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Your SDG Strategy Must Consider More Than Your Financials

The Sustainable Development Goals serve as an urgent call to action for companies to pay as much attention to their extra-financial performance as to their financial performance.

In a previous article, we discussed how a defensive response to the SDGs achieves nothing; and a selective response risks causing negative trade-offs, which undermine any gains. Instead, a holistic response is required: Any company seeking to contribute positively to one or more SDGs must also strive to eliminate any negative contributions elsewhere, due to activities across its value web.

This begs the question: What do ‘positive’ and ‘negative’ really mean in this context? When it comes to financial performance, the answer is clear. A company may make a profit, or it may make a loss — and the transition between the two is called the financial break-even point. When a company breaks even, it is doing just enough to sustain its own existence. But what is the equivalent when it comes to the other two dimensions of the Triple Bottom Line?

The extra-financial break-even point for business

Understanding one’s impacts on people and planet in a holistic way demands a clear definition of the extra-financial break-even point for business. Any company reaching this point would be doing just enough to sustain the socioeconomic and natural systems upon which it — and humanity as a whole — depends. Going beyond this point would be the extra-financial equivalent of making a profit — for example, by increasing people’s wellbeing, reducing inequality or regenerating ecosystems.

The need for a well-defined extra-financial break-even point — and for a way to steer progress toward and beyond it — is what led us to create the Future-Fit Business Benchmark.

Accounting for your extra-financial performance ...

Future-Fit Foundation co-founder Martin Rich will share lessons learned during the transition from conventional accounting to integrated multicapital accounting — at Integrate '20, Nov. 9-11.

The Benchmark identifies 23 Break-Even Goals, which cover all critical business areas — from worker wellbeing and water use through to procurement practices and product performance. Together, these goals describe what every company must do to eliminate its own negative impacts — and to exert whatever influence it has (e.g. through its purchasing power) to reduce the negative impacts of others whose activities it depends upon.

The figure below considers extra-financial impacts across two dimensions — positive vs negative, and direct vs indirect. The Break-Even Goals sit within the bottom-left quadrant.

When a company makes any progress toward the Break-Even Goals, it is reducing its risk of inadvertently slowing down our collective progress toward an environmentally restorative, socially just and economically inclusive future.

But that’s only part of the puzzle. Long before it reaches all Break-Even Goals — which may take many years — a company may act to create positive impacts itself, or to improve the impacts of others. The Future-Fit Business Benchmark captures any such activity through 24 Positive Pursuits, which describe systemic outcomes which actually speed up our collective progress. These sit within the other three quadrants of the above figure.

Between them, the Future-Fit Break-Even Goals and Positive Pursuits characterize all of the ways a business can contribute — positively and negatively — to the SDGs.

An example of taking a holistic view: Climate action

Let’s look at a holistic response to SDG 13: Climate Action. Every company must strive to eliminate all greenhouse gas (GHG) emissions from its operations; and to ensure that its products and services do not force its customers to emit GHGs, either. Such actions count as progress toward the Break-Even Goals.

But what if a company were also to actively help others (such as its suppliers or customers) to eliminate their own GHG emissions? Or what if it could find ways to physically drawdown GHGs from the atmosphere — in its operations or through its products — or support the efforts of others who have found ways to do so? Any such outcomes would be recognised via the Positive Pursuits.

This example serves to illustrate how the Future-Fit Business Benchmark frames extra-financial impacts in a holistic way — placing as much emphasis on surfacing new opportunities as on reducing existing risks. It can help your company formulate an SDG response which is as ambitious as it is authentic.

The Future-Fit Business Benchmark is a free-to-use public good that has been evolving since 2014 with in‑depth input from global companies, institutional investors and academic experts. To find out more, visit futurefitbusiness.org.

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