Influence of SDG on Firm Performance

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This entry is adapted from the peer-reviewed paper 10.3390/su14094870

The Sustainable Development Goals (SDGs) seek to enhance human dignity and prosperity while simultaneously safeguarding the planet’s fundamental biophysical processes and ecosystem services. They recognize that reducing poverty and inequality necessitates long-term economic growth, peace, and justice strategies, as well as strategies to address basic social needs such as education, health, social protection, and job opportunities—all while addressing climate change and improving environmental protection.

Sustainable Development Goals (SDGs) firm performance content analysis approach Return on Equity (ROE) Corporate Knights’ Index

1. Introduction

The United Nations (UN) approved 17 goals for sustainable development in 2015. The new agenda places importance on taking a holistic approach to achieve sustainable development for all, which is guided by the notion of “leaving no one behind”. The SDGs address many concerns by encouraging healthy living and well-being for all. Therefore, incorporating these SDG activities into businesses is essential for regulators, investors, governments, and millions of consumers since it helps to achieve equitable and safe enterprises, future social development, and the improvement of sustainable economic growth. In today’s economic climate, firms are under increasing pressure from a range of non-shareholding stakeholders, such as consumers, workers, and non-governmental organizations (NGOs), to pay greater attention to sustainable efforts [1]. However, the primary purpose of a business entity is to maximize shareholder wealth as measured by the stock market price. To accomplish their primary goal, firms must act in the best interests of investors and avoid activities intended to deceive them. Firms may be encouraged to engage in SDGs if they add value to the organization. Therefore, convincing evidence of a link between SDGs and financial performance is crucial for firms.

Research on Sustainable Development Goals (SDGs) has emerged in academia with the adoption of the Global Agenda, and authors from numerous disciplines have begun to explore the topic [2]. In recent years, there have been numerous contributions to the literature from various fields, including finance [3], education [4], law [4], accounting [3], cycle analysis [5], official development assistance [6], management and business [7], and urban development [8].

Despite the importance of achieving a more sustainable planet by 2030, empirical evidence indicates that only a tiny proportion of businesses adhere to a specific SDG strategy, implying that the majority of companies do not give SDGs the priority they require, and those that do adhere to a particular SDG strategy do so symbolically [9]. According to a recent analysis of 700 global corporations, only 27% of firms incorporate SDGs into their business plans [10]. This lack of involvement may appear logical, given the difficulty of reconciling shareholder value creation with the overarching goal of creating benefits for society [11]. According to some researchers [12], it is challenging to reconcile SDG concerns with making shareholders profit. They observe that the win–win situation for businesses is not always evident in the case of specific SDGs. Some firms may have strong intentions to meet the SDGs and even understand their importance in strengthening relationships with stakeholders. However, firms may not place importance on integrating SDGs into their business strategies due to the absence of sustainability disclosure regulations and evidence of a win–win situation that results in increased financial performance.

2. Sustainable Development Goals (SDGs)

Table 1 presents the 17 United Nations Sustainable Development Goals for the 2030 Sustainable Development Agenda. These goals aim to eradicate poverty and other issues, ensure universal access to health and education, reduce inequality, promote economic growth, battle climate change, and preserve oceans and forests. This process is being actively participated in by all civil society organizations, academics, scientists, citizens, and public and private sectors worldwide.

Table 1. The 17 Sustainable Development Goals (SDGs).

SDG	Objectives
Goal 1	No poverty
Goal 2	Zero hunger
Goal 3	Good health and well-being
Goal 4	Quality education
Goal 5	Gender equality
Goal 6	Clean water and sanitation
Goal 7	Affordable and clean energy
Goal 8	Decent work and economic growth
Goal 9	Industry, innovation and infrastructure
Goal 10	Reduced inequalities
Goal 11	Sustainable cities and communities
Goal 12	Responsible consumption and production
Goal 13	Climate action
Goal 14	Life below water
Goal 15	Life on land
Goal 16	Peace, justice, and strong institutions
Goal 17	Partnership for the goals

Source: Authors own illustration based on the information on the UN website [17].

