The United Nations’ 2030 Agenda for Sustainable Development seeks to end poverty, hunger, and inequality, while also spurring economic growth and addressing environmental threats. If the world wants to meet the agenda’s ambitious aims, the private sector must play its part by achieving the far-reaching targets of the UN’s Sustainable Development Goals (SDGs).
Though many companies have voiced commitment to the agenda, only a small number are actually measuring their performance against the SDGs. One reason companies may be slow to engage with the SDGs is because they may not yet have a measurement framework in place.
Our CIMA-sponsored research, Integrating the SDGs Into Capital Investment Decisions, provides companies with a practical four-step process for evaluating how their decisions about capital investments align with the SDGs (see the graphic, “Four-Step Process for Capital Investment Decisions,” below). (For more on the research method, see the sidebar, “The Research Approach”at the bottom of this article.)
1. Identify the investment and the SDG targets
The first step asks companies to define the investment under analysis and evaluate which of the 169 SDG targets it aligns with. Throughout this evaluation, companies ought to focus on the specific targets affected by the investment. As an example, Aspiag Service (one of the companies in the working group for a wider research project) focused on the opening of a new retail outlet and the renovation of an existing one (see the table “Investment Examples Related to Impact Type,” below).
2. Identify ESG indicators
The second step is about composing a dataset of ESG (environmental, social, and governance) indicators from the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the IRIS+ databases.
Specifically, the GRI document Linking the SDGs and the GRI Standards provides a series of alignment tables between the SDG targets and the different GRI standards.
In addition, in the Aspiag Service case, the company chose accounting metrics contained in the SASB standards to analyse its investments for the following industries: engineering and construction services; food retailers and distributors; home builders; multiline and specialty retailers and distributors; real estate; real estate services; and water utilities and services.
Lastly, the IRIS+ website provides the IRIS 5.3 Taxonomy, which details the alignment of each of the 17 SDGs and their 169 targets with IRIS+ metrics.
From these three sources, a company can draw together a wide selection of ESG indicators and choose the most suitable ones for its investments.
3. Critically analyse the ESG indicators
In the third step, Aspiag Service reviewed the ESG indicators in its dataset. It retained only those that met three criteria:
- Coherence with investment objective; ie, the selected indicators align with the investment’s purpose.
- Availability of information: The retained indicators have accessible data.
- Linkability to one of the five dimensions of impact:
Even though an ESG indicator can be linked to a specific SDG target, the indicator may not necessarily link to the investment selected. For example, an ESG indicator measuring the volume of bulk goods transported by road, rail, port, or airport is linked with SDG target 13.1, “Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.” However, such an indicator is not coherent with Aspiag Service’s investment in opening or renovating a retail outlet. Moreover, reflecting on which dimension of impact — what, who, how much, contribution, and risk — a certain indicator measures should help companies understand their investment impact more clearly.
Lastly, not every indicator has corresponding data available at the investment level, which would make its selection irrelevant. (See the table “Examples of Indicators Analysed by Aspiag Service,” below.)
4. Select the ESG indicators
In this last step, Aspiag Service selected 11 indicators from those deemed coherent, associated with an impact dimension, and with available information. These indicators included expenditures in cultural and natural heritage preservation, greenhouse gas emissions, energy efficiency, and direct economic value created for different stakeholders.
Translating the SDG targets into ESG indicators
ESG indicators are generally already well known by companies. This four-step process enables SDG targets to be traced back to those indicators. When used with thought and deliberation, the GRI, SASB, and IRIS+ databases are a remarkable source of indicators that can be used and adapted to the contextual information needs. Therefore, the four-step process not only provides a sequence of activities to utilise skills and information already present in companies, but it also provides a flexible approach that can cater to any capital investment or other expenditure.
Additional challenge
Deciding where and when to stop the chain of a given investment’s effects is challenging because each investment could generate a cascade of effects. We believe that reasoning about direct, indirect, and uncertain impacts might be key to resolving this conundrum. Moreover, the five dimensions of impact — who, what, how much, contribution, and risk — provide a framework for gaining a holistic understanding of any investment’s social and environmental impact. This allows management to focus on the most relevant impacts generated by the investment without losing sight of any downstream or corporate impacts.
The research approach
Our CIMA-sponsored research, Integrating the SDGs Into Capital Investment Decisions, is part of a broader research project on integrating the SDGs into performance measurement systems conducted by the Fondazione Organismo Italiano di Business Reporting in Italy.
Six Italian companies participated in the working group through semi-structured interviews, unstructured interviews, and plenary sessions. During the research, companies and researchers tackled several issues such as:
- Mapping existing methodologies, tools, and practices — where present — for translating the SDGs’ macro-level objectives and targets into manageable micro environmental, social, and governance (ESG) indicators;
- Developing practice-oriented methodologies, tools, and practices; and
- Generalising the findings of the research to propose a useful, practical methodology for accountants to integrate the SDGs into capital investment decisions.
Eventually, the working group proposed a four-step process usable for any corporate investment:
- Identify the investment and the SDG targets;
- Identify the ESG indicators;
- Critically analyse the ESG indicators; and
- Select the ESG indicators.
Giacomo Pigatto, Ph.D., is an assistant professor; Lino Cinquini, Ph.D., is professor; and Andrea Tenucci, Ph.D., is an associate professor — all at the Institute of Management Sant’Anna School of Advanced Studies, Pisa, Italy. Maria Serena Chiucchi, Ph.D., is professor at the Department of Management, Università Politecnica delle Marche, Ancona, Italy. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.
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AICPA & CIMA RESOURCES
Article
“Translating the UN’s Sustainable Development Goals“, FM magazine, 1 August 2020
Report
Accounting for the Sustainable Development Goals, AICPA & CIMA, 7 November 2021
