The relevance of a better world : the business materiality of the Sustainable Development Goals

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The relevance of a better world: the

business materiality of the Sustainable

Development Goals

Thesis

MSc. Business Administration - Marketing University of Amsterdam

Name: Anne E.M. Bonsing Student number: 11123192 Supervisor: Dr. Lars Moratis Date: June 23, 2017

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Statement of originality

This document is written by student Anne Bonsing who declares to take full

responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and

that no sources other than those mentioned in the text and its references have

been used in creating it.

The faculty of Economics and Business is responsible solely for the

supervision of completion of the work, not for the contents.

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Acknowledgement

This research marks the end of my time as a student at the University of Amsterdam. My already big interest in sustainability and how to make organizations more sustainable has without a doubt further increased during this research. The Sustainable Development Goals highlight the world’s most pressing issues and call on every government, every organization and every person to critically look at business and life as-usual and to make the necessary changes to ensure there will be a future for all of us. The believe that the Sustainable Development Goals are more than just a business opportunity for organizations has led to this research. The research has contributed to my understanding of the goals and deepened my knowledge around sustainability in general. It also has made me aware of the challenges that organizations face and the complexity of embracing the Sustainable Development Agenda.

I would like to thank everyone who contributed to or supported me through the course of this research. Especially the managers who found time in their busy schedules to share their thoughts on the SDGs and the challenges the goals pose. Their openness made all the conversations equally interesting and insightful and contributed greatly to this research. Finally, I would like to thank my supervisor, Dr. Lars Moratis, whose personal interest in the research, his support, his guidance and his (positive) critics were of great value.

I hope you enjoy reading!

Best,

Anne Bonsing

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Abstract

The Sustainable Development Goals (SDGs) are addressing the most pressing issues in today’s world and dominate the agenda of global and national governments. Though the goals are not legally binding, they form the roadmap regarding policy development at global and national levels (wbcsd, 2016). The goals also call explicitly on business; without their support the goals will not be achieved. According to those who have been involved with the formulation of the goals the SDGs present the biggest business opportunity until 2030. Organizations need healthy societies and societies need healthy organizations (Porter & Kramer, 2006). The SDGs aim to create stable markets and societies, and thus support the fundamental pillars on which successful organizations are built. As Paul Polman, CEO of Unilever, stated: ‘It is not possible to have a strong, functioning business in a world of increasing inequality, poverty and climate change’ (wbcsd, 2016).

The business case for the SDGs thus seems evident and prominent, though positioning the SDGs as a business case opportunity also has its risks. This research focused on investigating whether the SDGs align with instrumental views on sustainable business since a business case approach to CSR finds its origin in instrumental theories. At the start of the research it was, based on first indications, assumed that the SDGs do not align with instrumental views on sustainable business. The research was conducted through an analysis of the materiality assessments from the AEX-listed organizations. The results supported the assumption that the SDGs were not material for organizations. The items in the materiality matrixes of the organizations were predominantly self-serving and covered mostly items that had financial impacts for the organization. The literature review aimed to investigate if and how the SDGs were anchored in literature on instrumental CSR theories. It appeared that the SDGs do not align with instrumental views on sustainable business on several points. First, instrumental CSR approaches are more short-term oriented whereas the SDGs have long-term focus. Second, instrumental CSR focuses on those activities that have a win-win opportunity (Garriga & Melé, 2004). Only addressing the SDGs that have a win-win opportunity would mean that most of the SDGs will not be considered/ included. Hence, significant progress on the goals will not be achieved. The research stressed the importance of positioning the SDGs as more than a business opportunity and questioned whether the business case positioning will lead to the desired results. The research is concluded by raising the question whether an instrumental approach to CSR is the right one. Sustainability is a moral issue which thus far has

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been addressed predominantly from a business point of view. While maybe the focus should more be on the moral obligation organizations have towards sustainable development instead of focusing on how sustainability can mainly beneficial to the organization.

The findings contributed to the existing literature on instrumental CSR theories and extended the current knowledge around the SDGs. The research was relevant to managers as well and contributed to a better understanding on how to position the SDGs.

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1. Introduction

1.1 Background

By 2030 the world population is expected to reach 8.5 billion (UN News Centre, 2015). This growth brings its challenges in multiple ways, not only are the populations of some of the poorest countries expected to grow fastest this growth will have a tremendous impact on the earth itself. Technology and innovation have reached unexpected heights and developments follow each other faster than ever. All these innovations and advancements are, unfortunately, not solely bringing good things. These are taking their toll on the earth and its living species.

Global warming is not something that is vague and abstract, it is undeniable. The figures do not lie. The earth has never been as warm as it is right now and if we, humans, continue to live as we are doing right now and do not take any action, the damage to the earth will be immense (Geggel, 2017). Next to this, the developments in the world have not been fairly spread. Some countries have flourished, while quite a number of countries have suffered for various reasons. A large part of the world’s population does not have access to water, food, housing and sufficient medical care. To address these issues there is a growing demand for sustainable development. Sustainability focuses on ‘environmental and community stewardship’ (Porter & Kramer, 2006). In the 1980’s sustainable development was defined by the Norwegian Prime Minister as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (World Commission on Environment and Development, 1987, p. 41).

The Sustainable Development Goals (SDGs) have been formulated as a follow up on the Millennium Development Goals (MDGs) and consist of seventeen goals. The United Nations were responsible for the development of the goals. The goals were adopted by the world leaders in September 2015 and were officially launched on 1 January 2016 (http://www.un.org/sustainabledevelopment/development-agenda/). The seventeen goals cover all items that according to the United Nations deserve immediate attention and where significant progress needs to be made by 2030. Where the MDGs where mainly focusing on social and economic items the SDGs also focus on environmental items (Griggs, 2013). Another difference with regard to the MDGs is that the SDGs call explicitly on business to adopt the goals and integrate them in their strategies. United Nations Secretary-General Ban Ki-moon stated that ‘business is a vital partner in achieving the Sustainable Development Goals. Organizations can contribute through their core activities, and we ask organizations everywhere

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to assess their impact, set ambitious goals and communicate transparently about the results’ (GRI et al., 2015, p. 4).

