SDG focus is maturing, but can we keep the momentum in a more volatile world?

This year’s World Economic Forum has, inevitably, been dominated by geopolitical challenges, leaving little space for ESG-based conversations. However, closer examination shows the two are not mutually exclusive: addressing the world’s problems could actually help accelerate innovation and change, provided we keep our focus.

Alongside the emergencies, we are going to see a lot of movement. The changing climate is forcing change on everyone. The regulatory landscape is developing rapidly: the EU’s Corporate Sustainability Reporting Directive is already in force, impacting all major global businesses, and other similar regulations are following. And 2024 is the year of elections, with billions of people set to vote this year.

We cannot predict the outcome of the elections but we do know there has been a trend of political polarisation, which may well continue. And this polarisation impacts perceptions of ESG and corporate sustainability.

It is safe to say one known known is that the world’s political landscape could well look very different by the end of the year. What impact will it have on environmental, social and governance work? What can businesses do to keep their momentum, potentially in the face of political opposition to the concepts of multinationalism and a global market economy?

We hosted a panel discussion in the SDG Tent in Davos this week discussing these challenges. Our speakers brought a rich variety of experience and expertise from different geographies and industries. The combination of agriculture, energy, finance and healthcare meant we had representation from some of most regulated industries that are most impacted by the sustainability agenda:

• Arne Cartridge – Special Adviser, Yara International
• Dr. Thomas Hohne-Sparborth – Head of Sustainability Research, Holistiq
• Sahil Tesfu – Chief Strategy Officer, Essity
• Natalya Yemchenko – Director of Public Relations and Communications, SCM and Board Member of Rinat Akhmetov Foundation

ESG trends

I set the context by looking at some of our recent ESG studies, examining companies’ performance. What is very clear is that the regulatory landscape is in sharp focus, although the SDGs are not always used as a reference point.

Ten years of research shows the evolution of corporate engagement with the concept of ESG and with the SDGs. The overall trend is one of growing maturity.

In 2023, we researched Switzerland’s largest companies, growing businesses in the UK and EU-level trade associations and NGOs. We found some clear trends:

• For most companies, ESG reporting is maturing
• However, integration with global frameworks is lagging
• The more controversial the industry sector, the more mature the ESG reporting, suggesting ESG is being used a risk management tool
• Across the board, culture and partnership were consistently the lowest scoring activities. There is still some way to go before ESG is fully inculcated into everything businesses do.

Importance of resilience

Natalya Yemchenko set the scene from the perspective of full-scale war: SCM is Ukraine’s largest private business and its operations have been heavily impacted by the Russian invasion. She talked about the journey from resilience to recovery, applying SDG principles in extreme volatility.

SCM and its businesses are definitely an example how corporate resilience can drive positive action in the worst times. Natalya also stressed the importance of strong corporate governance in providing the platform for managing and navigating the crisis. Importantly, this consistently robust governance also sets the tone for the recovery, when peace eventually breaks out, which will be firmly based on EU integration.

Strong systems and knowledge also support a focus on people, which during the war time is paramount. However, the environment remains a business focus. For example, the SCM Group’s energy business, DTEK, has recently invested in building a new wind power plant in southern Ukraine.

ESG reporting important but business strategy crucial

Everyone on the panel agreed that ESG reporting is not an end in itself and that comparisons within the boundaries of current industries may become irrelevant. There is also a risk that ESG reporting becomes a beauty contest, with companies showcasing their sustainability credentials but without any real depth.

Reporting and rankings can also dilute the essence of what is really important: the long-term SDG discussion should be about company purpose and the required changes at the core of the business.

Sahil Tesfu discussed the importance of prioritising areas in which a company wants to lead, drive its industry or simply comply. This is a more honest approach because it is impossible to prioritise everything. She also stressed the importance of examining each product category as even small innovations can deliver tremendous long-term impact. This calls for a balance between a purpose and pragmatism.

Thomas Hohne-Sparborth pointed out the importance of looking beyond just reporting. Investments and a company’s long-term value are not dependent on their current ESG scores. Instead, what matters most is re-thinking business models to ensure a focus on E,S and G principles, and creating demand for sustainability-driven products and services.

Arne Cartridge argued that the issues need to be examined from a wider perspective. The big global forums – WEF, the environment COPs and G-20 meetings – are the best places to host these conversations. However, the impact will be defined by how well intentions are operationalised by the businesses.

The importance of ESG reporting is that it both reflects what companies are doing and creates some pressure for them to continue along the ESG path. It helps businesses remain honest as they embed the necessary changes into their business model and their culture.

Sahil went a step further by pointing out that the real impact of the discussion will depend on the representation of different social and stakeholder groups.

We can accelerate, be fast and yet still be far too slow

“We can accelerate, be fast and yet still be far too slow”. This was how Thomas summed up the spirit of the discussion. However, volatility and crisis create a laboratory for innovation. That innovation needs to move from interesting concept to scalable business models containing the resilience that can be developed by the integration of Environment, Social and Governance principles, using the SDG framework, into business models and business operations.

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