According to a study conducted by Scheyvens et al. [14] the SDGs present a significant challenge to business actors. After considering both the potential for more sustainable and responsible practices and the limitations of change, they concluded that in the context of this new agenda, companies, governments, and civil society actors all have a common expectation to follow a more sustainable path. They also believe that the private sector has unique capabilities that may be exploited to help achieve the SDGs, such as innovation, responsiveness, efficiency, and the provision of specific skills and resources. A study conducted by Kumar et al. compared the Millennium Development Goals (MDG) addendum with the Sustainable Development Goals (SDGs) and how one goal strengthens the other. They concluded that these goals seek to save lives and improve the quality of life of millions of people worldwide. At the same time, a continuation of the MDGs is extremely difficult to implement and monitor. According to Adams [15], the Sustainable Development Goals are a tool for maximizing and creating firm value and improving the impact of business operations on sustainable development. Easter et al. [16] contributed to the sustainability literature by explaining how actors develop resilience in their efforts to pursue sustainable development in non-responsive contexts. They discovered that actors used three coping mechanisms to maintain focus on their sustainability goals: community building, resourcefulness, and vision.

3. Sustainable Development Goals (SDGs) and Firm Performance

The role of an SDG’s practice on firm performance has seen a variety of research in the extant literature, with most studies showing a positive and sustainable outcome on sustainability practices. For example, after reviewing extant research on the relationship between sustainability practices and financial performance, Muhmad et al. [18] found that about 96% of the studies reported a positive relationship between sustainability practices and firms’ financial performance, particularly after adopting SDGs [9]. Similarly, Alshehhi et al. [19], after reviewing 132 journal articles to find the relationship between sustainable practices and firm performance, found that 78% of the studies showed a positive relationship. Furthermore, Izzo et al. [20] conducted a study to ascertain the extent to which SDGs are disclosed voluntarily in social disclosures and corporate sustainability reporting by Italian listed companies. The findings indicated that the business community is highly aware of SDGs and that the majority of highly traded, liquid, and highly capitalized Italian companies have included SDGs in their disclosure and story-telling practices, despite the fact that the SDGs’ precise nature and requirements, as well as the definitions of specific key performance indicators associated with those goals, remain unknown.

Others, on the other hand, found that the dilemma that firms face between creating value for their stakeholders and the global motive of creating value for society poses challenges to most firms and that, even though most studies show a positive association between sustainable practices and performance, there is a critical view of sustainability strategy implementation as a business plan that aims to influence perceptions rather than reduce environmental or social damage [21]. A study by García-Meca & Ferrero [9] revealed that, for most firms, information regarding SDG practices and reporting is still more symbolic than substantive, supporting the little impact SDG practices have on firm performance and suggesting that firms usually engage in sustainability practices and reporting as a symbolic strategy to address legitimacy issues and respond to stakeholder pressure. They added that this is due to the struggle to reconcile between creating value for firms’ shareholders and complying with the global objective of creating value for society. The research further revealed that, in controversial and environmentally sensitive industries such as alcohol, gambling, tobacco, and firearms, SDG practices and reporting do play a substantive role and enhance firm performance, confirming that, for these firms, SDG practices and reporting allow them to become better and more transparent firms. Thus, only in the case of specific companies, SDG practices and reporting improve performance by reducing information asymmetry or enhancing their image and reputation.