The demand for sustainable development has also lead to increased pressure from activists, consumers and other stakeholders on organizations (Porter & Kramer, 2006). In a response to these increased pressures organizations have started to share the outcomes of their environmental and social activities. Corporate social responsibility refers to an organization’s (voluntary) activities which demonstrate the inclusion of social and environmental issues in their business operations and in the interactions with their stakeholders (van Marrewijk, 2003). Throughout history a lot has been written and said with regard to CSR. A dominant discourse in the sustainability literature has been the instrumental approach to CSR. Within the instrumental theories CSR is viewed as a strategic tool that could lead to wealth maximization. The instrumental discourse states that there is a business case for sustainability (Vogel, 2005). To identify the possible business case organizations should not only focus on their own concerns but consider a broader group of stakeholders, which was the introduction of the concept of materiality in the field of sustainability (Zadek & Merme, 2003). The Global Reporting Initiative built further on the concept of materiality and introduced materiality assessments as we know it today (GRI, 2016a). In the GRI reporting guidelines a materiality assessment is used to identify the topics that are of concern to both the organization and its stakeholders. Materiality assessments identify those sustainability topics that are most relevant from a business-point of view. The materiality assessment thus serves as a justification for the organization’s activities and identifies sustainability topics that have a win-win opportunity. A materiality analysis is considered to be one of the most important tools to make sustainability relevant from a business case point of view and thus from an instrumental CSR approach.

1.2 Research gap

The SDGs form the dominant sustainability agenda of nations worldwide. Global and local authorities have the SDGs high on their agenda and are expected to make a significant positive impact by 2030. The goals have called specifically upon organizations: without the support of organizations the goals will not be achieved. The SDGs are positioned as the biggest business opportunities for organizations until 2030 to encourage organizations to embrace the SDG agenda (wbcsd, 2016).

Business case thinking within sustainability finds its origin in instrumental CSR theories. These theories for instance link CSR to corporate financial performance (CFP) (Carroll & Shabana, 2010). The essence of instrumental views on sustainable business is that

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the organizations involvement in CSR activities should lead to a better financial performance of the organization. Organizations that have an instrumental view on sustainability see CSR mainly as a tool that is mainly beneficial for the organization.

The essence of the SDGs is to address the most pressing sustainability issues the world is facing, by addressing those issues organizations might be able to unlock new markets. But the SDGs are not an agenda that focusses on how organizations can increase their profits. Thus, the question arose to what extent positioning of the SDGs as business case opportunity will lead to the desired effect? Business case thinking leads to cherry-picking of activities that contain easy to grasp opportunities and lead to immediate benefits (Nijhof & Jeurissen, 2010). A business case for CSR might accelerate addressing certain sustainability issues as it outlines the win-win opportunity for organizations. The down side of the business case positioning is that the organizations will only pick those opportunities that have the win-win opportunity and leaving other issues where the win for the organization is not visible unaddressed.

Positioning the SDGs as a business case opportunity could therefore mean that organizations will cherry-pick those SDGs that have the quick wins and are easy to implement in the organization, while leaving other, maybe even more important, SDGs out of scope. Hence, the question was raised to what extent do the SDGs align with instrumental views on sustainable business?

As the SDGs were officially launched in January 2016, there has not been (much) research on this topic. Existing literature on instrumental CSR theories was explored as well as the positioning of the SDGs within organizations, and the outcomes of both parts were linked to see whether and to what extent there is an overlap between the SDGs and instrumental thinking.

1.2.1 Instrumental views on sustainable business

There is quite some literature available about instrumental views on sustainable business. Garriga and Melé (2004) stated that organizations following an instrumental approach use CSR as an opportunity to increase profit which could lead to shareholder wealth maximization. Throughout the years, it has been stated that a pure focus on shareholder wealth maximization would lead to a negative outcome for other stakeholders. Jensen (2000) contributed to this thinking through the introduction the ‘enlightened value maximization’ concept. According to him profit maximization does not mean ignoring the interests of other stakeholders. He argues that satisfying the needs/ concerns of the stakeholders could lead to an increase of the shareholder value.

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1.2.2 Materiality assessments

Satisfying the needs of the organizations as well as the organization’s, can only be done once the organization has identified what those needs are. This was how materiality assessments have found their way into sustainable business (Zadek & Merme, 2003). Materiality assessments are the outcome of an investigation into the most important topics to an organization as well as its stakeholders. The material topics guide organizations and justify an organization’s activities, since the activities are linked to the items that stakeholders find important (GRI, 2016a).

Since the materiality matrixes cover the most important sustainability topics and outline the business case opportunities for an organization, this research focused on investigating the overlap of the SDGs with the material topics of an organization.

First insights gave reason to believe that (not all) the SDGs are material to organization. These first insights came from a few exploratory analyses where the focus was on analyzing what organizations said about the SDGs and what items they covered in their materiality matrixes. This preliminary research indeed indicated that the SDGs where not mentioned as a material topic. Thus, indicated the research opportunity.

Research on this topic was very important. As mentioned earlier the business case positioning of the SDGs contained the risk of cherry-picking. Though, if the SDGs truly have a business case it would be expected that organizations see that opportunity as well. Organizations use materiality assessments to identify the sustainability topics that have a business case. Hence, one would expect that the SDGs are a material topic to organizations. First insights however have suggested otherwise. Since the SDGs form the dominant sustainability agenda it was important to find out how organizations look at the SDGs and if and how they contributed to the SDGs. The United Nations has explicitly called upon business to adopt the SDGs: without their support, it will be impossible to achieve the desired results by 2030. If the material topics of organizations do not overlap with the topics covered in the SDGs it might become very difficult to achieve the 2030 agenda. It is crucial that organizations will embrace the SDGs and, together with governments and other institutions, work towards achieving the goals.

The SDGs however, were not developed based on literature, but were formulated by the United Nations and address those items that are most critical and visible in our world. The SDGs look at the world in a holistic kind way, whereas organizations look at SDGs from their core business and from a viewpoint of their stakeholders. Thus, the question was raised again: will a business case positioning of the SDGs lead to the desired outcomes? And do the SDGs

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align with instrumental views on sustainable business? Therefore, the focus of this research will be on answering the following question:

To what extent do the Sustainable Development Goals align with instrumental views on sustainable business and what are the implications of this for encouraging organizations to embrace the Sustainable Development agenda?

