Your Company’s Contribution To The SDGs Under Scrutiny

Yukiko Kuroda is the founder of PFC and also serves on the boards of a number of listed Japanese companies. Learn more about Yukiko here.

How companies engage with the SDGs is being scrutinized

Rishi Agarwal, Managing Director of FSG which specializes in CSV1 consulting, and I co-authored an article entitled "How the Japanese companies can truly contribute to the SDGs - superficial contribution is a big risk" which was posted in the DIAMOND Harvard Business Online (in Japanese) in 2019. I was compelled to write that article out of concerns regarding the way Japanese companies engage with the SDGs. At the time, a research by People Focus Consulting (hereafter PFC) revealed that while 90% of the top 100 Japanese companies in sales officially announced their commitment to the SDGs, many of them were merely linking their types of businesses with the 17 goals of the SDGs. 

Now that we have come almost halfway to 2030, the target year of the SDGs, we are witnessing a movement around the globe to assess the progress of corporate contribution to the SDGs. Already, there are an increasing number of initiatives by NGOs and specialized organizations evaluating companies in each of their expert areas, for example CDP’s ranking of companies for climate change countermeasures. But the effort to evaluate the entire area of SDGs by World Benchmark Alliance (hereafter WBA) may be the first of its kind.

Founded in 2018, WBA has partnered with some dozens of leading NGOs and several major global companies, and its governance committee consists of impressive leaders in this field such as the head of the UN Foundation, Michael Kramer the head of the aforementioned FSG, and the former head of the IIRC (International Integrated Reporting Council) as chairman of the committee. The aim is to select 2,000 companies worldwide that have the biggest impact on the SDGs and evaluate their efforts to achieve them over the next few years.

187 Japanese companies are considered influential to the SDGs

Among the 2,000 companies selected, there are 187 Japanese companies. (WBA states that there are 188 Japanese companies, but PFC took a close look at the list and identified one company that is not Japanese company and so we count as 187.) Included in those 187 companies are some obvious prominent companies such as Toyota Motor Corp. and NTT, but it also includes some mid-sized companies which feels counter-intuitive at first glance. I assume that when you select based on the degree of impact on SDGs, instead of simply selecting by company size, you end up with such list. 

How well do Japanese companies do? 

The WBA benchmark index consists of the following seven areas (or “systems transformations” as WBA calls them).

  • Social
  • Food and Agriculture
  • Decarbonization and Energy
  • Circular
  • Digital
  • Urban
  • Financial System

Different industries have different focus areas, but all industries and companies are to be evaluated in the area of “social”. Furthermore, within “social”, the emphasis is given on how companies deal with human rights issues. This is because the SDGs are based on the principle of "Leave no one behind".

For the automobile industry, benchmarking of human rights indicators has been completed and the results are disclosed. The industry average score is 11.9%, and Japanese automakers cluster around that figure. One should not be relieved just because a score is close to industry average. WBA denounces the automotive industry for its totally inadequate efforts to address human rights issues. One should also note that Ford has scored 41.5 % - far above the average. There is a lot that Japanese car manufacturers need to do.

While evaluations of human rights efforts of companies outside the automotive industry appear to be still ongoing, partial results of some companies are published. Again, the scores of Japanese companies tend to be on low end. However, Fast Retailing stands out as an exception. They scored an impressive 19.5 out of 26 points, well exceeding the apparel industry average of 9.5, ranking in fourth place. (Top runner is Adidas with 23.0 points.)  

Addressing human rights issues is essential for truly contributing to the SDGs

Why are scores of Japanese companies so low? It may be that not enough information is disclosed due to the language barrier. But if they have investors and customers overseas, insufficient information disclosure in English is a problem in itself and is a poor excuse to give. It may also be due to the low awareness of human rights issues in Japan.

What is the problem in proclaiming contributions to the SDGs without addressing human rights issues? As an example, let us consider a company that manufactures and sells indoor running machines. They may claim that they contribute to SDGs’ Goal 3 because their products help to make people healthier. If you try to imagine the kind of people that use such a product and when those products are used, the image that comes in mind most probably is wealthy people who can afford a home that is spacious enough to accommodate one of these machines, using it when they want to run while watching TV or when it is rainy outside. Certainly, the product may contribute to extending the healthy life expectancy of the wealthy, but at the same time it could “contribute” to widening the disparities in health between the rich and the poor. Moreover, if the manufacturing of the product happens to be outsourced to factories in some developing countries with a poor working environment, it could help to damage the health of the workers. If that is the case, the company is not in a position to claim that they contribute to the SDGs’ Goal 3. If they truly want to contribute to Goal 3 while respecting the SDGs spirit and philosophy, they need to work on “access to health” issues and protect the human rights of workers in the company's supply chain so that no one will be left behind.

I believe that we will be seeing more of such benchmarking and third-party evaluation of corporate efforts for SDGs. I heard that a platform that uses artificial intelligence to uncover "fake ESG" has been launched. "Pretending to be doing SDGs" is no longer acceptable. The WBA is aiming to complete the evaluation of all 2,000 companies by 2023. Perhaps companies should review their efforts on SDGs to see if they are really aligned with the aim and spirit of the SDGs before then. 

1CSV = Creating Shared Value – a concept developed by Michael Porter and Mark Kramer