Five steps to aligning the SDGs with the IR Framework
The <IR> Framework provides an opportunity for organisations seeking to respond to the Sustainable Development Goals (SDGs) to get Board level attention for integrating them into strategy and reporting.
Five steps for embedding the SDGs in alignment with the valuation creation process of the <IR> Framework are outlined below. The steps facilitate identification of risks to and opportunities for value creation and their contribution to the SDGs.
Step 1: Understanding the external environment
The sustainable development issues that the SDGs address impact on the organisation’s ability to create value for itself and its stakeholders.
The <IR> Framework requires consideration of externalities which may increase or decrease value created either directly or through the quality of relationships with stakeholders.
Therefore, consideration of the SDGs, and the sustainable development issues that they address, should be incorporated into the wider consideration of the external environment.
Step 2: Identify material issues that influence value creation
The materiality process for integrated reporting involves identifying, evaluating and prioritising matters based on their ability to affect value creation.
Value is created for the organisation and for others through increases, decreases and transformation of the capitals.
Therefore, when planning their approach to the SDGs, organisations should identify, evaluate and prioritise sustainable development issues which maximise outcomes for the six capitals and hence their contribution to the SDG targets.
Step 3: Developing strategy
The organisation’s strategy identifies how it intends to mitigate or manage risks and maximize opportunities.
Organisations should set out their strategic objectives and strategies to achieving material SDGs. This should incorporate resource allocation plans and specific, quantified short, medium and long term targets.
The organization’s strategy should relate to its ability to create value in the short, medium and long term and to its use of and effects on the capitals.
An organisation’s ability to create value is influenced by the external environment (see Step 1).
Step 4: Integrated thinking and connectivity
The <IR> Framework calls on organisations to link their strategy to changes in the external environment including evolving societal expectations and natural resource limitations.
Further, it emphasises the importance of responding to the legitimate needs and interests of stakeholders because value is created through its relationships with others.
Those charged with governance are required to acknowledge their involvement and responsibility for this process. Those charged with an organisation’s governance should satisfy themselves that:
- the processes of engaging with stakeholders will: identify material sustainable development issues; that these are incorporated into strategy; and, that appropriate goals and targets have been developed.
- that the organisation develops and nurtures relationships with and between stakeholders in order to enhance collective well-being;
- that the organisation’s business model should incorporate all material sustainable development issues impacting on inputs and outputs in terms of the six capitals;
- that the organisation’s strategy reflects past performance with respect to the SDGs.
Connectivity involves (amongst other things) “linking the organization’s strategy and business model with changes in its external environment, such as increases or decreases in the pace of technological change, evolving societal expectations, and resource shortages as planetary limits are approached” (para 3.8 of the <IR> Framework).
Step 5: Integrated reporting
Organisations should report on key sustainable development issues which impact on stakeholders and the organisation to influence value creation in the short, medium and long term.
Organisations should report their contribution to SDG targets alongside their outcomes with respect to the six capitals.
Aligning with the SDG Compass
The main focus of the SDG Compass developed by the Global Reporting Initiative (GRI), United Nations Global Compact (UNGC) and World Business Council for Sustainable Development (WBCSD) in 2015 (and the ongoing partnership between the GRI and the UN GC) is on developing a set of common indicators and prioritised disclosures and documenting leadership and best practice. The outcome will be the integration of the SDGs into the UN GC Principles and GRI Standards.
Organisations who follow these five steps can use the indicators to report on their material SDG outcomes.