The United Nation’s Sustainable Development Goals (SDGs) face a critical juncture. At the halfway point to 2030, the world is not on track to achieve the SDGs agreed to in 2015. The 2023 Sustainable Development Report, released on June 21, indicates that only half of the goals have realized significant progress. According to the report, 30% of the SDGs have either stalled or regressed and are unlikely to be satisfied by the 2030 deadline. At a precarious crossroads, advancing the SDGs requires a change in course to put sustainable development back on track.
Since the SDGs’ introduction, private sector participation has been a necessity, given a projected annual funding gap of $2.5 trillion. Many large multinational companies supported the SDGs at launch, partly due to the estimated economic impact. However, it is increasingly apparent that corporate strategies and reporting are wanting in terms of advancing these goals. Greater urgency is needed. Achieving these goals necessitates establishing best practices and for companies to redouble their efforts if the SDGs are to get back on a path to success.
To illustrate how current corporate action is coming up short, Evalueserve’s ESG team examined the topics of Small and Medium-sized Enterprises (SME) Lending, Palm Oil, and Food Waste to highlight some of the existing shortcomings and how to get back on the right path to reach the linked sustainability goals.
SME Lending
SMEs play vital roles in driving economic growth, creating employment opportunities, and promoting income growth and sustainable livelihoods. The World Bank reports that SMEs represent about 90% of all businesses and support more than 50% of employment worldwide, and therefore, are essential for addressing SDGs goals 1 (No Poverty), 9 (Innovation and Infrastructure), 12 (Responsible Consumption), and 15 (Life on Land).1
SMEs must have access to credit to create a sustainable impact. However, this access remains uneven across countries due to various challenges. For example, Sub-Saharan African countries and least-developed countries face a severe lack of credit compared to developed countries. When evaluating how banks contribute to sustainability, it is essential to consider their ability and capacity to support SMEs with affordable access to capital, thus promoting economic development and job creation.
SDG 9.3 expects lending institutions to “Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets.”
In analyzing 100 commercial banks globally on their alignment with SDG 9.3, Evalueserve’s analysts found considerable inconsistencies in reporting relating to SME lending, with most banks not following any specific reporting structure. In some cases, banks disclosed outstanding balances of SME loans, while others reported performing and non-performing exposures and related provisions of SME loans.
Overall, the muddled nature of the reporting and metrics offered provide little helpful guidance for investors in attempting to evaluate and measure impact. Only a few banks reported the information in a structured and comparable manner, allowing for a meaningful perspective on this critical activity. Too often, the reported loan disbursement data fails to distinguish between developed and developing regions, as expected by SDG 9.3, or, more problematically, is not reported. From the sample of banks examined, only 20% disclosed the regions where SME loans were dispersed. Other aspects, like explicit targets for SME loans and SMEs’ sustainable impact, were negligibly reported (see Figure 1).
If progress on the SDGs is to get back on the right path, bank lending and access to capital for SMEs is critical. The lack of explicit lending targets and reporting of essential metrics to track progress continue to place the sustainable agenda of “Access to Finance” in jeopardy.
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Contributors
Karishma Kaur
Principal Consultant
K.P. O’Reilly
Group Manager, Solutions Architect
Aaron Morales
Vice President
Publication
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For more information please contact: ESGsolutions@evalueserve.com