The evolving ESG landscape calls for CEOs to take a proactive approach to environmental, social, and governance plans, including focusing on ESG-centric business growth opportunities, assessing the ROI of sustainability investments, engaging the board as thought leaders; collaborating effectively with business partners, and adopting the right purpose statement.
By HRTech Series News Desk
The Centre of gravity in the ESG space is shifting. This presents a fresh set of challenges – and opportunities for corporate America’s CEOs, as detailed in a new report by The Conference Board.
With this regard, regulators and business partners are exerting increasing influence, whereas major institutional investors were once the most consistently vocal stakeholders driving companies’ ESG agendas. At the same time, companies are facing opposition to their ESG agendas, with 61% of surveyed US firms saying “ESG backlash” will stay the same or increase in the next three years.
“As CEOs seek to integrate sustainability more deeply into their business strategy, they will face the challenge of not having their sustainability initiatives driven by generic regulatory requirements, but instead shaped by external factors such as customer demand, the state of sustainability in their industry, and the interplay of technology and sustainability,” said Merel Spierings, Senior Researcher at The Conference Board and co-author of the report.
This evolving landscape calls for CEOs to take a proactive approach to ESG, including focusing on ESG-related business opportunities; assessing the ROI of sustainability investments; engaging the board as thought partners; collaborating effectively with business partners; and deciding whether to adopt a purpose statement.
The report was produced in collaboration with Ramboll and Weil, Gotshal & Manges LLP. It features insights from a Chatham House Rule convening with CEOs from the US and Europe on how to best integrate ESG into a company’s business strategy and operations.
Insights and Findings From the Report Include:
- CEOs should maintain their focus on ESG-related business opportunities.
CEOs and their companies can capitalise on ESG-related business opportunities by integrating sustainability into their firms’ business strategy and operations.
“We currently are at the early stages of a sustainability transformation of business, which may eventually match the magnitude and impact of the digital transformation. At this point, B2B companies may be leading B2C companies in this transformation. Consumer demand, especially in the US, continues to be driven more by price and quality than sustainability. By contrast, business customers—often under regulatory pressure—are prioritising sustainability,” said Paul Washington, Executive Director of The Conference Board ESG Center and co-author of the report.
- While companies are increasingly held accountable for delivering returns on their ESG initiatives, they lack a consistent methodology for measuring and reporting on the ROI of ESG.
Companies can use existing operational KPIs to quantify the financial return on their sustainability investments. CEOs can facilitate this process by ensuring collaboration among their firms’ financial, sustainability, and business functions to engage in this ROI assessment.
“As we at Ramboll have begun to quantify the ROI of our ESG initiatives, we recognize that certain achievements cannot be adequately captured by traditional financial measures. Therefore, we are committed to measuring both impact and financial returns to gain a comprehensive understanding of our ESG efforts’ effectiveness,” said Jens-Peter Saul, CEO of Ramboll. “This dual focus ensures that our initiatives contribute not only to the long-term success and growth of Ramboll, but also societal well-being and environmental sustainability—which allows us to build trust among stakeholders, and act as the partner for sustainable change.”
- CEOs should meet the board where it is on its sustainability journey.
CEOs should begin by measuring their boards’ current level of fluency in relevant sustainability topics, rather than assuming a level of knowledge and/or interest.
“Companies should consider the relationship between management and the board as a partnership and a complement to the oversight model required by law,” said Lyuba Goltser, Partner at Weil, Gotshal & Manges. “Engaging the board as a strategic partner can facilitate a transformation of the board’s mindset from a focus primarily on risk mitigation to one centred on identifying and capitalising on opportunities.”
- Compared to traditional business objectives, companies need increased levels of horizontal and vertical collaboration to achieve their ESG goals.
Especially in industries where technology plays a key role in driving sustainability, companies may find value in collaborating lawfully with competitors to mitigate risks, share resources, and foster innovation. CEOs and their teams should approach such collaborations with the same level of strategic, financial, governance, legal, and compliance rigour with which they approach other partnerships.