1.3 Relevance & Impact

The focus of this research will be on investigating if and to what extent the SDGs align with instrumental views on sustainable business. The materiality assessments of organizations will be analyzed to investigate if and to what extent the SDGs show overlap with the material items of an organization.

As mentioned earlier, the assumption has been made that the SDGs are not (completely) aligned with the material items of organizations. This assumption was strengthened when the article ‘Raising the bar: rethinking the role of business in the Sustainable Development Goals’ was published in February 2017. Currently, organizations are cherry-picking SDGs, a situation where they focus on those SDGs that entail win-win opportunities (Agarwal, Gneiting & Mhlanga, 2017). If the SDGs are to be achieved, substantial changes in organizational behavior are required. The authors state that currently organizations approach the SDGs too superficial, while instead they should critically assess where their business operations have the greatest, positive or negative, impact.

This research contributes in multiple ways. First of all, since the SDGs will form the dominant sustainability agenda until 2030 and the SDGs are positioned as the biggest business opportunities for organizations for the coming years, it is crucial to find out whether organizations also see the SDGs as relevant. Since first insights give the impression that not all SDGs are covered in the materiality analysis of organizations, it is important to find out to what extent there is an overlap. The positioning of the SDGs as business case opportunities could affect the way organizations look at the SDGs and thus have consequences for the integration of the SDGs within an organization. If indeed the assumption that the SDGs do not align with instrumental views on sustainable business appears to be valid, the research will explore how organizations can be encouraged to embrace the SDG agenda. And thus, will contribute to the achievement of the 2030 agenda.

Secondly, this research is relevant to managers and organizations in the way that the SDGs are reflecting those items that are material to our world and we need to be acted upon. However, without organizations embracing the goals it will be impossible to reach the goals.

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Paul Polman, CEO of Unilever, has already acknowledged that the SDGs offer organizations ‘the greatest economic opportunity of a lifetime’ (n.d.). Organizations might not be able to adopt the SDGs right away and would need to adapt their business models, but according to Polman, the potential value that can come from embracing the SDGs is worth the investments. Climate action goals are related to higher returns on investment and contributing to the development of third world countries could unlock business opportunities in these markets. As Agarwal et al. (2017) mentioned the business case for the SDGs might not be relevant to all SDGs and to all organizations. This research provided insights and suggestions that can help organizations with the integration of the SDGs in their operations.

Finally, this research contributed to the existing literature in multiple ways. First, the research explored a field that was new and unaddressed. The research linked the SDGs, which have been positioned as the biggest business opportunity to encourage organizations to embrace the goals, to existing literature around instrumental views on sustainable business. Agarwal et al. (2017) were the first ones to criticize the positioning of the SDGs as business opportunity, however this research was the first one that linked the SDGs to instrumental theories on CSR (Carroll & Shabana, 2010; Vogel, 2005). The outcomes of the research were linked to existing theories to see whether the findings were grounded in theory. Secondly, the implications and possible risks of positioning the SDs as the biggest business opportunity have been explored by assessing the relevant literature on instrumental CSR theories. This research was also the first research that linked the SDGs to existing literature that criticized the business case positioning of sustainability (Nijhof & Jeurissen, 2010; Baden & Harwood, 2012; Banerjee, 2007; Fleming & Jones, 2013). Linking the SDGs to these critical views on sustainable business was important, since it explored if and how the SDG positioning was anchored in the literature. Overall, this study provided new insights on what the implications are for positioning a practical concept as business opportunities when linking that concept to existing theories around instrumental CSR theories.

This research sheds light on a topic that will dominate the sustainability agendas of all nations worldwide. Its aim is not to criticize the SDGs nor the sustainability strategies of organizations but rather to explore how organizations could adopt the SDGs and contribute to achieving the goals. The SDGs reflect the world’s most pressing issues and without the support of organizations and their adoption of the SDGs the world is not going to be a better place.

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1.4 Structure

The paper is structured as follows. First, existing literature on CSR and instrumental theories were thoroughly explored. The SDGs, their purpose and the first critiques on positioning the SDGs as business opportunity were explored in the second part of the literature review. Since the assumption that the SDGs do not align with instrumental views on sustainable business was the starting point of this research, based on literature findings hypotheses were formulated that support the assumption. Following the literature review, the methodology and the data collection process are explained.

This research had a qualitative and explorative approach. A grounded theory approach was found to be especially suited for this research (Glaser & Strauss, 1967). A grounded theory approach uses both inductive and deductive research strategies, which was useful for this research. Deductive reasoning was used during the preliminary literature review, which outlined the current state of the field. The literature review focused on understanding instrumental views on sustainable business as well as on understanding how and why the business case approach towards CSR has been criticized in the past. The acquired knowledge was in a later stage transferred to the positioning of the SDGs to investigate whether the SDGs align with instrumental views on sustainable business. Hypotheses were formulated and a conceptual framework was created based on the findings from the literature review. Since this research had an exploratory nature the hypotheses and the framework were refined in the discussion section of this paper.

The organizations in scope of this research were the AEX-listed organizations and the data collection consisted of secondary documentary analysis, which is a research type that is often used in an exploratory research and a grounded theory approach (Saunders, Lewis and Thornhill, 2009; Glaser & Strauss, 1967). The documents used for this research were annual reports and/or sustainability reports and the corporate websites. The materiality assessments of the organization and any information the organization shared on the SDGs were used to investigate whether the SDGs were material to organizations and to finally, answer the research question.

Chapter 4 gives the results of this research. In chapter 5 the outcomes of the research as well as the limitations are discussed. Recommendations for further research are given in chapter 5 as well. The paper is concluded by a final conclusion on the research.

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2. Literature Review

2.1 CSR Background

The concept of Corporate Social Responsibility has a long history. Since the 1950s, the concept of CSR as we know it today has been on the rise. Though, some researchers have traced the beginning of CSR back to the late 1800s to the start of the industrial revolution (Carroll, 2008). Back in the 1950s CSR was more approached in philanthropic ways, through sponsoring of various activities and corporate or private donations (van Marrewijk, 2003). The available literature on CSR is extensive, contains many different definitions of CSR and throughout history, described many different perspectives on CSR. According to van Marrewijk (2003) the literature can broadly be divided in three approaches.

