Sustainability and equity considerations are transforming the corporate landscape. Those who once viewed Environmental, Social and Governance (ESG) reporting and disclosure as simply a compliance exercise are now recognizing that it can be a means for creating value and driving a more sustainable future.
ESG can help a business grow its revenue, improve profitability, attract new investors and talent and build a stronger brand. As such, many executives are embracing ESG initiatives as a business driver worthy of investment. In fact, companies that aren’t developing ESG plans could find themselves at a competitive disadvantage.
We are seeing many companies proactively implementing changes, rather than waiting for new mandatory disclosure requirements. Deloitte’s latest survey of senior U.S. accounting, finance, legal and sustainability executives shows that almost 3 in 5 (57 percent) executives have already implemented a cross-functional ESG council or working group, and most others are in the process of establishing one — up from just 21 percent last year. Further, they are stepping up internal goal-setting and accountability mechanisms, and a majority (81 percent) of executives report that new roles and responsibilities have been created to accommodate additional disclosure requirements.
These are only a few examples of how ESG is being recognized as an imperative. Stakeholders increasingly expect companies – especially those in carbon-intensive industries – to honor their climate and carbon-reduction commitments. In fact, in our survey, 58 percent of oil and gas executives said enhanced trust with stakeholders is a business benefit of ESG reporting.
Those that have not yet begun to adopt ESG strategies can consider acting in the following areas:
Define the strategy. Set ESG priorities with clearly defined objectives and timelines. Include key performance indicators (KPIs) to measure progress.
Tell your story. Clearly communicate your ESG vision. Develop a standard reporting process and encourage transparency so employees, customers, investors and other stakeholders can monitor ESG performance.
Get the data right. Gathering the correct information can be difficult. Sometimes it may require collaboration across the business or even with others in the industry. In particular, some companies continue to face hurdles when addressing requirements to disclose Scope 3 greenhouse gas (GHG) emissions — those emitted by vendors, suppliers, customers and others over which companies have no direct control.
Choose your companions wisely. Before you work with vendors or suppliers, monitor and evaluate their ESG policies and track records and review existing relationships for ESG performance. Third parties can affect a company’s Scope 3 emissions, so finding the right vendors and suppliers is important.
Invest in technology. Organizations that invest in technology or sustainability practices that lower carbon emissions may better handle stakeholder expectations and future regulatory requirements. These companies are well positioned to find value in the net-zero economy.
What’s the payoff for all this action? There is, of course, the simple fact that companies may need to meet potential regulatory requirements on disclosures of key ESG metrics. But there can be many impactful long-term benefits, too. Consider the cumulative effects that participating in the transition to low-carbon or zero-carbon energy sources can have, such as reducing energy usage in operations, improving worker safety, reducing impact on water usage and expanding workforce diversity. These constitute a significant ESG agenda, and it’s clear that executives not only grasp the enormity of the challenge, and that many are taking meaningful steps to meet them.
Amy Chronis is managing partner, vice chair U.S. Energy & Chemicals at Deloitte; Geoff Tuff is climate & sustainability leader for Deloitte’s Energy & Chemicals practice.
