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ComplianceESG25 setembro, 2024

Sustainable Development Goals (SDGs) – Internal Audit’s role in assuring organizational responses

In this article, we'll cover the following topics:

What are the 17 Sustainable Development Goals (SDGs)?

The Sustainable Development Goals (SDGs) are part of the ongoing international focus on sustainable development that originally began at the United Nations Conference on Environment and Development (generally known as the “Earth Summit”) in Brazil in 1992. The SDGs replaced, and built on, the Millennium Development Goals, an earlier set of goals agreed upon by all United Nations members in 2000. Conceived in 2012, the SDGs were agreed at the UN Sustainable Development Summit in 2015 as a core part of an agenda for sustainable development.

The SDGs are comprehensive, ambitious, and cover a wide range of social, economic, and environmental issues, as follows:

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

Each of the goals is supported at a global level by specific targets, 169 in total, with related indicators focused on delivering progress by 2030. There are also several thousand “actions” – commitments from nations, multilateral agencies, and a wide range of other bodies – aimed at supporting the delivery of these goals.

The United Nations (UN) provides detailed descriptions of the goals, as well as greater context about the targets, and is a useful resource for those wanting a more in-depth understanding. 

Governance over the SDGs is primarily at the global level, provided by the UN’s forums, conferences, and agencies. To help support this, an annual progress report is produced.  Additionally, many countries also have plans and varying governance arrangements to implement actions and monitor progress. 

SDGs and strategy – Who uses them and how?

As noted above, many countries have made commitments and have plans to work toward the SDGs. Regional and local governments are also important actors – as referenced in this UN report which further describes these potential roles. In practice, the role of sub-national governments varies widely, given the very different structures of government and differing requirements passed down from national governments. However, many sub-national government organizations do use SDGs with regards to setting policy and decision-making. They may also use the goals in their external reporting. 

Similarly, the use of SDGs by other public and private sector organizations varies widely. Some sectors are leading the way in aligning with SDGs. Higher education, for example, created the Higher Education Sustainability Initiative in 2012. Several of these institutions are using SDGs in the design of their curricula, as well as other activities, and are using progress against key targets in reporting. 

Many corporations have not embraced SDGs at all. However, with stakeholder pressure this is changing. In many cases, it is indirect (through sustainability or ESG strategies) but some are using the SDGs in their activities and their reporting. As you might expect, given no common framework, approaches vary significantly. Unilever, for example, highlights partnerships to show its contribution to SDGs, as well as pointing to its sustainability plans; although these plans are not clearly and directly linked to specific SDG goals. BMW describes its sustainability goals and identifies the 13 SDGs that it can directly impact and explains the significance of each of these to BMW’s products and operations. 

Investors’ interest in sustainable investment has grown enormously over the last two decades. The alignment with SDGs is perhaps not always apparent, given the number of other approaches available, but a 2023 survey found that 75% of investors tracked investments using the SDGs in 2022. However, some, such as Robeco, have developed SDG-aligned approaches to evaluating investments, while others, such as Allianz, have created funds focused on SDGs. Some banks, such as BNP Paribas, are actively working to direct capital towards SDG impacts; although perhaps the biggest focus is from the Multilateral Development Banks, where SDGs are often at the core of their activities. These financing activities all fall into the broad topic of “Impact Investing” where investments are made and evaluated with the joint goals of making social and/or environmental impacts (which may or may not be explicitly linked to SDGs) alongside financial returns.

Risk and assurance frameworks for SDGs

Whilst this and the next sections are written with a focus on SDGs, most of the ideas also apply to other forms of impact assessment and reporting, whether using an industry framework or developed in-house.

There are a wide range of impact methodologies. Governments, international bodies such as UN agencies, and development organizations, have been using them for decades, where financial impacts need to be assessed alongside other impacts, commonly social, economic, or environmental. The most relevant are the SDG Impact Standards produced by the United Nations Development Programme (UNDP). These provide high-level principles and a decision-making framework covering strategy, management approaches, transparency, and governance requirements for different types of organizations, alongside guidance on impact management tools and disclosures.

As yet, there is no common SDG assurance framework. The UNDP is developing one which is currently being piloted. This will be an important source for those implementing SDG alignment processes, as well as those such as internal audit assessing their effectiveness in decision-making.

How internal audit can support SDG implementation

Understanding the risks associated with SDGs

As always, internal audit needs to understand and assess potential risks. Typically these will fall into the following areas:

  • Reputational risks around greenwashing (or rainbow-washing as it is sometimes called, in reference to the multi-colored representation of the SDGs). This can be from misleading or inaccurate commentary or public disclosure, or from not meeting commitments that have been published.
  • Financial risks where, for example, an organization has taken loan finance based on ESG commitments or where a fund manager has made commitments regarding the SDG impact of investments. This may result in finance being withdrawn or higher costs.
  • There may also be a regulatory impact if stakeholders have been misled.

SDG assurance – Options for internal audit

Clearly, internal audit can play a variety of different roles depending on the risks, the stage of implementation and operation, the nature of the organization, and respective priorities. Very little has been written about internal audit’s role, but we can learn from other activities as well as our own expertise in auditing new areas. Much of the focus has been on the role of “Supreme Audit Institutions” (generally central government audit units) in assessing the progress of their governments’ progress (refer to this report by the ACCA). While only directly relevant for those in such organizations, this provides useful background and some ideas which are transferable. There are also established processes for assessing impact and providing assurance over outcomes which we can learn from. If SDGs are used either in decision-making or reporting in your organization, consider the following as potential areas of scope:

  • How does SDG alignment interact with other sustainability initiatives and strategies?
  • How have relevant SDGs been selected? Do they make sense for the organization? (Some issues will generally be more relevant than others depending on the organization.)
  • What commitments have been made, and to which stakeholders?
  • How have targets been set? Are they organization-wide or project-specific? Is there an appropriate basis?
  • How are outcomes measured, and what assurance is available?
  • What monitoring is in place to assess and measure progress? Is there appropriate oversight?
  • What reporting is in place, both internally and externally? There is no standard for SDG reporting, but this article by GRI provides some useful observations and guidance. It is possible that there may be more alignment with major standards in the future.

These questions will help determine the scope. Internal audit can play an important role in the implementation of processes around SDGs, ensuring appropriate governance and processes to set targets, monitor and assess outcomes, and assure report effectiveness. Internal audit can go further and assess these specific processes, for example, to give assurance on project impacts or confirm the accuracy of SDG reporting as for any other sustainability or ESG reporting

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Conclusion

SDGs provide a basis for the development and protection of humanity. However, they do not easily translate into tools which can be readily used by all organizations, and other ESG initiatives are often easier to implement. For this reason, there will not always be a role for internal audit. Where they are used, internal audit can get involved and help ensure a structured, well-controlled approach is developed at all stages of the cycle. Even if your organization has not specifically embraced the SDGs, the considerations in this article are applicable to other situations where social and/or environmental impact is evaluated, assessed, and reported.

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Kevin Gould
Non Executive Director, Chair of Risk and Audit Committee
Kevin is a Chartered Accountant with a strong background in Internal Audit and a recent focus on ESG. He has 25 years of experience as a consultant, adviser and auditor.
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