ESG: 3 Considerations for CEOs & Senior Leaders

As COP26 dominates news headlines and global conversations, countries and industries are increasingly committing to climate neutrality targets amidst growing pressure from financial markets. Stakeholders, whether they be consumers, communities or investors, are holding companies to a higher standard, asking for a commitment to the “3 P’s”, profit, people and the planet. Forecasters are also predicting that global assets managed in ESG portfolios will reach $53 trillion by 2025.

Green bonds and other forms of sustainable investment are increasingly being seen as an effective way of funding genuinely sustainable activity, with the European Commission reporting in September that it would be issuing green bonds as part of the pandemic recovery effort. These bonds are intended to raise funds for environmentally friendly reforms and investment in EU member states, with the commission screening the spending plans of member states in an attempt to avoid ‘greenwashing’. Key decision-makers are looking to green finance as a method of encouraging sustainability and decarbonisation, as well as demanding transparency in sustainability reporting. The UK government, for example, is planning to introduce mandatory reporting of climate-related financial information across the economy from 2025.

Credit: Andreas Gücklhorn, Unsplash

What does this mean for CEOs and businesses?

Here we’ll be exploring three key areas that companies need to address as we move towards a more sustainably driven economy…

Company Transparency

Transparency is essential in the current climate as an important source of information for investment managers and stakeholders. It’s an effective way of assessing against targets for ESG integration and performance, but also a public report that improves stakeholder confidence and belief in the company’s values. Reporting publicly on a company’s social and environmental impact through annual, or quarterly ESG reports, is clear evidence of the commitment not only to financial returns but also the 3 P’s. Big 4 accounting firms have recommended establishing a common set of ESG metrics, as creating a global standard might be what will enable investors to make more insightful choices. Incorporating industry-specific standards or disclosure on climate-related risks can be tailored to the industry to enable effective transparency reporting. Moving forward, more and more companies will be taking steps to openly showcase their ESG commitments.

Accountability

With investors, stakeholders and the general public becoming more heavily involved in the sustainability discussion, accountability in ESG performance will be a central focus going forward. We’re increasingly seeing governmental pressures or public backlash when companies fall short of expected sustainability results, and this is likely to only increase in the coming years. Investors have also begun to threaten voting against directors of companies that underperform in ESG metrics, with investment firms demanding extended data to incorporate all of the 3 P’s. C-suite and other executives will be held accountable for strategic decisions, and the environmental consequences associated with those decisions. It’s important that company CEO’s and senior leaders are setting clear, realistic targets in relation to ESG commitments. Additionally, external ESG performance has begun to affect a company’s ability to retain talent, too. The global workforce now recognises the need for improved sustainability and, as such, often seeks to work within a company that is also striving to improve results and make positive change. Google CEO, Sundar Pichai, summarised this in his announcement of the company’s carbon-free strategy, recognising the importance of sustainability practices to future workforces. Moving forward, accountability and clear evidence of performance will be central to a company’s public perception and image. ESG is not purely an external consideration for companies, as internal ESG performance is essential to retaining talent. Increasingly, top industry talent is crediting culture, and the need to work with a deeper purpose, as reasons for remaining (or leaving) companies. While established corporates drag their heels in adopting clear ESG values and procedures, innovative start-ups offer different opportunities for top talent, with less disconnect between the employees and decision makers at the top. Staying accountable to ESG values results in satisfied employees working harder, staying longer with their employers and ultimately seeking to produce better results for the organisation.

Innovation in Talent and Process

To meet demands and targets associated with achieving a net-zero economy, companies need the right people. Considering the strategic ESG background of talent when hiring at the senior level can help company cohesion and ensure realisation of the ESG strategy. Further reskilling of current talent in sustainability practices, combined with diversification of the workforce is helping companies to meet ESG targets and build a long-term growth strategy with ESG at its core. Sustainability concerns should be embedded in a company’s business strategy, with some already elevating sustainability officers to the C-Level suite. The Chief Sustainability Officer (CSO) position is a recognition of the need to implement sustainability across multiple business functions, often challenging the traditional c-suite and being the face of the business in answering transparency and accountability concerns. This position is essential to not only signal to stakeholders the prioritisation of ESG, but to also highlight climate issues as a challenge being taken seriously by a company. We’re likely to see a sharp rise in the number of CSO roles in the coming years, with more and more companies developing clear sustainability strategies. It’s important that senior leaders are considering their long-term plans for innovation and ESG progress. Recruitment and upskilling of the existing workforce should be a central factor in the discussion.