References

Kumar, S.; Kumar, N.; Vivekadhish, S. Millennium development goals (MDGS) to sustainable development goals (SDGS): Addressing unfinished agenda and strengthening sustainable development and partnership. Indian J. Community Med. 2016, 41, 1–4.
Bebbington, J.; Unerman, J. Achieving the United Nations Sustainable Development Goals: An enabling role for accounting research. Account. Audit. Account. J. 2018, 31, 2–24.
Schwerhoff, G.; Sy, M. Financing renewable energy in Africa—Key challenge of the sustainable development goals. Renew. Sustain. Energy Rev. 2017, 75, 393–401.
Kim, R.E. The Nexus between International Law and the Sustainable Development Goals. Rev. Eur. Comp. Int. Environ. Law 2016, 25, 15–26.
Wulf, C.; Werker, J.; Zapp, P.; Schreiber, A.; Schlör, H.; Kuckshinrichs, W. Sustainable Development Goals as a Guideline for Indicator Selection in Life Cycle Sustainability Assessment. Procedia CIRP 2018, 69, 59–65.
Pineda-Escobar, M.A.; Garzon-Cuervo, F. Improving Post-2015 Development Cooperation through Donor Support for Inclusive Business. In Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery; Emerald Group Publishing Limited: Bingley, UK, 2016.
Pedersen, C.S. The UN Sustainable Development Goals (SDGs) are a Great Gift to Business! Procedia CIRP 2018, 69, 21–24.
Barnett, C.; Parnell, S. Ideas, implementation and indicators: Epistemologies of the post-2015 urban agenda. Environ. Urban. 2016, 28, 87–98.
Emma, G.M.; Jennifer, M.F. Is SDG reporting substantial or symbolic? An examination of controversial and environmentally sensitive industries. J. Clean. Prod. 2021, 298, 126781.
PWC. Available online: https://www.pwc.com/gx/en/sustainability/SDG/sdg-reporting-2018 (accessed on 13 November 2021).
Dyllick, T.; Muff, K. Clarifying the meaning of sustainable business: Introducing a typology from business-as-usual to true business sustainability. Organ. Environ. 2015, 29, 156–174.
van der Waal, J.; Thijssens, T.; Maas, K. The innovative contribution of multinational enterprises to the sustainable development goals. J. Clean. Prod. 2020, 285, 125319.
THE 17 GOALS|Sustainable Development. Available online: https://sdgs.un.org/goals (accessed on 18 April 2022).
Scheyvens, R.; Banks, G.; Hughes, E. The Private Sector and the SDGs: The Need to Move Beyond “Business as Usual”. Sustain. Dev. 2016, 24, 371–382.
Adams, C.; The Sustainable Development Goals. Retrieved from Integrated Thinking and the Integrated Report. Available online: http://integratedreporting.org/resource/sdgs-integrated-thinking-and-the-integrated-report/ (accessed on 15 October 2021).
Easter, S.; Ceulemans, K.; Lynn, M.L. Moving Beyond Sisyphus: Pursuing Sustainable Development in a Business-as-Usual World. Bus. Soc. 2021, 61, 924–963.
Muhmad, S.N.; Muhamad, R. Sustainable business practices and financial performance during pre- and post-SDG adoption periods: A systematic review. J. Sustain. Financ. Investig. 2020, 11, 291–309.
Alshehhi, A.; Nobanee, H.; Khare, N. The Impact of Sustainability Practices on Corporate Financial Performance: Literature Trends and Future Research Potential. Sustainability 2018, 10, 494.
Izzo, M.F.; Ciaburri, M.; Tiscini, R. The Challenge of Sustainable Development Goal Reporting: The First Evidence from Italian Listed Companies. Sustainability 2020, 12, 3494.
Brammer, S.J.; Pavelin, S. Corporate Reputation and Social Performance: The Importance of Fit. J. Manag. Stud. 2006, 43, 435–455.

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Subjects: Business, Finance

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Disney Ramos

Shouming Chen

Ahmed Rabeeu

Abdul Basit Abdul Rahim

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Entry Collection: Environmental Sciences

Update Date: 23 May 2022

Table of Contents

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1. Introduction

2. Sustainable Development Goals (SDGs)

3. Sustainable Development Goals (SDGs) and Firm Performance

References