In a landscape dominated by a global economic slowdown, and game-changing technological developments such as generative artificial intelligence (GenAI), businesses are facing competing pressures when seeking to advance their sustainability commitments.
Adding to this dilemma is the inescapable need for intensified global efforts on climate change – brought into focus by this year’s global stocktake culminating at the UN Climate Change Conference (COP28). There is also growing evidence that making progress on ESG programs is vital for companies to meet their financial objectives, as well as their sustainability goals.
Indeed, in the most recent EY Sustainable Value Survey, it is clear that companies proactive in addressing sustainability concerns are seeing notable financial rewards. These companies are 1.8 times more likely to outperform the financial expectations set by their climate initiatives, in contrast to those taking the least action. Furthermore, 52% of these businesses have exceeded financial expectations when executing sustainability strategies, and 63% report better-than-expected improvements in product and brand value.
However, not all businesses are progressing the climate initiatives that can yield these rewards – perhaps due to the challenging economic environment, rising inflation, or in some instances the challenge of moving from ambition to action, as businesses exhaust the ‘low hanging fruit’ of their sustainability plans.
Recent data from the same survey reveals the roadblocks businesses face in their journey toward ESG goals – and shows a distinct slowdown in the progress many businesses are making on their commitments.
Notably, only 34% of those responsible for their company’s sustainability planning will spend more to address climate change, down from 61% in 2022. And the average timeline for climate change pledges has been pushed back from 2036 to 2050 – a 14-year delay. There is a regression in greenhouse gas emissions reductions reported by respondents, with the median progress receding to just 20% (down from 30% recorded in last year’s survey).
We’ve also seen a sharp rise in the number of companies taking the minimal number of actions to address climate change, spiking from 15% to 45%. This trend, coupled with a growing disparity in sustainability investments and emissions reductions, presents a stark contrast with those leading the way.
Focusing on financial success for sustaining ESG goals
So how can companies overcome these setbacks, and continue to progress on ESG to meet both their ESG and financial objectives?
Reflecting on the ESG framework, it’s important to underline the significance of the ‘G’, governance. It is clear to me that top-level support is crucial to accomplish these goals and initiatives. The recent EY 2023 Long-Term Value and Corporate Governance Survey revealed interesting data – it’s encouraging to see businesses and investors seemingly aligned in their priorities, with 74% of businesses and 78% of investors advocating that ESG issues that relate to their business should be addressed.
However, the situation is more complex. The same survey also found that nearly two-thirds (64%) of senior business leaders were under pressure in relation to facing short-term earnings demands from investors, which consequently hindered their longer-term sustainability investment goals. These pressures are not only counter-productive to businesses achieving their green goals, but could also impact the potential for increased revenue and profits.
It’s essential to prioritise and focus on systematic, accountable, and authentic governance, which integrates ESG initiatives as part of an organisation’s core businesses. They should not be viewed as another consideration; instead companies need to enforce accountability and ensure authenticity.
The role of businesses in maintaining Europe’s sustainability crown
The EY 2023 Europe Attractiveness Survey revealed Europe currently holds a certain charm for 61% of investors, especially in terms sustainability-related investment. Indeed, a region’s policy approach to climate change and sustainability is among the top-three criteria for prospective investments.
Businesses certainly benefit from Europe’s strategy to develop as a green leader, and these businesses play a critical role in maintaining its leading position. Companies should prioritize and align their ESG goals with Europe’s trailblazing green initiatives, such as the EU Green Deal and the Corporate Sustainability Due Diligence Directive. This approach will help advance the global journey to net zero, and also has the potential to drive long-term value for those that adopt sustainable business models.
As we navigate beyond COP28 and re-engage our global commitment to achieving net zero, it becomes imperative that business and investors converge their ESG ambitions.
For many, this may necessitate a shift in gear and a rebalancing of competing priorities – but the evidence shows that the results are worth it.