As the global economy heads towards recession, governments can simply not afford to dedicate money in their budgets towards moving their economies towards being SDG compliant. The better and more practical option in the current climate is for governments to indirectly influence their economies by offering tax breaks and other financial incentives to businesses that can prove they are SDG compliant, argues Asier Alea

Post-coronavirus, governments are keen to ensure their economies move in a desirable direction, particularly via green recovery stimulus packages but also towards the UN's sustainable development goals (SDGs). Businesses are now used to ensuring their emission targets are compliant with the '2 degrees scenario', particularly since disclosure on this issue became enshrined in regulations in many countries. But the reason why 2 degrees compliance has, firstly, been possible and has now become the standard is because a financial services industry has grown up around carbon, complete with auditors and investigators able to produce full certification that a company is 2 degrees compliant.

This industry developed quickly; even five years ago it would not have been possible for a company to 'carbon benchmark' itself against its peers, but it's therefore now relatively easy to see whether a business meets carbon reporting goals. There is, however, no equivalent system for certifying that a business meets the UN's SDGs.

This is a problem for European businesses, particular those seeking investment. Most public sector companies and national and local governments are now using the UN's SDGs as a matrix for reviewing their expenditure on investment. There's increasing pressure on the public sector to build investment portfolios around SDG-compliant entities. And from a business perspective, being seen to be SDG compliant is incredibly important at a reputational level which feeds into international marketing strategies.

However, as the global economy turns down sharply, governments can simply not afford to dedicate money in their budgets towards moving their economies towards being SDG compliant. The better and more practical option in the current climate is for governments to indirectly influence their economies by offering tax breaks and other financial incentives to businesses that can prove they are SDG compliant. This has the added benefit of signalling to all stakeholders in a particular economy the need to move in an SDG-compliant direction.

But the crunch in any fiscal system based around SDG incentives comes around the question of how to prove that a business is SDG compliant. If funds and other prospective investors wished to investigate a company's compliance, it's still very unclear how they would demonstrate it.

The UN's 17 SDGs, set in 2015 as part of Resolution 70/1 with the aim of being achieved by the year 2030, are incredibly broad. They encompass no poverty, zero hunger, good health and well-being, quality education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, industry, innovation, and infrastructure, reducing inequality, sustainable cities and communities, responsible consumption and production, climate action, life below water, life on land, peace, justice, and strong institutions and partnerships.

Write for us.

We're always on the lookout for talented writers and welcome submissions. Please send your opinion piece or pitch to: editor@commentcentral.co.uk

A variety of tools exist to track and visualize progress towards the UN's SDGs, but they apply to entire economies rather than to individual corporate entities. They track global progress towards the SDGs using official statistics from the UN and other international organizations with the aim of holding governments accountable for achieving the goals. They're not, however, sufficiently rigorous and detailed to be used for 'SDG auditing'.

The UN has published a list of targets for each of its SDGs which tracks progress towards them according to 232 indicators. But these are useful mainly for statistical purposes, not for voluntarily identifying which areas of a budget, investment or expenditure are SDG-compliant.

The voluntary nature of the SDGs means that they still mainly applied retrospectively by corporates. It's currently common to look at expenditure for the past year and assign each element of the budget to an SDG, something that is relatively easy to do as the goals are so broadly based and to a certain extent interdependent. This is no more than a form of greenwashing for sustainable development, it's not accountability in monitoring expenditure.

It may have some limited marketing value to the corporate concerned, but it has no power to drive the future direction of a company's investments towards, for example, boards having a 50/50 gender balance. And it's of no use to governments looking to produce an economic policy and planned expenditure, which necessarily involves moving targets rather than a snapshot of a moment in time. It's still hard to know how one could certify, for example, the corporate goal of increasing the proportion of energy used from solar power sources.

What is needed is a form of established and internationally recognised SDG certification for companies. Certification which could also allow investors to say, for example, that 75% of their investments are SDG-compliant, and that none of its investments are in no go areas such as weapons. If such a system of certification existed, governments could look to seriously influence their economies by offering tax breaks to SDG-compliant companies that chose to head quarter in their jurisdictions.

But for this to happen, we not only need a rigorous set of SDG certification guidelines to be developed, and for the rules of engagement in this area to be defined, we need a financial services industry to grow around SDGs. Such an industry would need to include the establishment of certifying agencies capable of carrying out the necessary due diligence. Then companies would be able to demonstrate their own good environmental and social governance, and funds would also be in a position to positively influence the behaviour of their investment targets.

Such an SDG benchmarking system could potentially create a financial services industry with sustainable development standards based on an economic rationale. It's to be hoped that financial hubs that are capable of offering these services emerge soon. In the mean time, companies that start to think seriously about SDG compliance will be getting ahead of the curve, because this will eventually become a regulatory requirement and an expectation of investors.

9 votes

Sign-up for free to stay up to date with the latest political news, analysis and insight from the Comment Central team.

By entering your email address you are agreeing to Comment Central’s privacy policy