Previously I have written about the importance of the healthcare, resource transformation, food and beverage, consumption, extractives & minerals processing, renewables, and alternative energy, infrastructure, transportation, and technology and communications sectors to the 17 Sustainable Development Goals (SDGs). The underlying data for that blog are based on the paper “The Relationship Between Investor Materiality and the Sustainable Development Goals: A Methodological Framework” that I wrote with Professors Gianni Betti and Costanza Consolandi of the University of Siena. A summary of our methodology is provided in my healthcare post. In brief, we mapped the 26 material environmental, social, and governance (ESG) issues (organized in terms of the categories environment, social capital, human capital, business model & innovation, and leadership & governance) in all 77 industries organized into 11 sectors, developed by the Sustainability Accounting Standards Board (SASB), to the 169 targets of the SDGs. Mapping these issues to the SDGs’ targets enabled us to assess how each industry is creating or destroying value for society while focusing on those ESG issues that create value for shareholders. Based on this mapping we created an index that ranges from 0 to 100.
In this post, I will analyze the importance of the services sector. Its overall score is 15.7—compared to 36.0 for food and beverage, 32.6 for healthcare, 30.4 for extractives & mineral processing, 28.4 for resource transformation, 24.2 for technology and communications, 23.8 for renewables and alternative energy, 21.4 for infrastructure, 20.1 for consumption, and 18.1 for transportation—putting it the lowest end of the sectors I have written about so far. There is an enormous amount of variation with this sector of nine industries. At the top end is hotels and lodging (42.4) which is the seventh-highest industry reviewed to date after biotechnology and pharmaceuticals (both at 53.7), agricultural products (49.0), food retailers and distributors (46.8), medical equipment (45.6), and meat, poultry, and dairy (45.3). It also has the five lowest-rated industries: advertising and marketing (4.7), education (7.4 and tied with tobacco), professional services (8.1), leisure facilities (9.1), and cable and satellite (9.6 and tied with car rental and leasing). In between are cruise lines (29.8) and media production and distribution (17.5).
This sector has its highest impact on four SDGs. The highest rated one is #4 (Quality Education-31.9 [four of seven targets]). The other three are at about the same level: #2 (Zero Hunger-19.4 [five of five targets]), #3 (Good Health and Well-Being-20.0 [nine of nine targets]), and #5 (Gender Equality-20.4 [six of six targets]). The lowest is #11 (Sustainable Cities and Communities-9.4) and all the rest are in the range of 12.0-18.0. The low rating of this industry is due to the low number of material issues for each of its industries. Whereas there are 11 materials issues for hotels and lodging (in all of SASB’s five broad categories of environmental, social capital, human capital, business model and innovation, and leadership and governance) and nine for cruise lines (in all categories except for business model and innovation) all the remaining industries only have three to five material issues. The issues common to the greatest number of industries are energy management and customer welfare (4) and fair marketing and advertising; employee health, safety, and well-being; and business ethics and transparency (three).
The hotels and lodging industry (42.4) impacts all 16 SDGs are a level of 25.0 or greater. At the low end are #4 (Quality Education-25.0), #13 (Climate Action-29.4), and #16 (Peace, Justice and Strong Institutions-26.1). The next group up has scores between 30.0 and 40.0: #5 (Gender Equality-38.9), #8 (Decent Work and Economic Growth-37.5), #10 (Reduced Inequalities-36.4), and #11 (Sustainable Cities and Communities- 36.8). Scoring between 40.0 and 50.0 are SDGs #1 (No Poverty-50.0 [five of five targets]), #6 (Clean Water and Sanitation-42.4 [six of six targets]), #9 (50.0 [four of five targets]), #12 (Responsible Production and Consumption-48.4 [four of eight targets]), and # 13 (Climate Action-44.4 [one of three targets]). The highest-rated SDGs are #2 (Zero Hunger-60.0 [five of five targets]), #14 (Life Below Water-60.0 [seven of seven targets]), and #15 (Life On Land-61.0 [six of nine targets]). These are among the highest scores across all industries reviewed so far. These numbers are a function of the number of material issues and targets relevant to these SDGs.
