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It’s clear that ESG has gone from a “nice-to-have” to “integral to long-term financial success”, according to KPMG’s ‘2022 CEO Outlook Australia’ report.
Released last October, the report involved input from 1,325 CEOs from industries across 11 markets providing insight into their three-year outlook. Among other data points, it found that 62 percent of CEOs are looking to invest at least six percent of revenue in programs to make their organizations more sustainable, while 45 percent of CEOs believe ESG programs improve financial performance, up from 37 percent in 2021.
With that in mind, what are the key topics CEOs should be prioritizing in their organizations today? In other words, what does the ESG playbook look like? The CEO Magazine asked nine executives from around the world to share the one question they see as the most pressing for CEOs when it comes to ESG.
“Our ‘2022 Executive Risk Survey’ shows that nearly half of business leaders feel that weather and climate change are currently having a negative impact on their business, and that prepared leaders are spending more time on the long-tail risks of climate change,” says Eric Andersen, President of leading global professional services firm AON. “In 2022 alone, natural disasters caused a US$313 billion global economic loss, according to our annual ‘Weather, Climate and Catastrophe Insight’ report.
“However, managing the effects of climate change in an impactful way takes bold and ambitious actions. And it needs to be done collectively, across both the public and private sectors, leveraging the expertise of academics, scientists, engineers and others providing the data and insights to inform and accelerate technological innovation.
“It will require a commitment to making new investments in the solutions that will help manage risks and support the transition to net zero greenhouse gas emissions.”
Noa Gafni, Executive Director at Rutgers Institute for Corporate Social Innovation, believes companies that lead the way on ESG make sure their efforts are aligned with business objectives.
“They ensure their approach ties societal and environmental impact with organizational KPIs,” she says. “We’ve seen time and time again how corporations with a strong ESG focus outperform their peers, particularly during turbulent times. With an economic slowdown approaching, CEOs would do well to ensure their ESG strategy aligns with their financial and organizational objectives – and is more than a standalone PR stunt.”
“To futureproof, businesses need to consider a full transition away from fossil fuels. Now is the time for executives to explore the fullest view of the organization’s fossil fuel usage and plans to use alternative energy,” explains Ryan Lynch, Practice Director, Sustainability at British Standards Institute.
“Businesses that are overly reliant on fossil fuels and hesitate to shift away may find themselves penalized over time. Whether that penalization comes through the form of new United States Securities and Exchange Commission reporting requirements or through consumer-driven boycotts, businesses that consider adjusting will be in a better position.
“Finally, analysts and investors will begin to ask this question of CEOs as well. Earnings are already peppered with questions around cost factors for oil and overseas reliance. CEOs who aim to see a future fully supported by their shareholders are already in a position to plan a shift away from fossil fuels.”
Georgeson Global CEO Cas Sydorowitz says stakeholders are increasingly demanding ESG disclosures and accountability from companies and their boards.
“In our recent ‘Institutional Investor Survey’, we conducted in-depth interviews with 62 ESG analysts at 30 institutional investment firms with a combined total of US$47 trillion assets under management,” Sydorowitz tells The CEO Magazine. “Ninety-three percent said their companies were developing more detailed climate transition policy guidelines; 30 percent said they intend to act against companies that do not incorporate ESG metrics in executive compensation plans.
“At a minimum, many investors want to see an appropriate governance structure in place to manage ESG issues, and the company is disclosing the information required to enable investors to assess the company’s ESG risk materiality and progress toward net zero goals. Consequences for failing to meet shareholder expectations may include shareholders showing their displeasure by opposing remuneration and director elections.”
“As ESG has become such a big talking point and focus for investors, there seems to be a tendency to create high-powered and influential ESG teams and roles, which are then having a big impact on the design and implementation of current and future business strategies,” says David Jepson, CEO at The CEO Magazine. “A problem with this approach is that, as times get more challenging and businesses face having to make cost cuts, these people and teams start to get cut, and businesses lose their focus on ESG.
“If leaders apply their personal values to all strategy and decision-making processes, the impact will be a business with strong and sustainable ESG policies and outcomes. If the executive’s guiding values and principles do not result in ESG-friendly strategy and results, that is fine, but it means that any ESG-focused strategy will not be sustainable in the long run and will not create lasting impact.
“ESG is an extremely complex subject area for which there are many different views on what is desirable. The best way for executives to drive results here is to follow their values and principles in all decision-making processes, embed these values into their business, and the ESG results will come as part of this authentic and clear leadership.”
Karl Richter, Director and Co-Founder at iSumio, feels that business leaders who pay attention to ESG issues can both retain and win business, increase resilience and reduce cost.
“Companies who apply an outside-in approach to ESG – how issues in the real world beyond the boundaries of the business can affect it – do so because they appreciate how it can benefit the bottom line,” he says.
“An inside-out perspective – how the operations of the business (and its broader stakeholders) affect people and planet – provides businesses with a way to ensure that they are able to manage their impact in a way that will not disappoint their customers or shareholders.”
“Capturing and reporting ESG data can help a company make better business decisions, win the trust of investors and empower consumers to make informed choices. However, at present, too many businesses and investors are making important decisions based on ESG data that lacks standards and assurance. This ultimately undermines the value of that data and creates an environment ripe for greenwashing,” says Marty Vanderploeg, CEO at global software-as-a-service company Workiva.
“Last year, we polled 1,300 ESG practitioners across industries globally and found that almost three-quarters of respondents didn’t trust their own data. This year, we expect stakeholder demand for decision-useful, audited ESG data to grow. To meet that challenge and win the trust of stakeholders, companies will need to scrutinize their own data and model their ESG reporting after their investor-grade, auditor-affirmed financial data. Financial reporting has evolved over the last century and can provide companies with a clear road map to building trust in their ESG disclosures.”
“Veritas research shows that over half of all data that businesses are storing is ‘dark’ – that is to say, the person in charge of storing it doesn’t know what it is or why it’s being kept. This data – which often turns out to be redundant, obsolete or trivial data that should simply be deleted – has a growing and unnecessary impact on the environment,” reveals Rags Srinivasan, CSO at Veritas.
“The United States Environmental Protection Agency suggests that storing just 1 petabyte (1,000,000 gigabytes) of unnecessary data in the cloud for one year could create as much as 3.5 metric tons of CO2 waste. It is predicted that a total of 100 zettabytes (100,000,000 petabytes) of data will be stored in the cloud by 2025. Using the EPA’s estimate, this would equal 350 million metric tons of CO2.
“To put this into perspective, we would need more than 16 billion trees to absorb the current cloud-storage carbon footprint. If businesses could take control of their information and stop hoarding data that they don’t need, they could quickly and simply make a dent in their environmental impact. And the good news is that they’ll save money at the same time.”
Jenny Keisu, CEO at electric boat manufacturer X Shore, says partnership is the new leadership. “We must collaborate with other game-changing companies to share resources, costs and expertise to drive transformation and innovation faster,” she explains. “Understanding your product and supply chain is key to identifying the best partners to collaborate with.
“Once you work out the companies whose technology and innovation you can adopt, and share yours in return, you are well on your way to establishing yourself as an innovator paving the way for a sustainable product.
“Meeting net zero challenge is one we must do together. Companies must not only look internally at what is happening in their own factories and operations, but also drive ESG issues both upstream and downstream, holding others accountable and influencing those in their industry to follow suit in their sustainability missions.”