In the past ESG issues have often played second fiddle for c-suite executives, as demonstrated by PWC’s 2020 Annual Corporate Directors Survey which found that only 38% of board members think ESG issues have a financial impact on a company. Many CEOs have felt hamstrung by their board members and shareholders, who can often be blinkered by the lure of short-term results or bound to the archaic belief that companies who focus on ESG issues experience a drag on value creation. And this negative perception of the climate agenda has resulted in many c-suite executives making unrealistic, unconsidered, and empty pledges; pledges that will still need to be met long after they have left the company. But creating a poisoned chalice for future leaders is neither helpful nor ethical.
Fortunately however, the refusal to accept the greatest challenge of our time, climate change, has shrunk considerably amongst c-suite executives and sustainability is now firmly on the boardroom agenda.
Whilst some businesses spent the decade committing minimum resources to token programmes, curating outlandish claims of commitment, and for a questionable few, thinking they could buy their way to a greener world, a handful of clever companies already had the wheels in motion. It was these companies who had stopped experimenting and instead prioritised at-speed development of much needed sustainable products.
At the turn of the millennium, the idea of an electric-only carmaker seemed like an eccentric fallacy, not just to consumers but to every other auto-manufacturer too. Tesla, however, was smart and most importantly it understood that the transition to a low-carbon economy was inescapable. Tesla understood that although EVs look the same as petrol cars from the outside and perform a similar function for consumers, they are completely different on the inside and require the fusion of software, electronics and manufacturing. They developed a product to meet the needs of social expectations, regulatory demands, investment and technology trends, whilst other industry titans put on their blinkers, kept their heads down and plugged on, business-as-usual. It was a dangerous strategy and one that’s left an entire industry desperately playing catch-up.
More recently, CEOs across all industry sectors have awoken to the power of ESG strategies in building resilience and securing commercial success. By way of example, a PWC survey showed that more than 50% of UK CEOs plan to increase their investment in sustainability and, according to a new report called ‘Taking Stock: A global assessment of net zero targets.’, at least one fifth (21%) of the world’s 2,000 largest public companies have committed to meet net zero targets. The companies together represent sales of nearly $14 trillion. This is a victory of many years in the making.
To say capitalism has been a powerful movement is not justice enough. Study upon study has noted that today, consumers will spend their money with brands who align with their moral beliefs and have no hesitation in snubbing companies who they believe are not pulling their weight. As I type this, Spotify tells me it has collaborated with O2 to launch the first ever sustainable audio campaign as part of the mobile operator’s commitment to be net zero, by 2025. The activity will see Spotify and O2 investing together in nature-based solutions to offset all carbon emissions from O2’s audio activity on their platform for the next 12 months. It’s a welcome reminder that change is afoot. Employees have an important hand at the table, too; pushing the companies they work for to follow a moral imperative and punishing those who fail to speak out by taking their talent elsewhere.
The reality is that if you have waited for someone to tell you to prepare for climate change, you’re putting your business at risk. This is not only evident in the growing maturity of the ESG movement in capital markets and financial services but also with the improvement in the returns on stock with higher ESG ratings. There is a mass of potential in climate risk mitigation, but it requires a shift in perspective from being triggered by fear to planning for opportunity, and that is no mean feat.
The flood of legislation delivered by the UK government has provided more certainty, more focus and more precedent. Sustainability professionals have long banged the drum for climate change with little audience. But there is no time left to explain the need to act to the naysayers, and no amount of peer-reviewed research will help either. Business leaders have been called up to join the cavalry and it is down to the CEO to lead the charge. They need to not only make it a priority, but then need to make it the norm.
Purpose-led behaviours are key to this transition and the unique position of the CEO can make this happen. It is this individual who can raise the ambition of its employees, reflect honestly on the challenges and shortfalls, and set a definition of responsible leadership. These purpose-led behaviours will then trickle down through middle management. Afterall, these are not only the people who split budget, develop products, and lead teams, but they are also our future leaders who will carry this weight of responsibility far beyond our days. Disruptor brands have already proven the return on initiating such leadership; in a recent report by edie in association with Centrica, two innovative firms, BrewDog and All Birds, were cited as inspiring organisations who have used product and services to create a deeper and meaningful connection to the planet and communities.
Perhaps the biggest CEO challenge is to dig deep to unearth bad practices, seek clarity on myths and ensure the claims they make are indeed true to what they say they are. Only when the CEO holds up a mirror to see its true reflection will this important practice become norm in all levels of a business.
Sadly though, bad practices are not uncommon in the supply chain and that includes the renewable energy market. Some suppliers in the UK source energy from fossil fuels and then buy REGOS (or even worse European GOs) and package this up as ‘renewable energy’ for their clients. Imagine claiming that your company has committed to green energy, publicised this to your employees and customers in the media, only to find that you’re buying fossil fuel energy. This is just one of the many bad practices we need to lift the curtain on.
Decades of tiptoeing around, ignoring the unequivocable science and embracing the type of box-ticking culture that encourages only standardised environmental, social and governance issues (ESG), has left everyone scrambling to avoid the irreversible impact of climate change.
Unless green-thinking, purpose-led behaviours and action runs through the veins of businesses, we will fail to prevent the catastrophic impact of climate change. This is not the time to experiment, this is the time to act. Titans of business may exist as a small collective, but remember, positive change has always been driven by the movement of the minority.