Five steps to aligning the SDGs with the Integrated Reporting Framework

By Carol A Adams

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.

This article identifies five steps for embedding the SDGs in alignment with the valuation creation process of the <IR> Framework. 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.

The external environment must be considered in the value creation process (para 2.21). Examples of relevant external environment issues identified in the <IR> Framework are: societal issues, such as population and demographic changes, human rights, health, poverty, collective values and educational systems; environmental challenges, such as climate change, the loss of ecosystems, and resource shortages as planetary limits are approached (para 4.7).  These relate directly to a number of SDGs.

Externalities may ultimately increase or decrease value created for the organization; therefore providers of financial capital need information about material externalities to assess their effects and allocate resources accordingly (para 2.8).

The Board has responsibility to create an oversight structure to support value creation (para 2.22) in light 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.

Value is created for the organisation and for others through increases, decreases and transformation of the capitals (para 2.4)

The ability of an organization to create value for itself is linked to the value it creates for others (para 2.6)

The materiality process involves identifying, evaluating and prioritising matters based on their ability to affect value creation (para 3.18)

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 (para 3.3).  An organisation’s ability to create value is influenced by the external environment (see Step 1).

The organisation’s strategy identifies how it intends to mitigate or manage risks and maximize opportunities.  It sets out strategic objectives and strategies to achieve them, which are implemented through resource allocation plans (para 2.27).

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).

The <IR> Framework requires integrated reports to respond to the needs and interests of stakeholders (para 3.10) noting that value is created through relationships with others (para 3.11). Economic, environmental and social issues which are important to stakeholders also affect the ability of the organization to create value (para 3.12).

Those charged with governance are called on to acknowledge “their responsibility to ensure the integrity of the integrated report” and that they have “applied their collective mind to the preparation and presentation of the integrated report” (para 1.20).

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.

The <IR> Framework requires organisations to consider how the external environment (and explicitly social and environmental issues) influence value creation.  It requires organisations to identify and prioritise those issues, engage with stakeholders in that process and develop strategy which considers the risks and opportunities those external environmental issues give rise to.

Aligning with the SDG Compass

The main focus of the SDG Compass developed by the GRI, UNGC and WBCSD[1] (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 the five steps identified above can use the indicators to report on their material SDG outcomes determined through the five step process identified above.

The SDG Compass also sets out five steps for companies to follow arguing that doing so will assist them in ‘maximising their contribution’ (p5) to the SDGs.  The five step process for responding to the SDGs through integrated reporting is aligned to the five steps of the SDG Compass are: 1. Understanding the SDGs; 2. Defining priorities; 3. Setting goals; 4. Integrating; 5. Reporting and communicating.

Carol Adams is authoring a report for the IIRC and ICAS in collaboration with the Green Economy Coalition on Integrated Reporting and the SDGs.  We welcome your feedback on this article.

[1] Global Reporting Initiative (GRI), United Nations Global Compact (UNGC) and the World Business Council for Sustainable Development (WBCSD) (2015)

Share this article

Comments

  1. A solid piece of work. Thank you Carol.

    To truly embed the SDGs, I would like to see an organization report on
    – how their executives short and long term pay incentives are assigned in terms of achieving the goals set in reference to the SDGs; and
    – how their bonuses are awarded.

    • It would be indeed be very appropriate to include this information in integrated reports which are intended to encourage consideration of issues sustainable development issues impacting on long term performance.

Speak Your Mind

*