The top seven SDGs (#s 1, 3, 5, 6, 8, 12, and 14) for cruise lines (29.8) fall within a fairly narrow band ranging from 31.8 to 45.0. At the top are #12 (Responsible Production and Consumption-41.9 [four of eight targets]) and #14 (Life Below Water-45.0 [four of seven targets]). They are followed by #3 (Good Health and Well-Being-39.2 [eight of nine targets]) and #6 (Clean Water and Sanitation-39.4 [five of six targets]). These ratings are a function of the environmental issues of GHG emissions, energy management, waste and hazardous materials management, and biodiversity impacts and the social capital issues of fair labor practices and employee health, safety, and well-being. The lowest rated SDGs are #9 (Industry, Innovation, and Infrastructure-5.6), #13 (Climate Action-11.1), and #16 (Peace, Justice and Strong Institutions-8.7).
The SDG on which the media production and distribution industry (17.5) has the highest impact is #4 (Quality Education-50.0 [four of seven targets]). There are another six where it has an impact in the 20s: #1 (No Poverty-22.7 [four of five targets]), #3 (Good Health and Well-Being-23.5 [four of nine targets]), #5 (Gender Equality-27.8 [five of six targets]), #7 (Affordable and Clean Energy-21.7 [three of three targets]), #9 (Industry, Innovation and Infrastructure-22.2 [three of five targets]), and #10 (Reduced Inequalities [four of seven targets]). The material issues for this industry are fair disclosure and labeling, far marketing and advertising, diversity and inclusion, lifecycle impact of products and services, and competitive behavior. The SDGs on which it has the least impact are #6 (Clean Water and Sanitation-9.1), #12 (Responsible Production and Consumption-9.7), #13 (Climate Action-11.1), and #14 (Life Below Water-10.0).
The remaining six industries all have total impact scores in the single digits except for casinos and gambling (12.6). As a group, they have a noticeable impact on 10 SDGs (#s 2, 3, 4, 5, 7, 8, 9, 10, 13, and 16) but there is not much commonality among them. SDG #4 (Quality Education) ranks in the top group for education, professional services, casinos and gambling, leisure facilities, and advertising and marketing. There are two SDGs relevant to three industries; #2 (Zero Hunger) is relevant to the three industries of education, casinos, and gambling, and advertising and marketing; and #5 (Gender Equality) is relevant to professional services, casinos and gambling, and leisure facilities. The low scores are a function of the low number of material issues for these industries: education (three), professional services (four), casinos and gambling (five), leisure facilities (three), advertising and marketing (three), and cable and services (four). The lack of commonality in SDGs is a function of the lack of commonality in material issues. There is a total of 11 for all six industries but there are only three that apply to three industries: energy management (casinos and gambling, leisure facilities, and cable and satellite), customer welfare (education, casinos and gambling, and leisure facilities), and data security and customer privacy (professional services, advertising and marketing, and cable and satellite). The rest apply to only one or two industries.
The highest-rated SDG for education is #4 (Quality Education-75.0 [four of seven targets]). There are only two others with scores higher than 20: 21.6 for #3 and 30.0 for #2. There are nine SDGs with a score of 0.0 (#s 5, 7, 8, 9, 10, 11, 12, 13, and 14). Professional services has five SDGs with scores higher than 20.0 (#s 4, 5, 8, 10, and 16) with the highest score being for #5 (Gender Equality-389 [five of six targets]). It has 10 SDGs with a score of 0.0 #s 1, 2, 3, 6, 7, 11, 12, 13, 14, and 15), the highest number for any industry. Casinos and gambling have six SDGs (#s 2, 4, 5, 7, 13, and 16) with scores higher than 20.0. The highest is #13 (Climate Action-37.3 [two of three targets]) and all the rest are less than 30.0. Leisure facilities have three SDGs with scores of 20.0-25.0 (#s 3, 4, and 5) and five SDGs with a score of 0.0 (#s 1, 10, 11, 14, and 16). The highest-rated SDG for advertising and marketing is #4 (Quality Education-57.5 [three of seven targets]). The only other SDG with a score above 20.0 is #2. Finally, the highest-rated SDG for cable and satellite is # 7 (Affordable and Clean Energy-43.4 [three of three targets]) with two others having scores of 27.8 (#9) and 22.2 (#13).
In my final post on this topic I will write about the financial services sector (15.7) comprised of seven industries: commercial banks (17.7), investment banks and brokerage (19.2), asset management and custody services (19.5), consumer finance (9.9), mortgage finance (13.3), security and commodity exchange (4.4), and insurance (16.5).