Forbes – Think of the word “sustainability” and what springs to mind? For many, it means being “green,” and accepting the need for more careful use of increasingly limited natural resources. More specifically, it is a word synonymous with energy renewal and efficiency programs, harnessing the power of the sun, water and wind.
Advocates of these programs argue that they are ultimately good for the bottom line. Yet there are those – and there are many across the boardrooms of global business – who caution that sustainability can be a slippery slope, leading the corporation to make investments that may be good for society but detrimental to shareholders.
Let me offer another word to consider – “development.” Perhaps you would associate this with something that governments are responsible for – the economic and social development of their country through sensible domestic and foreign policies. Companies, of course, should be in compliance with whatever laws exist to implement these policies, but they are not directly responsible for development, right?
Which brings us to last month’s Sustainable Development Goals, ratified by all 193 countries in the United Nations with aims that include eliminating poverty and hunger, reducing inequality, addressing climate change, creating sustainable cities and communities and encouraging responsible consumption. You almost could hear the distant ring of alarm bells in the corporate community.
“Oh, no,” some C-suite executives and investors will be saying, “here’s the UN trying to make companies, in the worst case, do more than they are supposed to or, in the best case, interfering with their ability to create value for their shareholders.”
The brutal reality however is that governments alone cannot ensure the achievement of the Sustainable Development Goals, all of which have very concrete quantitative targets, without the support of the corporate community. In particular, I’m talking about the world’s largest 1,000 or so corporations, the biggest of which have more financial and human resources than some small and medium-sized countries. One way or the other, the countries in which these corporations are headquartered and do business, which will be all over the world, will be expected to contribute to the Sustainable Development Goals.
As Lise Kingo, Executive Director of the UN Global Compact explains: “Businesses today are expected to be part of the solution to our world’s greatest challenges – from climate and water crises, to inequality and poverty – as captured in the Sustainable Development Goals. For companies ready to take on the agenda, the SDGs provide a platform to show responsibility, pursue opportunity and innovation, and inspire other businesses to get on board.”
Indeed, the 2030 Agenda is very good news for the corporate community. Its goals represent clear business opportunities for those companies that understand sustainable change can be met through innovative products and services. Of course, each company must pick its shots. No company can meaningfully contribute to all 17 Sustainable Development Goals. Some of these goals are industry specific, such as good health and well being (the province of health care businesses), or clean water and sanitation (the province of companies producing technological solutions to address these needs). Other goals can be supported by every company regardless of its industry. Gender equality and reduced inequality are issues that are critical to every business. A more diversified work force opens up new markets and fosters innovation, after all.
There will be many short-term opportunities that company executives will be able to identify. But there is also the longer-term self-interest of the company as represented by its board of directors. A sustainable business community ultimately depends upon a sustainable society. It is the fiduciary duty of the board to recognize this and to ensure that its company is responding to the Sustainable Development Goals in a way that makes sense of its sector and strategy, therefore protecting both the short and long-term interests of the corporation.
Good business, in every respect.
Dr. Bob Eccles
I’m Chairman of Arabesque Partners and Professor of Management Practice at Harvard Business School. My research is focused on sustainability from both a company and investor perspective. I’m also involved in a variety of initiatives to embed environmental, social, and governance (ESG) issues in real world decision making. One of these is the Sustainability Accounting Standards Board (SASB), of which I was the Founding Chairman. Arabesque is the first ESG Quant fund manager, integrating ESG data with quantitative investment strategies to deliver returns.