The first one is the shareholder approach and its famous contributor is Friedman (1962) who stated that ‘the only social responsibility an organization has is to increase its profits’. Friedman’s point of view shaped the shareholder approach. Organizations are involved with CSR only when it is financially beneficial for the organization and thus its shareholders (van Marrewijk, 2003).

The second approach is known as the stakeholder approach. Freeman and McVea (2001) stated that organizations should not only focus on the shareholders but on all the groups that have ‘a stake’ in the business. The stakeholder approach is characterized by balancing and managing the interests and relationships among all stakeholders in such a way that the achievement of the organization’s objectives is secured (Freeman & McVea, 2001; van Marrewijk, 2003).

The societal approach is the third approach and as the name suggests, this approach stated that since organizations are part of society, they have a responsibility to the society as a whole (van Marrewijk, 2003).

The three aforementioned approaches outline the complexity of the field and also suggest that organizations have been active in a wide variety of socially responsible activities (Chernev & Blair, 2015). These three approaches also indicate that finding one clear definition of CSR will be close to impossible. Dahlsrud (2006) created an overview of the 37 most used or most cited definitions of CSR. According to him, many authors and researchers have tried to give a clear definition of CSR in order to develop a better understanding of the concept. During his extensive literature research, he developed a coding scheme and he found that all definitions were referring to at least one of five dimensions: environmental dimension, social dimension,

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economic dimension, stakeholder dimension and the voluntariness dimension. He also found that 97% of the definitions were related to at least three dimensions. The environmental dimension was mentioned least frequent compared to the other dimensions. Dahlsrud argues that this could be because the earliest definitions of CSR did not include the environmental dimension and this might have impacted definitions that were formulated in a later stage. The five most frequently used definitions of CSR are given in figure 1.

Figure 1. Corporate Social Responsibility definitions (Dahlsrud, 2006, p. 7)

Looking at these definitions, it became apparent that a combination of the three identified CSR approaches that were discussed earlier are often mentioned in one definition and are thus not mutually exclusive but rather intertwined.

These definitions might suggest that organizations active in CSR would be perceived as ‘better’ organizations. Nevertheless, throughout history, there has been a lot of CSR skepticism and organizations’ activities with regard to CSR have been marked as window-dressing (Friedman, 1962; Aguilera, Rupp, Williams & Ganapathi, 2007) or, more recently, as green-washing, making the activities look better than they are (Mahoney, Thorne, Cecil & LaGore, 2011). Ellen, Webb and Mohr (2006) found for instance that whether organizations that are involved in CSR have a better reputation than organizations who are not involved in CSR depends on the CSR associations consumers have. The authors found that consumers have different associations with regard to CSR activities and those activities could either be self-centered and other-self-centered. Self-self-centered activities were divided in egoistic driven and strategic driven motivations; egoistic driven motivations have a negative impact on the CSR

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initiative, whereas strategic driven motives have a positive impact on the organization and CSR initiative. Other-centered motives are divided into stakeholder-driven (negative impact) and value-driven (positive impact). What could be concluded from the aforementioned, is that consumers expect organizations to have both other- and self-centered motives while being involved in CSR activities, in other words, consumers expect organizations to be involved in those activities that also contribute to the organization. Forehand and Grier (2003) even argue that hiding the strategic benefits will have a worse impact on consumer skepticism towards CSR initiatives than when organizations are transparent and acknowledge the strategic benefits.

2.2 Instrumental CSR theories

The field of CSR is known for its complexity and many different theories around this topic exist which according to Garriga and Melé (2004) are ‘controversial, complex and unclear’. Within their article, the authors tried to explain and clarify the different CSR theories. According to the authors, the theories can be divided into four main groups: instrumental theories, political theories, integrative theories and ethical theories. Within the instrumental theories group, CSR is seen as a strategic tool to reach the economic goals of the organization and, ultimately, maximize the wealth creation. Instrumental thinking has been widely accepted and used in the business environment. Instrumental theories found their origin in the shareholder approach, though the concept has been challenged since shareholder value maximization might not be aligned with the interests of other ‘stakeholders’. Jensen (2000) introduced the concept of ‘enlightened value maximization’: profit maximization does not mean that the interests of the organization’s stakeholders cannot be taken into account. On the contrary, satisfying the needs/ concerns of the stakeholders could lead to an increase of the shareholder value. Thus, being involved in CSR might make good business sense and there is a business case for sustainability. Carroll and Shabana (2010) defined the business case for CSR as ‘the business’ justification and rationale for the specific benefits to organizations in an economic and financial sense that would flow from CSR activities and initiatives’ (p. 92).

A lot of research focused on why business executives engage in CSR and many different explanations have been found. It ranges from activist pressures to intrinsic motivations and to, maybe the most well-known explanation, the link between CSR and corporate financial performance (CFP) (Hafenbrädl & Waeger, 2016; Carroll & Shabana, 2010). Another article states that ‘CSR may be viewed as a profit-oriented strategy that helps a firm to outperform its rivals’ (Türker, 2015, p. 569). Vogel (2005) stated that the motivation for ‘old style’ CSR, which was dominant in the 1960s and 1970s, were mainly social considerations and consisted

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of predominantly philanthropic activities. Whereas instrumental CSR, or the ‘new world CSR’ in essence means ‘doing good to do well’. New world CSR links responsibility to profitability and thus focusses on the business case for sustainability.

Aguilera et al. (2007) identified three types of motivations why organizations are involved in CSR, namely instrumental, relational and moral. Instrumental motivations focus on the shareholder interests, the competitiveness of the organization and are short-term focused. Organizations with relational motives for their CSR activities focus on the broader group of stakeholders and the need for belongingness. Increasing employee engagement is an example of why an organization is involved in CSR. The third type of motivation, moral motives, is more linked to altruism, the genuine feeling of the organization that it needs to do good.

Boesso, Kumar and Michelon (2013) explored how descriptive, instrumental and strategic approaches to CSR drive financial performance of organizations. They state that organizations who have adopted the instrumental CSR approach, try to engage specifically those stakeholder groups that can have an impact on their CFP. These organizations therefore establish relationships that help both the stakeholders and the organization to accomplish goals that are of mutual importance and they try to do this as efficient as possible.

