Companies should develop a process for understanding and reporting how their SDG strategy and investments create economic and financial value. This can be done by translating SDG impacts into corporate value creation, focusing on financially material sustainability issues and metrics that drive financial returns.
Extra-financial analysis is a growing practice among investors and companies that identifies how sustainability factors impact financial performance. It focuses on the main elements of company valuation: revenue growth, profitability, assets,liabilities, risk, and the cost of capital.
Companies should also integrate the SDGs into enterprise risk management (ERM) to ensure a robust analysis of risk—including magnitude and probability.
Forward-Looking Information and Scenario Analysis
Companies should disclose forward-looking information related to the economic and financial impact of sustainability, including scenario planning. The Taskforce on Climate-related Disclosure (TCFD) has produced recommendations and guidance on how climate scenario analysis should be used as part of companies’ long-term strategies (see resource and example). Some companies use scenario analysis for other sustainability topics exists but is much more infrequent.
As stated by the TCFD, scenario analysis is important for companies to assess potential business implications of sustainability risks and opportunities and to inform stakeholders and investors on how the organization is positioned to address these risks and opportunities.
