The introduction of a United Nations criteria for sustainable investments has reduced spending on philanthropic commitments from some of Canada’s largest public companies, a study from the University of Waterloo suggests.
Titled Assessing the impact of the sustainable development goals on corporate philanthropy: A study of Canada's leading private sector companies, the paper published in the Business Strategy and Development journal examines whether some Canadian companies have allocated more money toward community investment, or corporate philanthropy, since the introduction of the Sustainable Development Goals (SDGs) in 2015.
When examining the net profit after tax, study co-author and PhD candidate David Billedeau found a small but unexpected reduction in funds allocated for community investment since the SDGs were initiated.
Such a decline is worth identifying because corporations play a pivotal role in global sustainability, and some companies may be engaging in SDG-washing.
“I think that’s a worrying trend regardless of the actual dollar figure of the investment decline. The worrying thing is corporations, despite saying that they’re stepping up, aren’t. That means the SDGs aren’t going to be as advanced as they need to be,” Billedeau told Sustainable Biz Canada.
How the study was structured
Community investment covers a wide range of spending and donations into societal and environmental initiatives and groups. Billedeau offered examples such as support for local sports arenas, health and wellness, climate actions and cancer charities.
The SDGs cover 17 goals for poverty reduction, health, infrastructure, sustainability and the environment. Companies around the world have integrated the SDGs to guide their ESG targets and community investment, an influence Billedeau said “cannot be understated.”
The study looked at 58 Canadian companies listed in the Forbes Global 2000 rankings as of 2023, including names such as Brookfield Asset Management, Canadian Tire, the Big Five banks, Enbridge, TC Energy and Thomson Reuters. The companies were picked because they are some of the largest in the country.
Next, the annual reports of the companies from 2012 to 2021 were reviewed. The co-authors compared and contrasted spending that was explicitly aligned with SDGs, and spending that was not aligned, since the SDGs were introduced.
Net profit after tax was chosen as the comparison metric because it considers the proportionality of a company’s business through ebbs and flows in its financial performance, according to Billedeau.
Shrinking community investment
The mean net-profit-after-tax spending on community investment was 1.62 per cent before SDGs were introduced in 2015. That shrunk to 1.57 per cent after the SDGs were launched.
Companies that did not commit to the SDGs actually invested more funds toward community investment by a mean of 1.54 per cent, compared to firms that did align with the SDGs at 1.39 per cent.
The study suggests SDG-committed firms may have changed their community investment strategies to keep the proportion of after-tax spending from increasing. "Alternatively, these companies could have increased their profits at a faster rate than their CI (community investment) spending," the study states.
The study also does note some community investments may not be included in corporate annual reports, such as decarbonization of operations.
But such a result was not anticipated by Billedeau and his co-author Jeffrey Wilson, an assistant professor at the University of Waterloo.
“It was our expectation that companies that committed to the SDGs would be committing more money as a percentage of net profit after tax, particularly investments in corporate philanthropy, but we’re seeing quite the opposite," he said.
Possibility of SDG-washing
What the research uncovered might be a more worrisome trend of "SDG-washing", Billedeau noted. Some companies might use SDG commitments as a cover for relative inaction or in an effort to boost their sustainability credentials beyond what they are actually accomplishing.
Though the decline in corporate philanthropy is not even one percentage point and the study states more research is needed to determine if the decline is statistically significant, Billedeau said the Canadian companies in the study are responsible for approximately a combined $1 billion in community investment.
Even small declines in financial commitments can add up to significant amounts of investment.
“It’s important to measure the validity of those claims,” Billedeau said. “Pledging to sustainability is one thing, but putting your money where your mouth is, is another.”
The SDGs should be the catalyst for real change, he continued.
The public may also lose trust in the SDGs, corporate ESG and sustainability endeavours in general.
Billedeau urges some companies to spend more on community investment relative to net profit after tax to match public expectations and commitments. He is also advocating for more transparency and accountability in corporate reporting on SDGs.
“We need to see corporations start stepping up or there’s a real risk of sustainable development and integration of sustainability into corporate operations being left to the wayside.”
For future research, Billedeau said he is interested in exploring why the decline in spending is happening and whether this trend is being repeated outside of Canada.