2.2.1 Shared Value Creation

For a long time, it was thought and accepted that organizations involved in activities that were beneficial to society, would be less successful economically (Porter & Kramer, 2011; Nijhof & Jeurissen, 2010). However, Porter and Kramer argued that this did not have to be the case and came up with the concept of ‘shared value’. Shared value can be defined as ‘policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates’ (Porter & Kramer, 2011, p. 6). Value is referred to as benefits relative to costs, instead of benefits alone. This means that when organizations talk about value creation, they should not only consider the contributions they make economically but also the negative impact their production process for instance has on the environment. Only then it becomes clear what the actual value is the organization is creating and only then will it start focusing on the creation of shared value.

The concept of shared value can be traced back to the instrumental views on sustainable business as shared value creation focusses on the goals the organization as well as its stakeholders try to achieve.

Though the concept has been widely accepted and used it has also received quite some criticism. It was stated to be naïve and unoriginal and, most importantly, the concept ignored

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the tension that exists between economic and social goals (Crane, Palazzo, Spence & Matten, 2014). Beschorner (2013) called the shared value concept ‘the one-trick pony approach’, stating that the concept of shared value by Porter and Kramer is much more complex than the authors present.

2.2.2 Sustainability reporting

As stated before the business case approach as well as the shared value concept trace back to the instrumental theories on sustainable business. The focus is on identifying the win-win opportunities and to organize the business activities around those opportunities. The need for a framework that supported organizations with identifying and justifying the win-win opportunities was high. Also since the pressure from stakeholders was growing with regard to transparent communication around the organization’s activities (White, 2016). To become more transparent organizations started to publish sustainability reports. Such reports nowadays are the most important source of information disclosure in terms of environmental, social and economic impacts, i.e. sustainability reports are vital in terms of organizational transparency towards stakeholders. Calabrese, Costa, Levialdi & Menichini (2015a) refer to sustainability reporting as ‘the practice of measuring and disclosing the company’s sustainability performance’. Sustainability in business terms, is usually described as ‘the process of conducting business in ways that protect Earth and its inhabitants from irreparable damage caused by human activities’ (White, 2016, p. 1) The Global Reporting initiative (GRI) formulated reporting guidelines to provide a common language for organizations with regard to sustainability reporting (2016a). The guidelines are discussed later in this chapter. GRI used the following definition of sustainability to base their guidelines on: ‘an organization’s practice of reporting publicly on its economic, environmental, and/or social impacts, and hence its contributions – positive or negative – towards the goal of sustainable development’ (p. 3).

Transparent communication about sustainability according to Calabrese et al. (2015a) improves the credibility of the organization’s social and environmental commitments and is beneficial in terms of long-term value creation. Kolk (2003) mentioned that organizations were increasingly reporting on their activities, to prevent themselves from negative ‘externalities’, which she refers to as the ‘negative social and environmental implications of globalization (p. 279). White (2016) agrees by saying that the stakeholders put pressure on organizations to reassure them of their good behavior.

From this it appears how important it is for an organization to fit its CSR activities and policies to the beliefs, values and expectations of its customers and other stakeholders.

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Calabrese et al. (2015b) therefore stated that an organization must create and maintain a fit between the values of their most important stakeholders and their own values. Especially since not all aspects that are related to sustainability have the same relevance for every organization (Calabrese et al., 2015a). In an answer to being accused of greenwashing or window-dressing, most organizations have third parties evaluate their activities. Assurance found its origin in financial reporting, where a third party evaluated whether the organization indeed delivered the results they said they had. It found its way into sustainability reporting as well when organizations sought for ways to validate their activities (Ball, Owen & Gray, 2000).

2.2.3 Materiality analysis

To be on top of the pressure from the stakeholders there was a demand for a framework or guidelines that supported the organization to identify the topics that were important to their stakeholders. In response to this materiality found its way into sustainable business. Materiality was originally used in the finance field to evaluate the importance of for instance a transaction (Massier, Martinov-Bennie & Eilifsen, 2005). It was used to identify risks and opportunities for organizations and to guide the organization.

Materiality analysis finds its origin in the instrumental theories around CSR where, as mentioned earlier, maximizing wealth creation is the ultimate goal. However, as was also mentioned by Porter & Kramer (2011) maximizing wealth could come from the creation of shared value. As Boesso et al. (2013) stated, organizations that follow an instrumental approach to CSR focus specifically on those stakeholder groups that have the most power over their CFP. According to Calabrese et al. (2015a) sustainability reports should provide information to the stakeholders that help them evaluate the organization’s both long-term as well as short-term economic, social and environmental performance. In their report, organizations should therefore focus on reporting on those matters that are key in terms of achieving the organizational goals and the management of the impacts of their business on society, i.e. organizations should focus on those items that are ‘material’. Thus, the concept of materiality was found useful in the field of sustainability as well. At first it was mainly used to report on environmental activities of the organization (Deegan & Rankin, 1997).

According to Zadek and Merme (2003) there was a need to ‘redefine’ materiality since the concept of materiality as it was known until than was found to be confusing, ad hoc and not credible. They stated that as a result, organizations were disclosing information that was not used and was not satisfying the stakeholders. The authors reassessed materiality on three aspects: intention, subject and calibration. Intention (materiality to whom) had no longer solely

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a financial, or shareholder, focus but considered a wider range of stakeholders. Subject (materiality about what) used to focus only on the financial performance of the organization. Since the shareholders where the point of focus and return on shares was their main interest. The authors proposed that the scope of subject moves beyond mere financial reporting and that materiality is also about performance on non-financial aspects. The third aspect, calibration, looked at when an issue was significant enough to be called material. Zadek and Merme stated there was no clear boundary with regard to calibration, i.e. it depended on what a ‘reasonable person’ would perceive as material. The calibration aspect was not reassessed since materiality would always be based on the judgements of a person or multiple persons. Though by widening the scope with regard to intention and subject more material topics would be identified. By looking at non-financial as well as financial issues this model had a strong focus on business performance as it took into account a broader scope of stakeholders. Zadek and Merme lay the foundation of materiality within sustainability and were the first ones to clearly outline the business case for sustainability and thus linking materiality to instrumental views on sustainable business.

