Zero Hunger, Your Business And Sustainable Development

The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. The 17 Goals are all interconnected, and in order to leave no one behind, it is important that we achieve them all by 2030. 

https://www.un.org/sustainabledevelopment/sustainable-development-goals/

The UN Sustainable Development Goals are a useful high-level group of global sustainable development goals that can be used as a framework to assess how your business makes a positive social impact.

This series of posts explores each of the goals and proposes some considerations for boards and senior leaders. The rising pressure on business leaders to make genuine changes in their operating model to ensure that their people, processes and systems work together to make a positive social impact means that trade-offs must be made with scarce resources.

Considering how to benefit all stakeholders means that careful consideration of your firm’s purpose business strategy and target operating model to realise that strategy is a crucial part of building a sustainable enterprise.

Traditionally, value creation for shareholders was achieved by delivering value to customers and earning a reasonable profit. Today, value creation for stakeholders is the more popular terminology.

What does this mean? It means keeping customers happy, shareholders happy, regulators happy, politicians happy, industry partners happy, suppliers happy, employees happy, and certification authorities happy.

This mixed group of actors is outside the traditional boundaries of the firm, meaning that when it comes to approaching ESG issues, a press release won’t cut it.

Environmental, social and governance risks have to be identified, triaged, managed, mitigated or eliminated through the risk management process. A board should set clear expectations around how the operating model of the business ensures that the capabilities developed to deliver value to stakeholders actively consider these risks both during project phases and in a business-as-usual environment.

Goal 2: Zero Hunger

Goal 2 of the UN Sustainable Development Goals is Zero Hunger. In 2017, over 821 million people were under-nourished. Over the past few decades, enormous reductions in this number have occurred, but there is still work to do.

Differences in markets and institutions between developed and developing countries can explain much of the problem with hunger. Many states don’t have the infrastructure or even electricity to take advantage of agricultural productivity-enhancing technology at an appropriate scale.

One of the most disturbing statistics concerning hunger is the number of children who die every year from poor nutrition – 3.1 million each year. But merely sending more donations doesn’t solve the societal problems in these developing countries.

Businesses in developed countries can make a positive impact on the goal to reduce hunger in the world. An example of how technology positively impacts developing countries would be the spread of mobile phones, enabling farmers to trade more easily with neighbouring towns and villages to sell their produce or livestock, raising incomes and encouraging more trade inside countries.

One way the private sector can assist developing countries is helping the internal free movement of goods and services. Mobile phone networks, education, infrastructure investment in roads, and assistance with agricultural productivity are crucial.

How might a developed country firm help reduce global hunger? Consider pricing frameworks and intellectual property protections for agricultural productivity-enhancing goods and machinery. Is what makes sense in Canada, a wealthy developed country, necessarily appropriate in sub-Saharan Africa if you’re selling into that market?

How about the issue of subsidies and tariffs? Lobbying for tariffs on some goods predominantly produced in developing countries takes money out of the mouths of the global poor. Even more concerning is marketing cooperatives who play on fair trade to pay a fixed price for goods below the world market price and then capture the price premium for those goods in hipster neighbourhoods in developed countries.

One of the themes in the UN Sustainable Development goals is the removal of unfair subsidies and tariffs that disproportionately privilege farmers in developed countries over farmers in developing countries. If we consider global hunger, losing some farms in the West to keep bringing millions out of poverty in developing countries could be regarded as a reasonable tradeoff as long as the West budgets for appropriate transition payments and arrangements for the impacted farmers.

Banks and insurers don’t need to open a branch in a developing country to make an impact. Letting subject matter experts spend a month upskilling their peers or conducting a training course in a developing country is a modest cost but high impact way of sharing knowledge and capability.

If your global supply chain includes agricultural products exported from developing countries, performing due diligence on the supply chain is essential. Ending unfair labour practices and exploitation of small farmers is something any business trading with these countries should incorporate into their operating model.

One example of how adjusting your operating model to ensure that a positive social impact occurs is by physically tracing the entire value chain for a particular product.

  • Who does the work?
  • How is it done?
  • How are they compensated?
  • Is it fair, giving account to local realities and expectations?
  • Where is it done?
  • Who captures the value?
  • Are there any health & safety concerns?
  • Are there opportunities to provide upskilling or coaching to suppliers?

Corporate Governance Considerations

If your business trades with developing countries, you need to make investments in technology so that qualitative information associated with your supply chain can be captured and analysed for insights.

Setting up a framework for supply chain risk management with the right supporting policies and processes is a complex project. Many businesses are already doing a great job at ensuring the integrity of their supply chain, but this is a topical issue and emerging issues when it comes to agriculture must be monitored.

Eliminating global hunger is just one of the many UN Sustainable Development goals. As an exercise, working through the plans may convince you that your business can only make an impact on 1 or 2 of them. But the activity itself is valuable because using a high-level framework for considering social impact will enhance your understanding of your operating model and offer up possibilities for small adjustments that could make a positive impact on others.

The drive to have companies consider a more comprehensive set of stakeholders doesn’t mean that no one can make a profit anymore. Many sustainable business practices can lead to lower operating costs and enhanced shareholder value.

There is only one planet Earth, and using the UN Sustainable Development Goals as an initial broad set of considerations can help refine the purpose of a business. Simplifying your operating model and identifying business units that may no longer be suitable to own and need to be divested or shut down will be a natural outcome of more boards and senior business leaders thinking about these issues deeply.

ESG Issues, Social License To Operate And Your Target Operating Model

The rise of environmental, social and governance (ESG) issues as a priority for business leaders was a theme of the past decade. To ensure that your firm’s social license to operate continues to be renewed by the community, embedding a positive social impact into your operating model is essential.

