ESG - Environmental, Social and Governance

Private Sector

The importance of the private sector as a sustainability driver

The 2030 Agenda for Sustainable Development (the “Agenda”), adopted by all United Nations Member States in 2015, builds on the Millennium Development Goals and thrives to attain the results these did not achieve, namely in reaching those which are most vulnerable. It continues to build on previously set priorities (poverty eradication, health, education, food security and nutrition), whilst also setting out a wide range of economic, social and environmental objectives. The Agenda is committed to achieve sustainable development in three dimensions: economic, social and environmental.

The Agenda establishes 17 Sustainable Development Goals (“SDG”) which are integrated and indivisible. The SDG came into effect on 1 January 2016 and will guide the United Nations Member States’ decisions up until 2030. This Agenda, which provides for global action for a period of fifteen years, sets universal goals and targets for the entire world, involving in such pursuit both developed, and developing countries.

The SDGs call for worldwide action by governments, businesses, and civil society. Together with the challenges raised by sustainable development, it is also a time of “immense opportunity” where we can identify progress in meeting many development milestones. That is visible in the fact that hundreds of millions of people have, in the recent years, emerged from extreme poverty; access to education has increased for both boys and girls; technology, global interconnectedness and scientific and technological innovation across areas such as medicine and energy have the potential to accelerate human progress and bridge the digital divide.

The Agenda acknowledges the importance of the private sector in the transition towards more sustainable growth - in the implementation of the SDG the UN acknowledges its role, highlighting the importance of all players ranging from smaller companies, to cooperatives to multinationals.

That idea can be traced in the following excerpt from the Agenda:

“Private business activity, investment and innovation are major drivers of productivity, inclusive economic growth and job creation. We acknowledge the diversity of the private sector, ranging from micro-enterprises to cooperatives to multinationals. We call on all businesses to apply their creativity and innovation to solving sustainable development challenges. We will foster a dynamic and well-functioning business sector, while protecting labour rights and environmental and health standards in accordance with relevant international standards and agreements and other on-going initiatives in this regard, such as the Guiding Principles on Business and Human Rights and the labour standards of ILO, the Convention on the Rights of the Child and key multilateral environmental agreements, for parties to those agreements.” (67)

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Universal Call for Action

The SDGs universal call for action: the particular role of the private sector

As duly highlighted by Colin Mayer ”being a responsible businessman is not straightforward. Money and morals are not natural bedfellows. It is easy to say that one does well (i.e., makes profit) by doing good (i.e., being socially responsible), but the truth of the matter is that one often does a lot better by doing bad” (Prosperity, Oxford University Press, Oxford, 2021, 115).

The SDG Compass, developed by the GRI, the United Nations Global Compact and the World Business Council for Sustainable Development (WBCSD), helps companies integrate the SDGs into their organisation and functioning, as well as and in their strategy’s definition.

The Guide lays out five steps for companies to maximize their contribution to the SDGs.

Understanding the SDGs;
Defining priorities. Companies must assess, throughout the value chain, the current and potential positive and negative impacts that their activity represents on SDGs, in order to scale up the positive impact and reduce negative effects.
Setting goals. As a result of prioritisation, companies should set and time-bound specific and measurable objectives. Amongst other action points, it is deemed essential to identify key performance indicators (KPI) that will enable progress to be driven, monitored and reported, as well as to define the baseline, which can be linked to a specific point or period of time. Transparency in the definition of the starting point is essential, as it has a direct bearing on the likelihood of achieving the defined objective. These objectives should be made publicly available.
Integrate the defined objectives into the functioning of the company, recognising the role of the board of directors in fitting sustainability into the company’s long-term strategies and in all tasks undertaken by it, creating a sustainability culture.
Reporting and communicating.

The ESG Corporate Monitor aims to assess how is this work is being developed by Portuguese companies.

Goal 17 of the SDG is to “strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development”. The means of implementation targets are key to the Agenda and of equal importance to the other Goals and targets. We understand that ”quality, accessible, timely and reliable disaggregated data will be needed to help with the measurement of progress and to ensure that no one is left behind. Such data is key to decision-making.” (Agenda, 48). Such data is also paramount as a basis point to develop legal studies.

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ESG and Sustainability

ESG and sustainability

Terminology is one of the challenges of this area of research. The origin of the term ESG dates back to a 2005 set of recommendations by the financial industry on how to best integrate ESG matters, within the context of the UN Global Compact. The guiding principle was that companies would “do well by doing good”, i.e., increase their profits by integrating sustainability concerns into their management.

In a narrow sense, ESG is associated with performance and risk metrics which embody the business case for sustainability, asking: what impact do environmental, social and governance issues have on companies?

This perspective is referred to as an “outside-in” integration of sustainability. Conversely, as the new EU sustainability reporting rules indicate, there has been a growing recognition of the relevance of environmental, social and governance corporate decisions and actions into the external sphere (e.g. the workforce, the community, the value chain and the climate), thereby broadening the potential role of corporate sustainability. This “inside-out” angle is underlying the concept of 'double materiality' and paves the way for a new and critical dimension of sustainability, measured by indicators of transformation of the ecosystem and long-term value creation, as a supplement to profit-related performance metrics.

One of the main goals of the Project is to assess, from a legal perspective, how Portuguese companies integrate sustainability factors in their management by transposing and complying with the existing and ever growing legal rules. We are at a time where legal discussion around sustainability has shifted from setting goals and targets to addressing specific implementation and execution of such goals and targets. The research project’s focus is on implementation: we want to gather information on how Portuguese companies are incorporating ESG factors in their management. Nevertheless, the subsequent analysis thereof and the academic discussion cannot ignore the impact of such takeaways in the overall pursuit of corporate sustainability goals.

For comments, please contact any of the research project’s team members.

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