In November 2015 the United Nations General Assembly adopted 17 sustainable development goals (SDGs) that cut across economic, environmental, social and governance factors. In recent years environmental, social and governance (ESG) issues have gained prominence worldwide.
For investment- and governance-related reasons, businesses are increasingly expected to publicly disclose and account for the negative and positive impacts of their activities on society, the environment, economy and people.
This is a noble step in ensuring responsible and sustainable business practices in the settings in which private-sector organisations operate. The irony in the ESG discourse has been the neglect or lack of impactful integration of SDGs in sustainability performance standards, frameworks and reports of corporate organisations.
The acronyms ESG and SDG have been treated as dichotomies, as if they do not complement each other, while both do seek to address the objectives of responsible investment, good corporate citizenship and shared value creation.
The SDG framework is, however, much broader than that of three-pronged ESG considerations and can enhance responsible investment decision making and shared value creation.
The ESG narrative has gained more prominence than the SDG discourse. More often than not, the reference to debates and discussions on ESGs takes place as if SDGs are non-existent.
This partly emanates from the fragmented nature in which ESGs and SDGs are addressed in the sustainability reports of listed companies. The mandatory reporting standards and frameworks with which these companies need to comply with have not explicitly acknowledged and integrated SDGs. It is assumed those reporting standards and frameworks are, by default, addressing matters related to SDGs.
Why do SDGS Matter?
There are numerous examples in South Africa where socioeconomic development projects, programmes and initiatives have stalled or failed to live up to expectations because of lack of collaboration and partnership between stakeholders.
Globally, business organisations are increasingly realising the value of gaining social acceptance in the communities in which they operate. I would argue that, at the level of implementation, SDGs are more than the sum of them. They are not merely about compliance, but “what is good for society, environment and people, is good for business”.
The objectives of SDGs reveal the goals are a good vehicle for corporate organisations to responsibly create social and business value in the settings in which they operate. Indeed, businesses cannot single-handedly achieve all SDGs without the support of other stakeholders. This is what SDG 17 (Partnership for Goals) seeks to achieve.
Private-sector organisations that neglect the interests and needs of their host communities do so at their peril
In December 2019 the founder and chair of the World Economic Forum, Klaus Schwab, in his “Davos Manifesto” article, posed a timely question to business and government leaders who were to gather in Davos the next year: “What kind of capitalism do we want?”
He was advocating for and challenging corporate leaders and investors to build what he called a better type of capitalism — one that would sustain the social, environmental and economic needs of future generations.
According to Schwab, this is called stakeholder capitalism, which, he argues, “positions private corporations as trustees of society and is clearly the best response to today’s social and environmental challenges”.
To highlight the significance of stakeholder capitalism in tackling contemporary social, environmental and economic challenges, Schwab contrasts it to other types of capitalism — shareholder and state. The former is centred on the principles of shared value creation.
Harvard Business School professor Michael Porter defined shared value as “corporate policies and practices that enhance competitiveness of a company, while simultaneously advancing social and economic conditions in the communities in which it operates”.
In January 2022, in his annual letter to CEOs, BlackRock's CEO and chairman Laurence Fink debunked sceptics’ assertions that stakeholder capitalism is not good for business. Instead, he agrees with Schwab that today’s business environment requires corporates to serve the diverse interests of stakeholders beyond shareholders if they are to prosper in a fiercely competitive global economy.
Stakeholder capitalism is at the core of shared value creation, which SDGs seek to achieve in building a sustainable planet. It is no longer viable for private-sector organisations to serve only the interests of shareholders, what Schwab refers to as shareholder capitalism, the modus operandi of which has been exclusively to entice the interests of private-sector shareholders.
For a long a time, until about the 1970s, mixing business and societal interests was viewed as meddling with free-market principles. From the 1970s the global economy saw the state directly participating in the business affairs of the private sector to champion societal development interests. This was called state capitalism and was much more prominent in east-Asian economies.
However, the shortcoming of state capitalism, Schwab argues, it is not a sustainably viable model as it is prone to corruption from within, an assertion that is not far-fetched in South Africa, as illustrated by the state capture reports.
From the 1980s onwards stakeholder capitalism gained prominence as it proved suicidal for businesses to disregard the interests and needs of communities in which they operate. It is within the realm of stakeholder capitalism that responsible investment decision making and shared value creation objectives of ESGs and SDGs ought to be contextualised and understood.
Nowadays, as has been highlighted by community protests and labour strikes in South Africa, private-sector organisations neglect the interests and needs of host communities at their peril.
Mainstreaming SDGs in their business activities is one of the means with which private-sector companies can realise returns on their investment, create shared valued and be socially accepted in host communities.
SDGs present an ideal opportunity for corporate organisations to make a more lasting impact in the communities in which they operate in a socially, economically, environmentally, technologically and humanely responsible manner.
• Dr Sizwe Phakathi is head of safety and sustainable development at Minerals Council South Africa.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.