Multinationals and the UN's Sustainable Development Goals: what do first steps reveal? Wednesday, 27 June 2018
Which of the Sustainable Development Goals (SDG’s) of the United Nations do the world’s largest companies engage with? And why do they focus on these particular SDG’s? Dr. Rob van Tulder and PhD candidate Jan Anton van Zanten of Rotterdam School of Management, Erasmus University (RSM) studied these questions in a newly published scientific paper in the Journal of International Business Policy.
They find that multinational companies engage more with SDG targets that are actionable within their operations rather than those outside of it. They also aim to “avoid harm” rather than “do good”. To take their contributions to the SDG’s to the next level, and increasingly move towards achieving SDG’s that intend to “do good”, additional efforts have to be made, they argue in the article below, which was published by Columbia University in the City of New York’s Center on Sustainable Investment:
Lisa Sachs, Jeffrey Sachs and Nathan Lobel argued that companies “need to look beyond profits” because they are increasingly evaluated on their contributions to society. This argument primarily emphasizes ethical and reputational considerations for multinational enterprises’ (MNE's) involvement in sustainable development. In this view, MNE's should mitigate risks by minimizing “doing harm.” This argument can be complemented by looking at sustainability challenges as an opportunity for companies to “do good” and create positive change.
In other words, companies need to look beyond short-term profits. Identifying longer-term opportunities that can reap a sustainable profit is intimately related to diverse areas of sustainable development. Such development is defined as serving the present and future needs of the (growing) world population, rather than only serving the demands of existing (effective) markets. The challenge then becomes to redirect business models in a sustainable direction: from a basis of present profits to a source for future profits; from a narrow view of short-term shareholder value to a broader view of business serving the needs of people and the planet. The 2015 Sustainable Development Goals (SDG's) provide an excellent framework for developing business models founded on positive societal contributions.
The SDG's also provide the most coherent sustainable development framework to date. They break with the prior sustainable development discourse that particularly stressed the role of governments as donors. The UN agreed that companies’ efforts are critical in reaching the SDG's. The business logic is clear: achieving the SDG's can unlock US$ 12 trillion in business opportunities annually. Can a joint global agenda trigger the focused attention of MNE's, and are their initial responses aimed at risk mitigation or opportunity identification?
MNE's’ first steps are supportive. Many were actively involved in the design of the SDG's. In 2016, 87% of CEO's believed that the SDG's provide an opportunity to rethink approaches to sustainable value creation. International organizations like the Global Reporting Initiative and the Global Compact are developing tools to support companies to “materialize” this ambition, i.e., integrate it in their strategies.
In the authors’ study of the nature of frontrunner MNE's’ initial engagement with the SDG's, the targets supporting SDG 16 (peace, justice and institutions) received the highest scores, showing that companies acknowledge that they cannot do business in a failing society. But they mainly envisaged their contribution to this SDG through internal, governance-oriented policies. Indeed, most of the targets that MNE's actively engage with can be implemented throughout their (value- chain) operations, such as reducing pollution. More importantly, companies currently focus primarily on SDG sub-targets that “avoid harm.” For “doing good” targets, such as providing public goods like infrastructure, multi-stakeholder partnerships are critical, yet MNE's’ engagement is low. Amongst the MNE's studied, European MNE's engage with substantially more SDG targets, making them more supportive for the SDG's’ integrative ambitions. MNE's in industries with greater negative social and environmental externalities are more involved with SDG targets that help them avoid doing harm.
These patterns point to a relatively conservative use of the SDG's as a future-oriented agenda. The potential of the SDG's to move away from “avoiding harm” and use the SDG's to “do good” (and reap longer-term benefits) is not yet achieved. This does not imply that companies do not want to use the SDG's to align their business models with societal needs. It shows how difficult it is to unlock the transformational potential of the SDG's.
Three lessons can be drawn for policy makers:
- The SDG's that companies engage least with have high degrees of “public good” and “doing good” characteristics; the success of these SDG's thus depends on a more active stance of governments and requires additional (smarter) financial arrangements. The Addis Ababa Action Agenda is an example of shaping innovative development-financing solutions.
SDG's that require cross-sector partnerships tend to receive less attention, which jeopardizes the SDG's’ ultimate achievement; governments and civil-society organizations should enhance corporate involvement in the SDG's, for example, by inviting companies to partner for SDG's.
The relevance of the SDG's for future-oriented corporate strategies remains fragile though. It has to be considered whether MNE's’ relatively defensive use of the SDG agenda will hamper their effectiveness in achieving the SDG's’ transformational ambition. Devising policies for unlocking future business opportunities seems imperative.
The SDG's intend to “transform our world.” Selecting and partnering with companies that are most interested in “doing good” is most likely to achieve this.
Rob van Tulder & Jan Anton van Zanten, ‘MNEs and the Sustainable Development Goals: what do first steps reveal?’ Columbia FDI Perspectives, No. 227, June 4, 2018. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).
This article accompanies the article "Multinational enterprises and the Sustainable Development Goals: An institutional approach to corporate engagement", by Rob van Tulder and Jan Anton van Zanten, published in the Journal of Inyternational Business Policy.
As an introduction and framework to RSM's series on Positive Change, dr. Rob van Tulder has written a short book, titled: "Business & the SDG's - A framework for corporate involvement", which will be published in July.