandemic has led to a prioritisation of capital from development and forward-looking issues to crisis management and dealing with issues in a much shorter timeframe. Anytime there are concerns about risk and volatility, we see exits of capital from the places we need it most – that’s an ongoing challenge.
I do not believe that markets, left to their own devices, are going to save the world.
Another challenge is that we’ve come out of a period of historically low interest rates, and developing markets have been faced with a combination of Covid-19 and the war in Ukraine driving the cost of living up – it’s a really negative cocktail which has left many developing markets in debt distress. The worst thing that can happen is that we allow these countries to go into default. That could have a knock-on effect on the financial system failures and rising economic costs would hurt the most vulnerable people.
Aren’t the SDG Impact Standards yet another voluntary sustainability reporting framework for companies to navigate? We hear companies complaining of reporting fatigue. What’s the difference between your standard and the numerous others that companies have to use?
The biggest difference is we are not focused on disclosure at all. We look at disclosure more from the perspective of it informing stakeholders and as an accountability mechanism, rather than focus on disclosure per se. We are much more focused on internal management practices: how do organisations embed sustainability into their operations and make a positive contribution to the SDGs by identifying where there are sustainable development gaps?
The SDG Impact Standards are a resource to help organisations identify the issues that are important to them and think about how this will change their decision-making. They also give company the confidence that they are embedding sustainability in a holistic and systematic way – because increasingly companies are gun-shy in putting their heads above the parapet because they are worried they’ll be accused of impact-washing [a term known as green-hushing].
The problem with disclosure frameworks is that they don’t actually require companies to change their decision-making. They might lead to behaviour change indirectly, because organisations want to use their disclosures to look more attractive relative to their peers in the market. But these changes are not motivated by actually trying to embed sustainability into their business and create value and manage risk differently.
And importantly, these frameworks do not challenge how organisations manage the trade-off of their decisions. That’s often where organisations will come unstuck when things go wrong – because they either haven’t identified these trade-offs, or they haven’t managed them well.
But ultimately, whether the SDG Impact standards end up being the go-to sustainability standards that everyone uses, or whether other frameworks adopt what’s in the standards, we don’t really care – so long as we achieve the SDGs.
We hear so many brands questionably tell us that ‘sustainability is in our DNA’. What are the biggest challenges that the businesses you talk to say they’re facing in integrating sustainability properly into their practices and operations?
Embedding sustainability is a major mindset shift and behaviour change exercise. We’ve reorganised the SDG Impact Standards around sets of business actions to take. The first one, for me, is actually step zero – which is, have you actually mentally made the mental shift that recognises that sustainability needs to be at the centre of how you make decisions?
The biggest shift is moving from thinking about sustainability as an add-on, to thinking about it as the filter through which all decisions, business and investment gets done. A lot of organisations are a long way from that.
Businesses have been operating with a mindset that resources are limitless. But all of a sudden the paradigm has shifted, and we’re hitting against environmental and societal barriers and have started to recognised that we need to start factoring in resource scarcity into decision-making.
A lot of organisations have been thinking about ESG data from the perspective of collecting lots of data and reporting it to the outside world rather than using it internally. They are very focused on the mechanics of measuring and reporting. They are not so focused on embedding sustainability into strategy.
There’s a need for leadership to really embed sustainability into strategy and governance. We are at a stage where there’s raised awareness [of sustainability], but business behaviour show us that short-term financial performance still reigns supreme.
Do we need more mandatory sustainability disclosure? Is that the answer to force companies to make the changes we need to see?
Moving to mandatory frameworks is a positive, because you need the carrot and the stick. I’m a big supporter of good regulation. I do not believe that markets, left to their own devices, are going to save the world.
But firstly, I think that better management should come earlier than reporting – reporting should be a reflection of the decisions that management has made. Market regulators have, for decades now, focused on reporting and transparency as the mechanism to regulate market behaviour. But that’s a roundabout way of doing it.
A much more positive approach is to say, we want to see behaviour change from a management perspective, and a recognition that sustainability is important to the business. That really drives behaviour forward, otherwise businesses get stuck in a compliance mentality.
The reality is, voluntary frameworks will only take you so far. You’ll get the champions, but the laggards have to be mopped up at some stage with regulation.
At the moment, we are at risk of thinking that the regulation of external reporting is the answer. And I think it is part of the answer. But we can’t take our foot off the pedal off the other parts of the system that we’re going to need to drive the outcomes we want to see.
Have you had any pushback from businesses that have struggled to use your standards?
Anytime change is suggested, there is always push-back. The standards are voluntary and aspirational – so they are really for organisations that want to go on this journey. If you don’t want to go on the journey, there’s probably no point starting.
We are working towards piloting an assurance framework and a seal. A lot of organisations are interested in the seal for marketing purposes and not necessarily interested in the journey they have to go through to earn the seal. But other organisations genuinely want to improve their practices, and use the self assessment tool to help them identify where the gaps are they need to work on.
What more can be done to push businesses in Asia Pacific to embrace sustainability?
A of change will come through regulation, for instance the European Union’s carbon border trade rules. It’s becoming a critical issue. If companies do not improve their commitment to sustainability, they will be negatively impacted by being locked out of supply chains. But increasingly, there are opportunities for businesses to participate in innovation and solutions, and see sustainability from the value creation angle – there’s enormous potential in Asia in that regard.
Do you think there’s any hope of us achieving any of the SDGs? And what will come after the 2030 deadline for the SDGs has passed? What then?
Obviously, we’re going to continue to have sustainable development needs [after 2030] and not all of the goals are going to be met. But I would hope that, because the SGD framework has been so successful in terms of adoption, we maintain that framework as much as possible [after 2030] – that it is extended and refined, not thrown out for another framework.
We need sustainability to be embedded into corporate decision making irrespective of which iteration of the SDGs we’re in. We need to recognise that we can’t just focus on the US$4 trillion in capital we need each year to achieve the SDGs, if the other US$145 trillion in the system is wreaking havoc on the environment or society. We need all capital to operate sustainably, and some of it to be put to work to drive the solutions that we need the most.
This interview has been edited for clarity and brevity
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