Operating Expenditure

Operating expenditures (opex) are expenses that companies incur in normal business operations in the near-term (typically within one year or less).

For accounting purposes, opex are not considered an investment on the balance sheet, unless they are capitalized. However, certain operating expenses, such as labor costs and R&D, are critical to support a company’s SDG strategy and—given the long-term environmental and social benefits—should be considered a form of SDG investment.

Opex often include expenses that help companies build their intellectual and social capitals.

Research and Development (R&D)

R&D expenses represent a significant portion of corporate investments, especially in innovation-driven industries like pharmaceuticals, technology, and automotive. Globally, corporate R&D expenses are now estimated to reach $1 trillion every year.

Like capex, R&D expenses produce results far into the future—making them a powerful indicator of a company’s investment, future direction, and strategy.

According to McKinsey, R&D spending represents a significant investment for companies in many industries, including pharmaceutical and health, automotive, industrials, chemicals and agriculture.

Source: McKinsey

Labor Costs and Investments in Human Capital

Beyond raising wages, there are various ways to invest in human capital, such as offering education and training, providing health care, and giving employees the opportunity to innovate and develop professionally. In many modern industries, people are considered the most important asset of the company and investment in human capital is critical to ensure that companies can attract and retain the best talent. In other industries – where companies compete on cost or efficient production, investment in people is also critical to ensure long-term success.

Ultimately, investments in human capital and employee well-being is one of the primary way in which companies contribute to social and economic development and therefore to the SDGs.

A nation’s human capital endowment—the knowledge and skills embodied in individuals that enable them to create economic value—can be a more important determinant of its long-term success than virtually any other resource.
World Economic Forum, Human Capital Report 2016

Marketing and Selling Expenses

Marketing and selling costs are typically considered short-term expenses and not an investment. However, along with innovation, marketing is one of the key drivers of business, and it contributes to building a company’s brand (or brands), which can represent the bulk of the company’s value in consumer-facing industries.

In that sense, some marketing and selling expenses to build brands and customer loyalty around sustainable products and services can be considered investments, especially when they contribute to creating intellectual and social capital.

Supply Chain

Supply-chain management may be an essential component for some businesses in achieving an effective transition toward the SDGs. Redefining the nature and characteristics of procurement is fundamental in driving businesses to create incremental value for themselves, the environment, and society.