Research shows that responsible business practices attract sustainable finance, ensuring a virtuous cycle in the flow of goods and services and capital that can benefit other stakeholders and the natural environment. Businesses are encouraged to report clearly about their contribution to the Sustainable Development Goals (SDGs) in an investor-related matter for maximum impact. Balanced reporting that includes potential or actual negative and positive impacts on society and the environment and how they are connected to the SDGs is needed.

Global Reporting Initiative (GRI), The United Nations Global Compact (UNGC) and other partners have been developing guidance documents that mutually complement each other and aim to guide corporate reporters by providing guidance and useful tips. Companies can consult the SDG Compass, The Value Driver Model and The 2017 “Analysis of goals and targets”. SDG reporting outputs should note the relevance of the goals to the business and the implications for business strategy and financial performance. A good report will qualitatively discuss how the company’s SDG related activities, output and outcomes and impacts affect the primary value drivers of the business.

There are five basic groups closely related to the financial services sector that may be interested in SDGs strategy and performance. It is useful to differentiate between these five groups and their different information needs which among others are dependent on the investment strategy and level of SDG related engagement of the investors. Categories of actors in the investment community that would likely be interested in SDG related information about businesses: buy-side analysts, portfolio managers, sell-side analysts, data service providers and government regulators.

Information on the process and methodology is crucial too and providing access to raw data would be welcome by large segments of the investment community. For reporting to be effective, data needs to be concise, consistent, current and comparable (the four C’s of sustainability reporting). The use of established international reporting standards lends a helping hand to achieve this.

Investors use SDG-related information in three main ways:

1. Screening portfolios against business risks and SDG-related criteria – norms-based approach, identifying best in class, expecting certain impact, scope.

2. Integrating information about (potential) business impacts on the SDGs into investment decisions by adjusting risk/return calculations for individual stocks.

3. In engagement activities and strategies to improve corporate performance and reduce negative impact.

Participants in each part of the investment chain may use any combination of the above. In each instance, users of SDG-related disclosures will have a need for information across a wide range of corporate policies, processes, and activities. Investors seek this information both prior to making the initial investment decision and for deciding whether to stay invested or increase or decrease ownership. 82% of PRI signatories (Principles of Responsible Investment), reporting on the effects following the integration of ESG factors, say it affected their buy/sell decisions.

As sustainability reporting grows, both on the demand and the supply side, ensuring data is used and that it addresses investor needs is crucial. This document hopefully provides insights that can further the level of corporate reporting by showing how the SDGs can be used to communicate the impacts that businesses have on SDG targets and what risks and opportunities exist for business.

1. A global effort to advance business reporting on the SDGs can potentially benefit companies by; solidifying a common language for reporting a business’s, and consequently investor, contribution to the SDGs, streamlining the reporting burden on sustainability issues, sparking collaboration along the investment chain to direct funds to more sustainable business practices, thereby incentivising businesses to align core business activities with the SDGs, and helping unlock potential business opportunities, both by addressing risks to people and the environment and by developing new beneficial products, services and investments – while mitigating business risks related to the SDGs.
2. For investors, the benefit of corporate SDG reporting may include; obtaining additional insights to make better informed investment decisions that secure stable returns in line with fiduciary duty, representing their values or the values of their stakeholders, and offering sustainable and inclusive financial products that differentiate them in the market. SDGs are not only relevant to impact investors, but the increasing costs related to universal externalities mean the SDGs also involve investors focusing on listed equity, fixed income or private equity.
3. For preliminary information on the SDGs for business, companies can consult the SDG Compass, developed by the UN Global Compact, GRI, and the World Business Council for Sustainable Development (WBCSD).
4. The Value Driver Model, developed by PRI and UN Global Compact, uses key business metrics to determine and illustrate how corporate sustainability activities contribute to overall performance. This tool helps companies assess and communicate the financial impact of their sustainability strategies and helps investors integrate sustainability data into their existing investment processes.
5. This report can be used by companies alongside the Analysis to disclose information on outputs, outcomes, impacts and contributions to the SDGs. As outlined in the Practical Guide, a business should prioritise those SDGs to report on in alignment with the Ten Principles of the UN Global Compact and the UN Guiding Principles on Business and Human Rights, and relying on the widely-adopted GRI definition of materiality.
6. The IRIS Metrics of the Global Impact Investing Network (GIIN) are designed to measure the social, environmental and financial performance of an investment. Investors can filter information based on their investment priorities and focus areas. The GIIN has also carried out research into the role of impact investing to achieve the SDGs.
7. In screening strategies, investors choose a set of criteria against which they want to measure performance, compliance or impacts. Institutions that screen investments in this manner tend to focus on whether investee companies are contributing to a range of SDGs and targets, which may or may not feature a short-term, material link to financial performance.
8. From a portfolio performance perspective, such asset managers are solely interested in SDGs that are likely to play a material role in corporate and stock price performance. To be relevant to this audience, SDG reporting has to make the link between a company’s impact on the SDGs and its competitive position, customer relationships and strategy more generally, and show how these factors interact.
9. A good SDG report contains a balance of short and long-term perspectives on the role that SDG-related targets and ambitions play in corporate performance. It should also focus on those issues that are considered most relevant to strategy, planning and execution at board level.
10. Complementary to integration strategies, investors will use SDG-related disclosures to identify risks and opportunities on which they wish to engage with companies. Usually, this engagement is intended to discuss the company strategy or actions and how changes could result in reduced risk to the company. In particular, investors focusing on engagement will need information that helps them understand a company’s strategy around emerging issues as well as the weak spots in performance.