26 February 2020

Banking industry aligns with business to support the SDGs

Stanley Hsiao

HSBC Taiwan’s Head of Commercial Banking

The Business Roundtable’s recent re-statement of corporate purpose spurred heated debate. By dropping the shareholder-first doctrine in favour of a broader responsibility to customers, employees, suppliers and communities. HSBC’s Navigator survey of 9000 firms reveals a global business community ready to address societal challenges. 63 per cent of businesses around the world recognise their role in achieving the Sustainable Development Goals (SDGs), the United Nations (UN) designated blue-print of a sustainable future for all.

It’s not unexpected because businesses have always existed to create value - but what constitutes value continues to evolve.  Where once it was narrowly measured in terms of pure profit, in recent decades this broadened to measure total shareholder return. Today there is an emerging recognition that companies’ license to operate depends on an implicit contract with society.  Value increasingly reflects a more holistic view incorporating the full financial, social and environmental impacts of a business, from sourcing to production to disposal. And recognises that supply chains are responsible for 90 per cent of companies’ environmental impact.

There’s clearly a long way to go, which is why business, policymakers and regulators must collaborate and coordinate action to address two challenges. The first is measurement. A broader definition of value creation demands improved measurement. HSBC’s survey shows businesses are frustrated by inconsistency in environmental, social and governance (ESG) criteria. There is a consistent gap between indicators companies’ state as relevant and those they measure. Common frameworks and standards can unleash action. Greater alignment in how companies report would enable peer comparison. The resulting competitive pressure can drive progress.

Greater transparency and measurement would also help address the second challenge: finance. It is identified as the largest barrier to becoming more sustainable. An additional annual investment of around USD2.5 trillion is required to meet the UN goals. Banks can act as a catalyst for action through enabling large corporates to deliver sustainable outcomes in their supply chains. SDG linked financing can also unlock new capital.

If business value increasingly reflects return to society, it follows that these wider societal factors will inform financing decisions. It will be those business leaders who adjust their purpose accordingly, and account for societal impacts across their supply chains, that will generate sustainable value over the long term for all.

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