Clifford Chance

The Sustainable Development Goals have become well established as an effective framework for moving responsible businesses practices to the centre of a company's long-term strategy.

The Sustainable Development Goals (the "SDGs"), adopted by all 193 UN Member States in 2015, aim to produce a set of universal goals that meet the urgent environmental, political and economic challenges facing our world.

Since their adoption, companies have incorporated the language of the SDGs into their CSR pitches, and used the SDGs as a benchmark for their ESG investing.

The SDG's cultural impact has developed an expectation among external stakeholders that companies should be helping, for example, to reduce inequalities [SDG 10], take action to combat climate change [SDG 13], and bring individuals out of poverty and hunger [SDGs 1 and 2]. SDG 12.6 specifically calls on member states to "encourage companies, especially large and transnational companies, to adopt sustainable practices".

Less well understood is the influence of the SDGs in directing the core profit-making strategy of major businesses, to improve outcomes for their own shareholders, as well as external stakeholders. Such strategies go beyond the CSR impact of a business, or the use of ESG investing for portfolio diversification, and place the SDGs at the centre of how businesses allocate their resources.

In a survey for Advocates for International Development ("A4ID"), Clifford Chance's offices in Delhi, London and Newcastle have looked at a slate of 50 companies spanning corporates, financial services, industrials, TMT, healthcare, energy and mining to see how key industry players are incorporating the SDGs into their core practice. This blog highlights some illustrative examples.

All 50 companies surveyed use language analogous to the SDGs in branded materials when presenting business strategy and results. 48 companies directly referenced the SDGs when doing so. The two exceptions, Blackstone and Vanguard, still used comparable language in their public statements.

For example, Blackstone's November 2021 update: "An Integrated Approach to ESG" declares an intention "to embed an assessment of physical climate risk within certain due diligence and asset management activities"[SDG 13, climate action], "actively partnering with [their] companies to help put them on a lower-carbon trajectory" [SDG 17, partnerships for the goals].

There are, unsurprisingly, many statements of intent. More interestingly, we have looked at the extent to which SDG-influenced strategy has been actively implemented. Two examples from AB InBev and Vanguard illustrate this.

In February 2021, advised by Clifford Chance, AB InBev announced that it had arranged access to a USD 10.1 billion Sustainability Linked Revolving Credit Facility ("SLRCF"), the largest in history. The facility has an initial term of five years, with an option to extend by a further two. It is provided by a consortium of 26 financial institutions, with ING and Santander acting as Joint Sustainability Coordinators, and incentivises improvement in four key performance areas aligned with the company's "2025 Sustainability Goals". These areas are:

1. Further improving water efficiency in AB InBev's breweries globally [SDG 6, clean water and sanitation];
2. Increasing PET recycled content in PET primary packaging [SDG 12, responsible consumption and production];
3. Sourcing purchased electricity from renewable sources [SDG 7, affordable and clean energy]; and
4. Reducing greenhouse gas emissions [SDG 13, climate action].

Prior to AB InBev's new facility, the largest SLRCF was Royal Dutch Shell's, at USD 10 billion, developed in 2019 with advice from Clifford Chance. In line with SDG 13, interest rates and fees on the facility were directly linked to Shell's progress in reaching its targets in reducing its net carbon footprint. Bank of America and Barclays acted as joint co-ordinators for the facility.

In March 2021, Vanguard, an investment advisor with about USD 7 trillion AUM, became a signatory to the Net Zero Asset Managers ("NZAM") initiative, alongside other major investors like BlackRock and Macquarie. NZAM asks its signatories to commit to supporting the goal of net zero greenhouse gas emissions by 2050, with interim targets for 2030. Part of the signatories' commitment is to "work in partnership with asset owner clients on decarbonisation goals consistent with the ambition to reach net zero emissions by 2050 or sooner across all AUM." Vanguard's accession is illustrative of an industry-wide trend; NZAM has over 236 signatories with a combined USD 57.5 trillion AUM in any industry estimated to hold USD 103 trillion AUM in 2021.

The passive arm of Vanguard's investment business therefore requires Vanguard to work directly with its clients and companies [SDG 17, partnerships for the goals] to cut their emissions towards the NZAM goal of each signatory holding 100% of AUM aligned with net zero emissions by 2050 or sooner [SDG 13, climate action].

The success of the company and the benefits for its shareholders have become the clear justifications for moving responsible businesses practices to the centre of a company's long-term strategy, and the SDGs have become well established as an effective framework for this.