SDGs and ESG: Why the United Nations Sustainable Development Goals Should Top Every Boardroom Agenda

Attendees at the UN’s Sustainable Development Goals (SDGs) Summit 2023 were confronted with a harsh reality: at the mid-way point of the UN’s 2030 Agenda for Sustainable Development¹  (henceforth, the Agenda), only 15% of targets for the 17 SDGs are on track.²  Even more troubling is that 37% of the targets have either stalled or regressed below the 2015 starting line.³  It’s a problem well understood in the boardroom. Almost 90% of CEOs believe that the SDGs are at risk.⁴

In a survey of senior corporate leaders conducted by the UN Global Compact in 2023, 94% said they treat the SDGs as a unifying global vision.⁵  Additionally, 98% of CEOs claimed it is their role to make businesses more sustainable — a 15% increase from 2013.⁶  

Despite these promising statistics, however, board directors have largely failed to deliver results on their commitments. While on the surface it may seem positive that governance of sustainability has become a core board responsibility, it will take more than lip service to make meaningful progress. In this article, we’ll explore the role of SDGs in developing sustainability objectives and how boards of directors can make progress on their targets.

The UN SDGs lay out a path for securing a sustainable, resilient, and stable operating environment for all, including businesses. This pathway has been embraced not only by governments who report annually on the progress to the UN, but also by the private sector and investors.

The SDGs have become the common language of sustainability. Strategic alignment with the goals has become standard practice in sustainable businesses. The World Business Council for Sustainable Development recently reported that 94% of its members referenced the SDGs in their 2022 sustainability reports.⁷  Some industries are further along than others. For example, through the Global System for Mobile Communications Association (GSMA), the telecom industry produces an annual report on its collective impact on the SDGs.⁸ 

Investors are also using the SDGs framework to mobilize, direct, and steer capital. For instance, a group of major financial institutions and corporations representing US$16 trillion in assets established the Global Investors for Sustainable Development Alliance to unlock long-term investments to support the SDGs.⁹  Sustainable finance is at the heart of the SDGs conversation right now, as the funding gap for achieving the 2030 Agenda amounted to US$3.9 trillion in 2020.¹⁰

Despite these efforts, progress towards achieving the SDGs is lagging. The COVID-19 pandemic contributed to further delays and difficulties. Other crises, such as war, political tensions, trade instability, food and energy price surges, inflation, and snowballing climate-related disasters, resulted in more than a few steps backward. 

Under current trends, only 30% of countries will achieve the goal of halving their national poverty levels, global temperature rise will not be limited to 1.5 degrees Celsius, and the economic gap between developed and developing countries will be wider than in 2015 when the 2030 Agenda was published.¹¹  These examples reveal the delicate nature of our progress towards a more sustainable and resilient future. 

To achieve these sustainable development goals, business leaders will need to step up. Boards of directors need to understand the relevance of the SDGs for their company and incorporate them into their environmental, social, and governance (ESG) policies and objectives. They can lay the groundwork by setting a robust sustainability strategy that takes into consideration the positive and negative impacts of their business on the SDGs. This includes assessing ESG risks and opportunities, setting up short and long-term environmental and social goals that are aligned with the SDGs, overseeing the progress on them, reporting to investors, and engaging with stakeholders. Improvements have been made in this regard. 

In 2022, 40% of boards received training on ESG issues.¹²  However, as a recent survey revealed, only about 30% have a strong understanding of ESG risks and opportunities facing their companies.¹³  Board committee charters increasingly include oversight of sustainability topics. For example, audit committee members should now be scrutinizing non-financial disclosures, the nomination committee should be looking for ESG board skills, and the remuneration committee should be incorporating ESG metrics in executive incentive plans.

Tying executive incentives to sustainability is also gaining in popularity as it is viewed as one of the most effective incentives for businesses to encourage progress on the SDGs.¹⁴  Fifty percent of CEOs recently surveyed now have their pay tied to progress in reaching sustainability goals (up from only 15% in 2021).¹⁵  Besides boards of directors and CEOs, CFOs are another key player in the corporate journey to achieve the SDGs. The CFO Coalition led by the UN Global Compact calls on companies to embed SDG considerations in investment decision making.¹⁶ Morningstar Sustainalytics has seen this progress up close with some of the world’s largest issuers as part of our engagement program focused on strengthening sustainability governance using the SDGs. 

As the program approaches its three-year mark, we have seen companies make noticeable improvements in every area. When we started the program, for example, no board could demonstrate that it could effectively monitor whether their company’s management would meets its ESG targets. Now, just 14% of companies lag on this metric.¹⁷  Furthermore, all companies in the program now include ESG metrics in their executive compensation plans, which was not the case when we started. 