A firm’s social license to operate has to adapt to changing community expectations of corporate behaviour. In the fallout from the revelations during the Financial Services Royal Commission in Australia, the extent to which community expectations can drastically shift against any industry is evident.

Ever-increasing considerations and requirements of businesses and how they manage ESG risks mean that balancing scarce resources is more complicated than ever before. Firms have to worry about legislation, regulation, environmental concerns, social impact, social risks, governance issues, operational issues, technological disruption, climate change, responsible investment disclosures, and more.

Designing and implementing a target operating model to deliver a firm’s strategy is vital. A firm needs to focus its purpose and concentrate on the core capabilities required to provide value to customers and other stakeholders.

The UN Sustainable Development Goals provide a useful high-level framework for considering a firm’s global social impact. Are you doing anything that could lead to negative headlines? Are there any small changes to your operating model that could support any of these goals and be an example of how your business is delivering above community expectations?

The Sustainable Development Goals are:

  • No Poverty
  • Zero Hunger
  • Good Health and Well-being
  • Quality Education
  • Gender Equality
  • Clean Water and Sanitation
  • Affordable and Clean Energy
  • Decent Work and Economic Growth
  • Industry, Innovation, and Infrastructure
  • Reducing Inequality
  • Sustainable Cities and Communities
  • Responsible Consumption and Production
  • Climate Action
  • Life Below Water
  • Life On Land
  • Peace, Justice, and Strong Institutions
  • Partnerships for the Goals

The UN Sustainable Development Goals certainly aren’t the only framework for thinking about building a sustainable business or considering how to provide comfort to your stakeholders that your operating model is in line with community expectations. Many companies will be able to make a positive social impact on at least 1-2 of the goals.

How Do Companies Deal With This?

There are ever-increasing pressures from the media, from regulators, from industry bodies, from politicians, and from peers in your industry that mean that a few pages in the annual report no longer cut it – a genuine commitment from the board level down to the operating teams of the business has to be “baked in”.

In this new era, can you ever do enough to satisfy your stakeholders? I’m not sure it’s realistic. The level of constant change in the regulation of financial services, for example, has radically shifted how banks and wealth providers need to spend their investment budgets each year.

If the current level of investment on regulatory and compliance change is half of the spend, and investment in digital transformation or operating model change represents the other half, then which projects need to end to finance spending on sustainability projects?

This reality is where the rubber hits the road – the intersection of idealism around sustainable capitalism with tradeoffs in a commercial context. If a business has to be all things to all stakeholders, then radical simplification of the entire operating model is a high-probability method to ensure that the right trade-offs will happen at executive-level and operational-level.

The fascinating thing about the rise of responsible investment or ESG awareness when making investment decisions is that the light is rarely shone back on the operating models of the asset managers and data providers making these decisions themselves.

Public market investors and everyday people with their retirement savings in their 401(k), superannuation, Kiwisaver or pension increasingly tell market research companies and their providers that they care about not investing in companies that could have a negative social impact.

The plethora of filters available to asset managers means that what one asset manager believes is “responsible investing” is not necessarily what another asset manager defines it as unless they are using the same principles, framework and processes in their investment due diligence process.

When companies make disclosures around ESG issues to their investors, many have done a fantastic job in articulating where they see the risks in their businesses and how they are changing their business to reduce, better manage or eliminate those environmental and social risks.

Key Considerations For Boards And Executives

A key consideration for boards and executives here is that while you can compile an initial list of ESG risks and potential mitigations in a half-day workshop, that is only the beginning of the journey. An ongoing programme of work for some businesses – another substantial investment in people, processes and technology in addition to existing regulatory and compliance programmes of work.

Almost all boards and executive teams are aware of this, but balancing the pressures from shareholders and regulators can be a delicate act. There are earnings pressures, regulatory deadline pressures, and interpretation problems when it comes to how your operating model can deliver compliance with some requirements.

Without deeply examining the purpose of the business itself and going line-by-line through each operating division, hidden risks can remain that emerge at the least convenient time and undermine any previous efforts to promote that the business was trying to make a positive social impact.

The sorts of questions that I would be asking include: what is the purpose of our business? How complicated is our current operating model? How do I have confidence in the data and conclusions in the board reports I receive? How do we know we are ready for the “next” ESG issue that emerges in our industry? Who owns ESG risk in our business? If it is the audit and risk committee, are all members actively engaged in professional development on these issues?

One of the saddening things about reading some of the data attached to each of the UN Sustainable Development Goals is the realisation of how fortunate many of us are to live in highly developed countries. In a sense, many of the issues around managing these risks are “first-world problems”. However, that doesn’t mean that taking such a broad view is unhelpful to a business in an OECD country.

The critical consideration for boards and corporate leaders when it comes to social license to operate is recognising the need to be ahead of the curve on these issues. What is currently acceptable commercial practice today in one of your most profitable service lines or products could be completely unacceptable after a poorly served customer explains their poor customer experience.

A real-time feedback loop now exists between customers and businesses. Regulators, the media and politicians are always watching and listening. Empowering front-line people to do the right thing by customers and removing conflicts and any potential negative perceptions around your value chain are now an essential part of running and optimising your operating model.

What are the UN Sustainable Development goals?

The UN Sustainable Development Goals are a collection of 17 high-level goals that serve as a blueprint for “a better and more sustainable future for all”. The United Nations General Assembly set them in 2015, and the goal is to achieve them by 2030.

ESG or “environmental, social and governance” issues are top of mind for regulators, legislators, and corporate leaders. The UN Sustainable Development Goals serve as a useful framework for thinking about how your enterprise currently operates and how it could change to enhance its impact on society.

Over the next few weeks, I will outline some considerations for corporate leaders for each of the goals. I will pose many of them as questions around the relevant components of your operating model.