19th September 2022

By Dr. Antonius Alijoyo

5 minutes reading

The topic of SDGs (Sustainable Development Goals) and ESG (Environmental, Social, Governance) are rising trends and have become the agenda of generations. In short, SDGs are global goals set out by the United Nations, whereas ESG is a rating system used by companies to measure their environmental, social, and governance credentials (www.safety4sea.com), which matters to their stakeholders, particularly the investors.

The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity (www.undp.org). The 17 goals that have been defined address the root causes of poverty and pledge to leave no one behind, including vulnerable and minority groups. They also emphasize the need to tackle climate change urgently and protect the environment through a shift to sustainable consumption and production (source: world economic forum).

The 17 SDGs are intended to be universal, applying to all countries, organizations, and every human being rather than just the particular ones. The Sustainable Development Goals (SDGs) are the fundamental cornerstone to secure future economic and business growth by inclusively eradicating poverty while protecting the environment. They recognize the private sector’s key role in pursuing and financing sustainable development in partnership with governments and civil society. The business has the unique opportunity to embrace the SDG agenda and recognize it as a driver of business strategies, innovation, and investment decisions since it is impossible to have a strong, functioning business in a world of increasing inequality, poverty, and climate change. Sustainability risk will eventually become a sustainability crisis for the company if they don’t take part or make efforts to embrace the SDGs agenda.

A question is arising: “How does the private sector and/or business play their role in taking participation and then place a contribution towards SDGs? Further, how doing so makes business sense and will give them an edge over their competitors?”

To answer the question, the followings are worth considering:

  1. Addressing sustainability risk properly

Companies may be unable to continue to create capital over the long term if natural, social, financial, and capital are at risk and being eroded elsewhere. Each SDG represents a risk area already presenting challenges to businesses and society, and these risks are likely only to continue and grow if not well and effectively addressed. For example, supply chains are particularly exposed to the effects of climate change and depletion of natural resources (SDG No: 12, 13, 14, and 15), geopolitical instability (SDG No. 16), inequality (SDG No. 10), and lack of development in some regions (SDG Nos. 1, 2, 3 and 4) that limit the potential of emerging markets.

  1. Understanding the expectation of stakeholders

The capital provisions are made by the investors seeking sustainability of the organizations. Addressing these and other risks can make good business sense as stakeholders hold companies accountable for their role in creating or exacerbating these risks and, therefore, are able to maintain their social license to operate. As such, Investors are increasingly paying attention to environmental, social, and governance (ESG) risks when making investment decisions into particular businesses or companies and trying to see the organization’s credentials in dealing with them effectively.

According to the third EY Investor Survey (2017), weak corporate governance, poor environmental performance, resource scarcity, climate change, and human rights risks are likely indicators that could alter investors’ decisions.

  1. Building a strong and meaningful ESG program

An ESG program creates a valuable impact on our organization, our community, and the planet for years to come. A strong and meaningful ESG program can set a vision for an organization’s environmental and societal influence, providing value both internally and externally. Establishing environmental goals can help reduce our carbon footprint, determine our sourcing strategy, and set a foundation for eliminating unnecessary waste. From a social impact lens, we can build a meaningful diversity program, enhance employee health and make lasting changes in our community. And by building a strong governance foundation, we can diversify our board, enhance business ethics, increase stakeholder transparency and protect privacy.

To ensure the adoption and success of an ESG program, it’s critical to align an ESG vision to our organization’s existing strategy and purpose. Establishing and communicating this foundation will allow our organization to be authentic in its actions, avoid “greenwashing,” and align the roadmap to core business objectives. As such, ESG has emerged as an opportunity (rather than just a responsibility) to build a more sustainable business and a key differentiator to enhance relevancy and trust with the organization’s stakeholders, now and in the future.

Hope this short article is useful.

Dr. Antonius Alijoyo, founder of Center for Risk Management and Sustainability (CRMS Indonesia) and Chair of supervisory board of Indonesia Risk Management Professionals Association (IRMAPA).