Don't Downplay The SDGs: The Risky Business Of License To Operate

One year on from the United Nations' formal approval of 17 crucial global Sustainable Development Goals, or SDGs, and many companies are still wondering what to do, struggling to develop a meaningful and credible approach.

Some have adopted pet SDGs to illustrate corporate responsibility projects they are doing anyway. But for these types of companies there is a catch: all governments have now agreed on the 169 targets.

The SDGs are the new "political framework for business."

From decent work to taxation, good governance and social conflicts over limited resources, companies must use the SDGs to address material issues that will undermine the sustained growth of their businesses.

Consider, for example, how SDG No. 3 will shape the future growth of global pharmaceuticals.

The target "…affirms the right of developing countries to use to the full the provisions in the Agreement on Trade-Related Aspects of Intellectual Property Rights regarding flexibilities to protect public health, and, in particular, provide access to medicines for all."

Ergo, governments are prepared to forego drug patents in the interest of protecting public health. In India, the production and sale of generic drugs is estimated to have been worth $15 billion in revenues in 2014.

The issues are multiplying. Environmental pollution, not previously considered a top material issue for global pharmaceuticals, is in the spotlight. Global investors are increasingly worried that pharmaceutical companies and their portfolios may be creating unprecedented levels of pollution within their supply chains, which is compromising local drinking water and the health of local communities.

Pharmaceuticals are just one example. Similar challenges affect companies whose supply chains reach far and deep into developing countries. So what should business leaders be doing now?

1. Activate 'business diplomacy' for sustainable development

The convergence of three trends in most developing countries — social inequality, resource scarcity and governance gaps — will affect the license to operate of companies in ways that are more difficult to control than ever before.

This requires an enhanced, political approach to corporate sustainability, but even the most sophisticated companies have trouble sensing their external environment. It is no longer enough for companies to focus on minimizing negative social and ecological impacts from their operations.

The increased scrutiny requires them to show that they are part of the solution to these challenges.

We at Earth Security Group call this business diplomacy for sustainable development. It means companies taking a more proactive role to align their growth models with societal interests in the countries where they operate.

The political backlash that companies are seeing on issues like water scarcity or land conflicts means that being part of the solution is the only way to ensure their organization's long-term continuity.

Key to business diplomacy is better communication across all externally facing corporate functions like risk management, government affairs and strategy, with the knowledge and analysis that has been traditionally in the domain of corporate sustainability.

These functions must begin to work much more collaboratively to anticipate external conflicts and become an active part of the solution to these challenges.

2. Partner with governments to improve regulation

Most global sectors now have some form of corporate platform bringing companies together on common concerns. Last month I contributed to the launch of the Global Agri-business Alliance (GAA) in Singapore, an industry where pre-competitive cooperation has lagged behind.

Convened by Olam International, the GAA brings together 40 leading agribusinesses to address SDG No. 2 on food security and sustainable agriculture. Along similar lines, a few years ago pharma companies set up the Pharmaceutical Supply Chain Initiative (PSCI) to demand better social and environmental conditions where drugs are supplied from.

However, less than 15 percent of the 140 largest global pharmaceutical companies are members of PSCI today according to sector analysts.

Voluntary corporate initiatives that aim at the "self-regulation" are a necessary step for leading companies. However, they are not enough to address the problems that companies are facing. This is partly because they leave out competitors and partly because government regulation, not voluntary commitment, is the ultimate game-changer.

Companies must begin to collaborate with governments in order to turn these principles of good corporate behavior into legislation. Think corporate lobbying as a tool for positive change.

Ultimately, business diplomacy goes beyond corporate philanthropy and corporate social responsibility, by focusing on leveraging government relations for good.

The social and political scrutiny on companies is only going to increase. A product of lengthy political negotiations, the SDGs provide an unparalleled framework of issues that matter to business.

Global companies operating across national borders, in particular those relying on global supply chains including developing countries, must now take another look at the SDGs and consider a strategic response.

Originally published on Greenbiz

Alejandro Litovsky is the Founder and CEO of the Earth Security Group in London. He has worked as an advisor to companies and governments in major emerging markets, from Russia to Indonesia, China, India and Brazil.