The GRI introduced the concept of materiality assessments, which is nowadays widely used by organizations, in their reporting guidelines (2016a). The guidelines were designed as a tool for organizations to report about their economic, environmental and social impact. Within sustainability materiality refers to those topics that are of such importance that it is therefore crucial to report on them (GRI, 2016b). The topics that are classified as material differ in terms of importance and within the sustainability report their priority should be reflected. Both internal (mission and strategy) and external (concerns expressed by stakeholders) factors should be taken into account when an organization assesses whether a topic is material or not. The assessment of the topics that are of relevance to the organization as well as its stakeholders is the answer to the pressure from various stakeholders on the organization. A materiality matrix reflects those items that are relevant to both the organization and its stakeholders and could therefore serve as a means to wealth maximization. Of course, an organization can report on a lot of topics, however an organization should include those topics that are important and reflect the organization’s economic, environmental and social impact. In the GRI Guidelines, impact is being referred to as ‘the effect an organization has on the economy, the environment, and/or society (positive/ negative)’ (p. 10). The figure below shows the materiality matrix as it was introduced by GRI.

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Figure 2. Visual representation of prioritization of topics. Reprinted from GRI (2016a, p. 11)

The figure above shows that a specific topic is measured in terms of ‘influence on stakeholder assessments & decisions’ and in ‘significance of economic, environmental & social impacts’ or, in other words, the vertical axe represents the external factors and the horizontal axe represents the internal factors. Both axes run from low to high, meaning that items ending up in the upper right corner are those items that are critical to an organization and its stakeholders and should therefore receive most attention in sustainability reports and of course those items should also be incorporated in an organization’s strategy. Where the naming of the y-axe is often similar to the naming in figure 2, the naming of the x-axe tends to differ. Some examples from organizations are ‘Relevance to NN Group’ (NN, 2017), Issues which need on-going management (left side axe) and issues which need stronger management focus (right side x-axe) (Unibail-Rodamco, 2017) or ‘Impact on Wolters Kluwer (Wolters Kluwer, 2017). The previous examples showed that the naming differs slightly per organization, though the use of the assessment is similar across all organizations; materiality assessments in essence are used to identify those sustainability topics that are most relevant, internally and externally, from a business-point of view.

As a result, organizations have widely adopted the GRI reporting guidelines. Using the guidelines also serves as a justification, when an organization is using the GRI guidelines one can always find a reference to it either in the annual report or on the corporate website. The guidelines have widely been accepted as the tool that justifies the organization’s activities with regard to sustainability. As mentioned earlier, engaging the right stakeholders and focusing on the topics that are most important to them could lead to a better CFP (White, 2016). Thus, materiality assessments identify those sustainability topics that have a win-win opportunity, i.e.

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the topics that contain a business case and could lead to a better (financial) performance. Consequently, a materiality analysis has been considered as one of the most important tools to make sustainability relevant from a business case point of view and thus from an instrumental CSR approach. For this reason, during the last decades the materiality assessments have grown in popularity and organizations have used the analysis to identify, focus and justify their activities based on the outcomes of the assessment.

2.3 Sustainable Development Goals

The Sustainable Development Goals or SDGs have been formulated as a follow up on the Millennium Development Goals or MDGs. The MDGs have dominated the global agenda to achieve various important social issues from 2000 to 2015 (Sachs, 2012). Through those years, the MDGs have globally been the focus of national governments and political debates.

By 2015, there was meaningful progress for most of the goals (Sachs, 2012). Most importantly, the MDGs showed that setting goals was crucial for raising both public and policy awareness and support. However, it turned out that the goals also had some shortcomings, for instance the goals set were the same for all countries and regions across the world which led to different degrees in accomplishment of the goals (Camacho, 2015). Another shortcoming of the MDGs was a lack of accountability, meaning that it was not clear who were the responsible authorities and what the sanctions would be if the goals were not met (Donald & Way, 2016).

The Sustainable Development Goals have been formulated as a follow up on the MDGs and address, next to the issues that were already addressed in the MDGs, also the environmental issues the world is facing (Griggs, 2013). The SDGs consist of seventeen goals and various indicators have been developed to make the progress of the goals measurable (Sustainable solutions development network, 2015). Figure 3 shows the 17 SDGs.

Figure 3. Sustainable Development Goals. Reprinted from UN website (2016). Retrieved from

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A focus point during the development of the SDGs was making progress on the goals measurable. The development of relevant indicators that focus on measurable outcomes for each goal was therefore crucial. According to Hák, Janousková & Moldan (2015), the indicators should meet several criteria such as, relevance, methodologically sound, measurable and easy to communicate and easy to access. Next to the aforementioned criteria there should not be too much indicators and they should be outcome focused. The authors also found that especially relevance tends to be underdeveloped, however relevance is crucial in terms of adoption of the goals. Relevance consists of three different aspects, namely link to the target, policy relevance and applicability at the appropriate level. Link to the target refers to the fact that the indicator needs to be clearly linked to the goal and should provide robust measurements of progress towards the goal. The second criterion, policy relevance, means that the indicator should provide the necessary information for policy making. The third criterion, applicability at the appropriate level, means that when looking from a global perspective the indicator should be relevant to all countries and when looking from a national perspective, the indicator should be meeting national priorities.

As mentioned before, one of the shortcomings of the MDGs was the lack of accountability. With regard to the SDGs, national governments are held accountable for achieving the goals by 2030. To meet these goals, national governments need to build public awareness of the SDGs (https://undg.org/2030-agenda/). Next to that, they should make the benefits of the goals to both national and international development explicit. A multi-stakeholder approach is crucial in terms of development and implementation of policies. This approach should encourage and facilitate partnerships between government and organizations and is central to the quality and legitimacy of a national agenda and adoption of the SDGs.

2.3.1 SDGs as business opportunity

The SDGs are positioned as the biggest business opportunity until 2030 and arguments to convince business to commit to the SDGs have primarily focused on the business case (Agarwal et al., 2017). The business case approach has positioned the SDGs as the opportunity for organizations to increase their financial performance. The past has shown that organizations become creative and identify win-win opportunities when there is a strong business case for CSR, i.e. when an organization’s financial objectives align with objectives that also enhance the environment and communities (Agarwal et al., 2017).

