With so many day-to-day challenges confronting your business, there may be a temptation to put environmental, social and governance (ESG) priorities on the backburner. But from improving access to talent and finance, to curbing energy costs and shoring up supply chains, ESG is key to addressing many of the immediate issues you face. The progress you make on ESG now will put you in a strong position to capitalise on the eventual recovery ahead by prioritising purpose at the heart of your business, building trust in ESG numbers, appointing a chief sustainability officer and focusing on ESG - even in periods of distress.
2023 looks set to be another tough year. More than eight out of ten of the UK business leaders taking part in PwC’s latest Global CEO Survey (84%) believe that UK growth will decline over the coming 12 months. But the need to keep pace with longer term disruption and change haven’t gone away. Nearly a quarter of UK CEOs (22%) believe that their business won’t be economically viable within a decade on its current course, while 10% believe they have less than three years.
As we highlight in our Act Now to Recover: Priorities under pressure – the hidden cost of haste report, few if any priorities better exemplify the need to balance short-term urgency with long-term change than ESG.
Purpose and profitability
At a time when competition for talent, customers and investors has rarely been more intense, standout ESG credentials can help you to attract all three.
And your record on ESG could even be a matter of survival as thousands of companies seek to secure refinancing in 2023. It’s notable that nearly three-quarters of the investors (74%) we interviewed for Priorities under pressure – the hidden cost of haste still assess ESG when extending finance.
Businesses need to reframe and reprioritise ESG from being an additional consideration that adds value, to being the purpose at the heart of a business. The way that we do business has changed with commerciality and responsibility being intrinsically connected. Not only are businesses realising the benefits of ESG through greater access to capital, increased employee engagement and enhanced reputation but they are also increasingly playing a key role in the ESG debate more broadly. Profitability and purpose go hand in hand so it is now crucial that businesses get ESG right.
Measuring up
Your ability to address these short and long-term ESG issues come together in the difficult but critical arena of measurement and disclosure. Clear and credible ESG measures are essential in meeting ever more stringent regulatory reporting demands and getting ahead of regulatory requirements, demonstrating a true commitment to and delivery on ESG.
The ESG performance and risks within your supply chain are clearly among the most challenging to measure and manage. But where businesses have been able to make progress in this area, many find that it can provide valuable insights into supply chain efficiency and potential vulnerabilities. The results are not only helping to cut emissions, waste and energy demands, but also reduce costs and speed up lead times. They can also help detect poor working conditions, use of child labour and other unacceptable employment practices.
Progress slows
So what level of progress are we seeing on ESG? The answer is mixed, though some organisations are continuing to make significant headway with increased investment in areas such as decarbonising business models and technology to support ESG efforts.
It’s encouraging to note that 31% of UK CEOs have implemented and 34% are making progress on a measurable data-driven strategy to reduce emissions. But for many others, measurement is the area of ESG that is most likely to have stalled. Some notable exceptions aside, ESG data is rarely of the same quality or reliability as would be expected within financial reporting. This can create a credibility gap when competing for business, talent and investment. It also makes it more difficult to develop and track data-led ESG strategies.
On track to deliver
How then can your business use ESG to bolster your position in the short-term while building for the future? Four priorities stand out:
- Putting ESG and purpose at the heart of your business
ESG can no longer be viewed as a nice-to-have. Given how much is at stake, it’s time to put purpose and ESG at the heart of your business. As profitability and purpose are now so interconnected, prioritising ESG in this way will improve your business strategy, performance management, marketing and investor relations. The foundations for progress are adopting ambitious but realistic targets, organising ESG data and taking tangible steps to fulfil your commitments. - Build trust in your ESG numbers
Both your ESG decision-making and ability to build stakeholder trust depend on the credibility of your ESG measurement and disclosure. This can be challenging given the continuing sparsity of data, reliance on third-party information and inconsistencies in regulatory reporting and rating agency evaluation. But the progress being made by a number of front-runners shows what’s possible when there is the commitment to drive it.
In the absence of regulatory consistency, the rewired.earth framework offers a valuable standardised data platform for ESG impact reporting. To improve supply chain data, you can include verifiable ESG information in your tender and procurement criteria. - Appoint a dedicated chief sustainability officer
This is a growing trend, especially among larger groups. Appointing a dedicated chief sustainability officer at board level can help to embed ESG considerations into your strategic planning, accelerate progress on reporting and help hold the business to account. - Keep up the ESG focus even in distress
ESG is quite understandably less of a priority if your survival is at immediate risk. Nonetheless, a compelling ESG strategy and the data to back this up can still be valuable in increasing access to finance and enhancing the value of operations being put up for sale.
Act now to reap the benefits
ESG shows how you can improve your chances of success in the short-term while keeping a fixed eye on the future. Measurement is critical in targeting investment, tracking progress and securing the rightful rewards for your commitment to ESG.
We explore the importance of ESG and how to reap the benefits in our Priorities under pressure – the hidden cost of haste report.
