Corporate Chief Sustainability Officers on overcoming barriers to ESG strategy implementation

28 July 2021

Dr Arthur KrebbersHead of Sustainable Finance, Corporates

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Peter HuishHead of UK Large Corporate Financing & Risk Solutions

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With COP26 fast approaching, there has never been a greater focus among UK businesses on sustainability. At our recent corporate Chief Sustainability Officer roundtable event, we explored how leading businesses are overcoming key barriers to successful ESG strategy implementation.

Key takeaways

  • Broader environmental goals can lead to reporting challenges – but they aren’t insurmountable: new frameworks to help companies understand and communicate a broadening array of environmental risks are taking shape.
  • Breaking down long-term sustainability goals into milestones and smaller steps is key: this can help ensure consistent learning and improvement, make higher-level goals more approachable and progress more communicable.
  • From the mail room to the boardroom, the entire organisation needs to be aligned on ESG: creative use of incentives and better cross-functional communication is essential for achieving sustainability goals.

As the world considers how it can build back better and greener following the coronavirus pandemic, sustainability increasingly finds itself at the top of the corporate agenda. But becoming more sustainable – by addressing environmental, social or governance (ESG) risks – is a journey, and it can be difficult to know where to start and what to prioritise.

We recently hosted a roundtable discussion where corporate Chief Sustainability Officers (CSOs) from leading UK-based firms shared perspectives on how to overcome barriers to implementing a winning ESG strategy. Here are three key areas they think every company needs to consider as they develop their approach to sustainability.

Broadening the ‘E’ in ESG reinforces the importance of reporting

Historically, corporate environmental strategies have been narrowly directed towards climate change mitigation and adaptation, with emissions reductions and energy efficiency improvements the leading pursuits for most.

That’s no longer the case. Many CSOs said they are now focusing on addressing a broadening array of areas including water usage, waste and land use (especially in water-challenged or remote areas), and  biodiversity loss – the primary drivers of which are habitat loss, invasive species, overexploitation, pollution, and of course, climate change.

Whilst a broader strategic focus is good for the environment, it does increase the scale of the challenge – from goal setting through to monitoring and reporting.

Take biodiversity for instance. Whilst emissions measurability is challenging, biodiversity loss is even more complex given the interconnectivity and far-reaching impact. Its importance for the global economy can’t be overstated: around half of global gross domestic product (GDP) is either moderately or highly dependent on nature and her services.

It is not surprising, perhaps, that disclosure and reporting around biodiversity has not been as high on the agenda as climate change metrics like emissions. But there is growing recognition of its material importance, with new frameworks being developed by industry stakeholders to help companies and capital allocators (investors and banks) measure and communicate biodiversity-related risk. Just as the Task Force on Climate-related Financial Disclosures (TCFD) is increasingly used by many asset owners, managers and companies to report climate-related intent and purpose, the Working Group for the Task Force on Nature-related Financial Disclosures (TNFD), created last year and formally launched in June, is hoping to be embraced as the equivalent for natural capital.

Breaking down goals into smaller steps and milestones

Every successful ESG strategy starts with setting specific, science-based goals. But the process of becoming more sustainable typically takes years, which means those goals tend to reside well into the future while achieving them can be a long and complex process.

To succeed, CSOs said higher-level goals must be broken down into smaller milestones, against which progress can be measured. This is crucial for enabling those embarking on a sustainability journey to learn from their activities and use those learnings to calibrate their approach, making those higher-level goals more achievable and approachable.

Perhaps most importantly, breaking down high-level sustainability goals into smaller steps and milestones makes it easier to communicate progress and learnings internally to employees and externally to customers, regulators, and capital allocators – which increasingly factor a broadening array of sustainability metrics and performance criteria in deciding which firms they invest in or lend to.

Improving horizontal and vertical alignment on sustainability

Given the rising strategic importance of sustainability and level of attention paid by customers, regulators, investors, and banks alike, executive sponsorship of programmes aimed at improving ESG is essential for their success. Indeed, leading CSOs who participated with the roundtable discussion said investors are increasingly looking at the strongest possible executive support for sustainability initiatives, including in some cases linking executive renumeration to specific ESG targets.

However, that’s only part of the solution and won’t guarantee success on its own. The entire organisation – from the C-suite through to Finance, Procurement, and Operations – needs to be aligned around a common set of sustainability goals. CSOs participating with the discussion said putting incentive structures in place across teams and functions, and improving communication amongst them, can go a long way towards ensuring cross-functional alignment on sustainability.

Engaging stakeholders like relationship banks and institutional investors early in the ESG strategy development stage can be particularly helpful, given the breadth of their knowledge across different sectors and operating models, and help ensure cohesion between internal goals, metrics and KPIs, and the requirements of external stakeholders.

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