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Prioritising ESG a struggle in current climate

Author: ICAEW Insights

Published: 19 May 2023

Constrained resources, measurement issues and leadership shortfalls are undermining corporate sustainability programmes, survey finds, as many admit to overstating their organisation’s ESG activities.

Macroeconomic factors and pressures from external parties are forcing business leaders to cut corners on their sustainability initiatives, according to the second annual Sustainability Survey report from The Harris Poll, on behalf of Google Cloud.

Corporate environmental, social and governance (ESG) efforts have fallen from top priority in 2022 down to third this year, finds the survey of almost 1,500 senior executives across 16 countries. According to the findings, the global economic climate is instead compelling leaders to protect client relationships and drive revenue as matters of urgency.

Perhaps most concerningly, the report red-flags issues around greenwashing and green hypocrisy – with almost six out of 10 respondents (59%) admitting to either overstating or inaccurately representing their organisation’s sustainability activities.

Missed opportunity

The report notes that compromises stemming from constrained resources could result in a legacy of failure for corporate ESG schemes, which would compound the very risks they had initially sought to address. It is therefore critical for executives to implement greater accountability, better measurement and management, and more clearly defined leadership.

In a special blog on the report, Google Cloud Managing Director for Global Sustainability Justin Keeble stresses that executives who look at the issue as a short-term cost, rather than long-term investment, are missing an opportunity. “The vast majority (85%) of executives acknowledge customers are more likely to engage and do business with sustainable brands, but 78% are now forced to achieve sustainability results on less money than before,” he says.

Motivation is not a problem. Indeed, 72% of respondents aligned themselves with the statement: “Everyone says they want to advance sustainability efforts, but no one knows how to actually do it” – a 7% increase on last year. “With better measurement, clear decision-making and some creativity, companies can better position themselves to progress on their sustainability and business goals,” Keeble adds.

Dedicated leader

On the challenge of greenwashing, Keeble says many respondents believe that the problem is accidental – underscoring a need for accurate measurement in sustainability programmes and highlighting a lack of appropriate tools as one of the biggest barriers to advancement.

“Executives are eager for better systems to track their progress,” he writes, “with 87% of respondents looking to incorporate better measurement into their organisations to help make more accurate targets. Measurement is critical. But coupling accurate measurement tools with more ambitious targets is where we believe there is untapped opportunity.”

In addition to data accuracy, the report says that achieving sustainability goals requires strong internal teams and overall structure. However, Keeble warns that many executives are grappling with complex behind-the-scenes logistics around who should make sustainability-related decisions within their company.

“Most executives (84%) believe their sustainability initiatives would be more effective if they had a better structure with clear accountability,” he writes. “Executives believe having a dedicated leader who would govern sustainability initiatives is the number one action to help advance sustainability efforts. Coupled with strong leadership, 83% believe agile team structures will help them achieve their goals.”

Eliminating spin

However, ICAEW Director of Corporate Governance and Stewardship, Peter van Veen, says many of Keeble’s points don’t go far enough: “Those who look at ESG as a short-term cost, rather than long-term value, are not merely missing an opportunity, they’re missing the point. ESG is about long-term benefits not just for the company, its shareholders and stakeholders, but for society as a whole.

“The creativity that Keeble would like to see more of could be one reason why we have so many accusations of greenwashing in the first place. What’s really needed here is more evidence-based reporting, so stakeholders can have confidence that what businesses are reporting is built on reliable data.”

The concerns about greenwashing are by no means isolated. According to the 2021 edition of the Global accountancy trust survey, conducted by Edelman DXI, 86% of US investors believe companies frequently overstate or exaggerate their ESG progress when disclosing results. Meanwhile, 72% of investors around the world don’t believe companies will achieve their stated ESG commitments.

“Measurement is indeed critical,” Van Veen says. “But translating it into accurate, unbiased reporting that provides an honest and balanced picture is even more important. You can accurately measure, but still end up exaggerating on the communications side. So what we really require is less spin – and more objective reporting.”

Standards of assurance

Van Veen believes that dedicated ESG leaders serve a purpose: “By all means, set up centres of expertise and a head of sustainability to support those efforts. But unless they become embedded in the company’s existing operations and reporting structures, they’re doomed to fail in the long run.”

To avoid the perception of greenwashing, Van Veen says senior executives must ensure that their ESG reports and statements have been compiled with the same rigour and standards of assurance as their financial statements. “If, over time, the C-suite doesn’t take ownership of the sustainability measurement, reporting and delivery processes,” he says, “then investors and other stakeholders should really be asking themselves whether the company is taking these matters seriously.

“The board must be responsible for ensuring that the company’s sustainability story adds up – and is backed up. It must also ensure that the CEO, CFO and COO see the measurement, reporting and delivery of ESG goals and targets as an integral part of their job.”

Visit our Sustainability and Climate Change hub

Sustainability describes a world that thrives by maintaining its capital, whether natural, economic or social. Members in practice, in business and private individuals all have a role to play if sustainability goals are to be met. The work being undertaken by ICAEW in this area is to change behaviour to drive sustainable outcomes.

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