It has also been acknowledged that there is an interrelationship between organizations and society (Porter & Kramer, 2006). In order to be successful, organizations need healthy

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societies and healthy societies in return need successful organizations. This intertwining of business and society is the reason the SDGs call specifically upon organizations. Organizations cannot successfully operate in the long-run when societies suffer from violation of basic rights, when there is political instability and when high levels of inequality characterize the business environment (Agarwal et al., 2017).

A research of the Business and Sustainable Development Commission stated that organizations need the goals, since the goals offer a growth strategy for organizations in general and for the world economy (2017). Similarly, the SDGs need organizations: if private corporations do not seize the opportunities the SDGs offer and embrace the goals, to ensure progress on all elements the goals touch upon, they will not materialize. The Commission research found that the SDGs could open up market opportunities worth US$12 trillion. The report also mentioned that to capture the opportunities business will need to pursue sustainability the same way as they pursue shareholder value maximization.

There are a handful articles available that explicitly discuss the way how organizations could implement the SDGs in their business portfolio (Agarwal et al., 2017; GRI, UN Global Compact & wbcsd, 2015; Business and Sustainable Development Commission, 2017).

GRI has, as mentioned earlier, taken the lead in developing a reporting framework. Its aim was to create a comprehensive method for organizations to prioritize and report on their sustainable actions. Their introduction of the materiality analysis has been widely accepted and used. When organizations use the GRI standards to report on their sustainable performance, reference to GRI can always be found either on the website of the organization or in the report where the guidelines have been used. GRI has, in cooperation with the UN and WBCSD, created a guide which is called the SDG Compass. Within this compass, organizations are guided through the process of understanding what the impact of the SDGs are on business, how organizations can prioritize the SDGs, how to set their goals, how to integrate the SDGs in their business strategy and, finally, how organizations can report and communicate about the progress.

The SDGs differ from the MDGs in the way that they explicitly call upon business to be creative and innovative in solving the sustainable development challenges or as United Nations Secretary-General Ban Ki-moon stated that ‘business is a vital partner in achieving the Sustainable Development Goals. Organizations can contribute through their core activities, and we ask organizations everywhere to assess their impact, set ambitious goals and communicate transparently about the results (GRI et al., 2015, p. 4).

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Figure 4. SDG framework. Reprinted from SDG Compass (2015)

The second step in the process is defining the organization’s priorities. The importance of the goals will differ per organization. There are many factors that define to what goals an organization can contribute as well as the opportunities and risks that the goals may pose. Prioritizing the SDGs should start with an assessment that looks at the current, potential, positive and negative impacts that the value chain activities of an organization have on the SDGs. This important step can help organizations with the identification of impacts that are positive and can be even further improved and of negative impacts which should be reduced or avoided (GRI et al., 2015).

An example of how SDG value chain mapping could look like is provided in the SDG compass. As can be seen in this example the assessment of the positive/ negative impacts is not only focusing on the business operations, but extended along the total value chain. Looking solely at the business operations would result in focusing on one SDG, while taking the value chain into account results in the prioritization of five SDGs.

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The second phase outlined the strategic priorities. The third phase focused on the scope of the goals and the selection of KPIs. Selecting KPIs is according to the SDG Compass (2015) an essential step in driving the goals, and for monitoring and communicating progress. The fourth phase should focus on the integration of the SDGs across the organization. To ensure that the goals are anchored in the organization it is important that throughout the organization there is a shared understanding of the importance of the goals and how to goals create value for the organization. Communication is crucial in this phase. To engage management, the SDGs should be integrated in performance reviews and the SDGs should be integrated in the organization alongside the financial and strategic goals (SDG Compass, 2015). The fifth, and final step, focusses on SDG reporting. Disclosing information of the organization’s progress is crucial. Transparency contributes to the credibility of the organization (Calabrese et al., 2015a) and improves an organization’s reputation and increases on organization’s CFP (Hafenbrädl & Waeger, 2016). The SDG Compass suggests using the materiality matrix of the organization to report on the SDGs. If the SDGs are in the second phase identified as strategic opportunities, the materiality matrix should reflect those topics, since such a matrix is used to report on an organization’s priorities.

2.4 Critique on instrumental CSR theories

As mentioned earlier, the instrumental theories or the business case approach to CSR focusses on the activities that are beneficial to the organization. More and more the question is raised whether positioning CSR as a win-win opportunity is contributing to the benefits of society. Looking at CSR from a business case point of view and focusing only on those business opportunities that create a win-win situation, will leave no room for other negative issues and impacts that do not have this win-win outcome. In other words, those issues will be ignored and will still negatively harm the bottom line (Baden & Harwood, 2012). The question that than should be raised is: ‘what if CSR is not good for business? Should we then abandon it?’ (Baden & Harwood, 2012, p. 617). According to the authors organizations will start cherry-picking when they follow a business case approach for CSR, i.e. focus on those items that are aligned with their business priorities and the projects that are most profitable for the organization.

Critique on an instrumental CSR approach has also come from Banerjee (2007) who stated that the win-win approach will lead organizations to quickly grasp the opportunities where they can benefit from, i.e. leads to cost savings and improves efficiency. Items that need attention but which require more (financial) investment from the organization will not be picked

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up or at a much slower rate. Thus, the organizations limit their involvement in CSR to those activities that make good business sense.

The instrumental approach has also been criticized by Kakabadse, Rozuel and Lee-Davies (2005), who stated that though taking into account the stakeholders’ concerns, that will lead to profitability, might make good business sense it does not take into account the moral point of view. The danger in this is that the organization might design programs that address the concerns of stakeholders, but ultimately those programs end up being self-serving, i.e. support the organization to achieve its financial goals.

Fleming and Jones (2013) criticized the stakeholder-approach as such that it only focusses on the most important stakeholders; those that have the most power over the organization. Those stakeholders often are mostly concerned with the continuance of the organization and the financial performance of the organization. Groups of stakeholders that have no power over the organization, though who suffer the most from irresponsible behavior of the organization, will not be taken into account. The stakeholder-approach is thus an instrumental method that claims to consider the concerns and interests of all stakeholders involved while it, in reality, primarily focuses on the concerns of a few powerful stakeholders.