Rising Scrutiny and Expectations

Despite these positive developments, the fact remains that we are not on track to achieve the SDGs. The recent progress made reflects how the ESG landscape has changed over the last couple of years, and how expectations regarding the governance of sustainability have risen. The growing regulatory pressure in the EU and other jurisdictions regarding sustainability reporting, due diligence, and sustainable finance is a good example. CEOs say that their most important stakeholders are now consumers, governments, and the investment community — with the latter two having a growing importance.¹⁸ This suggests an increasing responsiveness to regulatory and investor scrutiny.

There is still a lot of work to be done to close the gap on the goals of the 2030 Agenda. The challenges that remain are twofold: 1) collecting precise, credible data, and 2) reporting on both the positive and negative impacts companies have on the SDGs. With recent regulatory changes and the unification of reporting frameworks, progress on both fronts will improve. It will enable sustainable finance to scale more effectively and ensure that the growing sustainable investment wave is flowing in the right direction. It will also ensure that the positive impact of sustainable finance on the SDGs is maximized.

Taking the Next Big Step of Accountability

Stewardship in partnership with a service provider is a proven and increasingly popular way for investors to enhance their share of voice, increase the number of engaged issuers, and complement existing internal stewardship expertise and capacity for activities such as reporting and data management. Morningstar Sustainalytics offers a comprehensive ESG Stewardship Offering, representing over 130 clients and approximately US$4.5 trillion (EUR4.2 trillion) under engagement. Connect with our stewardship team to learn more about how we can support the next evolution of your ESG activities, including how you can have an impact on making progress towards the UN SDGs.

References

1. United Nations Department of Economic and Social Affairs. 2023. The 17 Goals: Sustainable Development. Accessed November 20, 2023. https://sdgs.un.org/goals
2. The United Nations. 2023. The Sustainable Development Goals Report 2023: Special Edition. July 10, 2023. https://sdgs.un.org/sites/default/files/2023-07/The-Sustainable-Development-Goals-Report-2023_0.pdf
3. Ibid.
4. United Nations Global Compact. 2023. 12^th UN Global Compact-Accenture CEO Study. Accenture. January 2023. https://info.unglobalcompact.org/ceo-study
5. United Nations Global Compact.  2023. SDG Stocktake. Through the Eyes of the Private Sector. September 2023. https://info.unglobalcompact.org/sdg-stocktake
6. United Nations Global Compact. 2023. 12^th UN Global Compact-Accenture CEO Study. Accenture. January 2023. https://info.unglobalcompact.org/ceo-study
   
7. World Business Council for Sustainable Development. 2022. Reporting Matters 2022. October 20, 2022. https://www.wbcsd.org/Programs/Redefining-Value/Reporting-matters/Resources/RM2022 
8. Global System for Mobile Communications Association. 2022. 2022 Mobile Industry SDG Impact Report. September 2022. https://www.gsma.com/betterfuture/wp-content/uploads/2022/11/2022-SDG-Impact-Report.pdf
9. Global Investors for Sustainable Development Alliance. “Home Page.” Accessed November 22, 2023. https://www.gisdalliance.org/  
10. Organization for Economic Co-operation and Development. 2022. Global Outlook on Financing for Sustainable Development 2023. November 10, 2022. https://www.oecd-ilibrary.org/sites/c42896d6-en/index.html?itemId=/content/component/c42896d6-en 
11. Sustainable Development Solutions Network. 2023. Sustainable Development Report 2023: Implementing the SDG Stimulus. June 21, 2023. https://s3.amazonaws.com/sustainabledevelopment.report/2023/2023-sustainable-development-report.pdf
12. Sloan, R. 2023. Many Boards Are Playing Catch-Up on ESG and Green Issues. September 14, 2023. Wall Street Journal. https://www.wsj.com/articles/many-boards-are-playing-catch-up-on-esg-and-green-issues-6de9552b 
13. PricewaterhouseCoopers. 2023. Today’s boardroom: confronting the change imperative PwC’s 2023 Annual Corporate Directors Survey. October 2023. https://www.pwc.com/us/en/services/governance-insights-center/library/assets/pwc-gic-acds-2023.pdf 
14. United Nations Global Compact.  2023. SDG Stocktake. Through the Eyes of the Private Sector. September 2023. https://info.unglobalcompact.org/sdg-stocktake 
15. IBM Institute for Business Value. 2023. CEO decision-making in the age of AI. June 2023. https://www.ibm.com/thought-leadership/institute-business-value/c-suite-study/ceo
16. United Nations Global Compact. 2023. “Chief Financial Officers Call for Greater Private Sector Financing for the Sustainable Development Goals.” September 2023. https://unglobalcompact.org/news/5150-09-21-2023 
17. This figure is based on Morningstar Sustainalytics’ internal data. 
18. United Nations Global Compact. 2023. 12th UN Global Compact-Accenture CEO Study. Accenture. January 2023. https://info.unglobalcompact.org/ceo-study 
19. United Nations Global Compact.  2023. SDG Stocktake. Through the Eyes of the Private Sector. September 2023. https://info.unglobalcompact.org/sdg-stocktake