Making Sustainability Part of the Corporate DNA
UNITED NATIONS, Jun 25 2016 (IPS) – Companies, governments and non-profit actors agree that economic growth and sustainable development have to go hand in hand to shape our increasingly globalised world in a fair way.
Yet a meeting of leaders from the business, government and non-profit sectors at the UN this week showed that there is still a long way to go in order to make investors and CEOs true partners in sustainability.
“Without the private sector and without policies that are conducive to private investments, we can all wave goodbye to reaching the Sustainable Development Goals,” Grete Faremo, Executive Director of the UN Office for Project Services (UNOPS) said at the UN Global Compact Leaders Summit this week. The Sustainable Development Goals or SDGs are a set of 17 economic, social and environmental goals that all 193 UN Member States have agree to reach by the year 2030.
As the CEO of the Italian electricity company ENEL, Francesco Starace, put it in the UN General Assembly on Wednesday, many corporations still believe that they have to choose between sustainability or profit.
“We are still ruled by the ‘terror of or’”, said Starace: fuel-saving or fast, fair or cheap, sustainable or successful. It is this climate that still determines the decision-making of economic leaders all over the world.
Still, if you believe the hundreds of businessmen and -women who came together this week in New York for a networking conference as well as celebration of their own efforts, that status quo is changing:
ENEL’s CEO, high-ranked representatives of car manufacturer VOLVO and even representatives from the oil giant SINOPEC all praise the progress that is made by the private sector in saving the environment. Lise Kingo, head of the UN Global Compact, says that “it’s clear that companies are ready to answer the call” – the call being the UN’s Sustainable Development Goals.
The Global Compact – the business arm of the UN – has become an organization with a wide appeal since its formation in 2000, with more than 8000 companies signing up and over 60 regional networks. The question that was raised to all of them at the two-day-summit was clear: Where do we stand? The answer depends on how you measure progress.
While UN Secretary General Ban Ki-moon broadly congratulated all the members of the Global Compact, many participants had an ambivalent view on current progress. Two issues are crucial: Accountability and the engagement of the financial sector.
The Task Force on Climate-related Financial Disclosures (TCFD) is one of the initiatives committed to targeting accountability. In order to make a business environmentally sustainable, reporting obligations are necessary. The task force cannot provide binding decisions, which creates a difficult situation. “We want to be ambitious but we need to be practical. So we create a set of voluntary guidelines”, Jaycee Pribulsky of the TCFD explained to IPS.
According to a new study conducted by the Global Compact, 85 percent of the participating CEO’s classify sustainability as essential. But while almost all company executives agree that sustainability is important, putting these words into practice and developing sustainable supply chains is another matter.
One important way to ensure that this actually happens is through private financing of sustainable businesses. However, only 10 percent of the respondents to the Global Compact survey said that investors are among the top three impulses for sustainability.
It is unlikely that simple persuasion will lead to more sustainable investments in the future, rather, an attractive investment possibility should have a “positive environmental or social impact alongside financial returns”, UBS executive Michael Nelskaya said on Thursday.
This is not a paradox. Firms like Arabesque Asset Management presented their approaches at the summit: with vast quantities of data, the investment firm created a pool of companies that are both sustainable by various definitions and promising in a financial sense. The approach has been widely praised in the past two years and is one of the possible solutions for the dilemma of success and sustainability.
Despite efforts undertaken in industrialized countries, the developing world still waits to benefit from new economically intelligent investment patterns. With no way to receive funding, many sustainable business ideas in developing countries simply never eventuate.
James Savage, data scientist at the peer-to-peer lending platform Lendable believes that there are many obstacles laid in the way of aspiring firms in the least developed countries (LDCs).
“The costs of setting up a single international debt deal (loan) can be prohibitive for medium-sized businesses in LDCs,” Savage told IPS.
This is in part due to foreign exchange rate uncertainty, high financial sector fees, and gaps in the financial market.
“The lack of truly independent, inflation-targeting central banks means that there is much foreign exchange rate uncertainty,” he added.
That is why alongside sustainable business ideas, the financing sector needs reform, so that these ideas can access the funding they need.
Overall, local and national businesses, like governments are at very different stages across the globe. UNOPS funding, private sector innovations and public reforms are all different starting points to target the persistent inequality in the business world.
Yet for multinational corporations the challenges are different. As multinational corporations grow in size and reach, Grete Faremo warns that they are getting ahead of the legislation.
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