Another important point that needs to be considered from a business case perspective is the time horizon. Organizations that see CSR as a business case opportunity strive for shareholder wealth maximization (Garriga & Melé, 2004). Shareholders wanting to maximize their wealth on short-term while making a lasting contribution and embedding the CSR strategies within the organization, asks for a long-term strategy. Türker (2015) investigated what the effects are of following a short-term profit oriented CSR approach versus a long-term profit oriented CSR approach. She found that organizations who have a short-term focus are not successful in their CSR engagement and are not actually committed to improve social and ethical issues. On the contrary, organizations that have a long-term focus on CSR and especially focus on those items that impact their employees and the communities are successful. She argues that organizations that started from an instrumental approach, i.e. creating a win-win situation, but who pursue a long-term focus can turn that approach into a meaningful, sincere approach. Organizations that are able to make this transition can be very important in transforming the currently dominant short-term focus of organizations into a long-term, sustainable approach.

Boesso et al. (2013) hypothesized the same as Türker does. As mentioned earlier the authors stated that organizations who adopt an instrumental CSR approach engage those stakeholders that can influence their CFP. An advantage of this approach is that when

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organizations actively involve those important stakeholders they can identify trends and changes in the market in an early phase and can act in such a way that they are on top of those changes. However, this instrumental approach also entails that ‘what’ the organization and stakeholders try to achieve keeps changing. This happens because the goals that the organization is trying to achieve are linked to the goals of the stakeholder group which at that moment can influence an organization’s CFP most. Therefore Boesso et al. (2013) hypothesized that ‘an instrumental approach to CSR is associated with superior company performance in terms of short-term measures’ (p. 404). This implies that an instrumental CSR approach is a short-term strategy and thus contrasts the nature of the SDG agenda.

2.4.1 Critique on positioning the SDGs as business case

The SDGs ask for a creative and innovative way of looking at an organization’s activities and should consider the whole value chain (GRI et al., 2015). Looking only at the direct impact an organization has may be too narrow viewed. Focussing only on those areas where the organization has a direct impact and which contribute to business growth and profits, contains the risk of having a negative impact on the development of other SDGs or could hinder other organizations in their attempt to achieve the SDGs.

Agarwal et al. (2017) were the first ones to publicly question the positioning of the SDGs as a business opportunity and stated that the business case positioning brings three limitations.

Agarwal et al. as well as the authors of the SDG Compass and the Sustainable Development Commission call upon organizations to not only consider the activities that they directly impact but to look also at those activities that they are contributing to or that are linked to them, through their value chain operations or relationships. Only when looking at this bigger picture, organizations can create alignment between their core activities and sustainable development (Agarwal et al. 2017). There is no universal business case for the SDGs: every organization will be able to identify several SDGs where its financial/ profit concerns are aligned with environmental and social concerns. On the other hand, there will also be areas where the SDGs and the business motivations are conflicting. A business case approach will lead to ignoring the latter category of SDGs.

Secondly, organizations should not ‘cherry-picking’ SDGs, meaning that organizations should not merely focus on those items where they can most directly have a positive impact and where their actions will lead to increased profits (Agarwal et al., 2017; Nijhof & Jeurissen, 2010). A business case approach has ‘limited reach and depth’ (Agarwal et al., 2017, p. 11). With this the authors mean that with a business case positioning an organization will look for

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the goals that align with the organization’s strategy. SDGs that are not or indirectly linked will not be addressed.

Thirdly, the outcomes of materiality assessments are too limited with regard to the SDGs. The goals go beyond topics that have a possibility to financially impact the organization (Agarwal et al., 2017). A research by PwC (2015) also showed that organizations focus on those SDGs that meet their business priorities or that are in their comfort zones. The business case approach which links the SDGs to the material topics, only takes into account an organization’s most powerful stakeholders. Focusing on the most powerful stakeholders might result in increased profits but focusing on the least powerful stakeholders will seldom lead to increased financial performance (Agarwal et al., 2017).

Nijhoff and Jeurissen (2010) stated that a business case approach indicates that CSR is about doing business as usual, which it is not. According to the authors a successful CSR strategy is, as any other strategy, dependent on the dynamics in the market and the evaluation of an organization’s efforts by its customers. CSR initiatives pose opportunities as well as risks. A business case approach places too much emphasis on the opportunities that may come from the SDGs, though it does not emphasize enough that the SDGs ask for an actual strategy and not a business as usual approach.

As a consequence, positioning the SDGs as a business case bears the risk of organization’s implementing the SDGs primarily as self-serving. According to De Roeck and Delobbe (2012) self-serving motives for CSR are perceived as serving the financial performance of the organization and other-serving motives are perceived as an organization’s genuine interest and involvement in society. The goals specifically aim to ‘end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind’ (http://www.un.org/sustainabledevelopment/development-agenda/). The call upon organizations is not to primarily improve the organization’s bottom line, but to focus on the most pressing issues in the world.

2.5 Conceptual model

The research followed an explorative approach. The starting point for this research was the assumption that the SDGs do not align with instrumental views on sustainable business. The research mapped the field with regard to the SDGs and their positioning within the AEX-listed organizations. Exploring the annual reports and websites of the organizations focused on analyzing how the organizations committed themselves to the SDGs and to see whether patterns emerged from the analysis. Based on literature findings, hypotheses were formulated that

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support the aforementioned assumption and were tested in the research. A conceptual framework for this research was created as well. Since the nature of the research was explorative, the conceptual framework and hypotheses have been refined in the discussion section.

Hypothesis 1: An instrumental CSR approach follows a short-term strategy, whereas the SDGs ask for a long-term strategy: thus, based on the time-horizon the SDGs do not align with instrumental views on sustainable business.

Hypothesis 2: Materiality assessments focus on topics with the biggest business impact, while the SDGs focus on topics that go beyond business impact: the SDGs will not be material to organizations and thus, the SDGs do not align with instrumental views on sustainable business.

Hypothesis 3: Positioning the SDGs as a business case opportunity will lead to a focus on those SDGs that address topics the organization is already familiar with or can easily contribute to, while leaving other SDGs the organization possibly impacts unaddressed. The SDGs ask for a holistic view instead of focused view. The SDGs therefore do not align with instrumental views on sustainable business.

The relevance of a better world : the business materiality of the Sustainable Development Goals