Monday Study - Corporate CEOs Talking Vs. Doing Sustainability

Deloitte 2022 CxO Sustainability Report; The disconnect between ambition and impact

January 2022 (Deloitte)

Executive Summary

CxOs’ apprehensions about the planet’s climate have increased over the last several months, as has their optimism that immediate action can make a difference. But there are multiple disconnects between these business leaders’ opinions and motivations, the actions their organizations are taking, and the impact they’re having, according to Deloitte’s survey of more than 2,000 CxOs across 21 countries.

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Key insights include: Approximately two-thirds of executives said their companies are very concerned about climate change and 79% see the world at a climate change tipping point—a number that was 59% in a similar Deloitte survey taken in early 2021. Their concern is consistent with the impact climate change is already having: • 97% of companies have already felt negative impacts of climate change.

• Eight in 10 CxOs said they’ve been personally impacted by climate events over the past year.

• They’re feeling pressure to act from their stakeholders. Yet, there is a prevailing sense of optimism:

• 88% agreed that with immediate action, we can limit the worst impacts of climate change. That figure was 63% eight months ago.

While companies are acting, they are less likely to implement actions that demonstrate they have embedded climate considerations into their cultures and have the senior leader buy-in and influence to effect meaningful transformation.

• For example, they are more likely to have “used more sustainable materials” than to have “developed new climate-friendly products or services.” Additionally, CxOs continue to struggle with the short-term costs of transitioning to a low-carbon future. The five lowest-ranked benefits of climate strategies cited by CxOs were: revenue from both longstanding and new business, asset values, cost of investment, and operating margins.

Lessons can be learned from leaders—representing 19% of the total survey sample— who are implementing at least four of five of the following “needle-moving” actions:

• Developing new, climate-friendly products or services;

• Requiring suppliers and business partners to meet specific sustainability criteria;

• Updating or relocating facilities to make them more resistant to climate impacts;

• Incorporating climate considerations into lobbying and political donations; and

• Tying senior leader compensation to sustainability performance. These leaders are more likely than others to see the benefits of their efforts and less likely to see cost and short-term priorities as obstacles—perhaps an indication they grasp the price of climate inaction. Our report further explores the disconnects between ambition, action, and impact as well as steps CxOs can take to start to bridge the gaps…

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Concern about climate change has increased significantly over the last few months

• Almost 79% of executives see the world at a tipping point for responding to climate change compared to just 59% eight months ago. Despite the gravity of the moment, there is a prevailing sense of optimism as 88% currently (compared to 63% eight months ago) agreed that with immediate action, we can limit the worst impacts of climate change.

• CxOs in the following countries were especially affected and most concerned by climate impacts: Australia, Brazil, India, Mexico, and South Africa. Industries most concerned: Consumer Products, Automotive, Technology, Transportation/Hospitality…

Climate events are disrupting operations … and employees

• Almost all respondents (97%) indicated their companies have already been negatively impacted by climate change, and about half of CxOs said their operations have been impacted by climate-related events that, among other things, are increasingly disrupting business models and supply networks worldwide.

o Countries citing the most operational impacts: Australia, China, Japan, UK, US, and Canada.

• CxOs’ second biggest concern was the uncertainty caused by the shifting regulatory and political environment.

o Countries citing most regulatory impact: Netherlands, Italy, UK, France, and Germany.

• More than a third of CxOs said climate change is affecting their employees’ physical and mental health…

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Where companies feel pressure to act

• Companies are feeling a moderate-to-large degree of pressure to act on climate change from many different stakeholder groups— from regulators to customers to employees.

• Regulatory and political uncertainty emerged as a top climate issue facing businesses. Therefore, it’s not surprising that regulators/ government emerged as the top influencer on these issues.

• A quarter of those surveyed said they received little or no pressure from their board members/management…

Over a third of organizations haven’t implemented more than one of five “needle-moving” sustainability actions

• Companies are less likely to implement actions that demonstrate they have embedded climate considerations into their cultures and have the senior leader buy-in and influence to effect meaningful transformation.

• 84% of CxOs say they’re likely to vote for political candidates that support climate, but only 40% say their companies are incorporating climate decisions into political donations/lobbying…

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Many CxOs don't see the possible financial benefits of sustainability actions

• CxOs chose brand recognition and reputation, customer satisfaction, and employee morale and well-being as three of the four top benefits of their companies’ sustainability efforts, suggesting many CxOs see climate actions as beneficial to their relationships with their stakeholders.

• The lowest-ranked benefits (all financial) suggest CxOs continue to struggle with the short-term costs of transitioning to a low-carbon future.

• Overall, 43% believe their organizations’ sustainability efforts will meaningfully address climate change…

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Recommendations for organizations

What can organizations looking to accelerate their climate actions learn from the cultures, mindsets, and influences that climate leaders display? Each company, industry, and region faces unique challenges when developing an action plan for environmental sustainability, making it difficult even for leaders to continue to drive transformation. The following steps can get organizations on the right track:

Follow recognized frameworks to help you set the appropriate goals and assess progress. From calculating your carbon footprint to implementing reporting processes, third parties like The Science Based Targets initiative and CDP offer guidance and widely recognized frameworks you can use to set and measure credible climate action.

Develop a concrete plan to ensure long-term goals have near-term accountability. Because many CxOs will exit long before their companies’ net-zero target dates, it’s critical to have a concrete action plan that includes tangible, measurable goals and incentives in the short term (e.g., every 2-5 years) to ensure long-term goals stay on track.

Educate senior leaders and the board. Today’s senior leaders require a sophisticated understanding of how their organizations are affected by—and can positively impact—climate change. Senior leaders and boards need to assess the impact of the business on the climate, and the impacts of a changing climate on the business.

Approach climate metrics with the same rigor you apply to your other operating metrics. Controls, management oversight, and risk processes applied to climate metrics should parallel those used for other key performance indicators.Thorough definition and tracking of the most important qualitative and quantitative climate metrics helps management understand and communicate the company’s performance, risks, and opportunities.

Drive collaboration. While, traditionally, businesses are conditioned to protect intellectual property, climate mitigation necessitates a different approach. Any serious effort to take on global climate change will require leaders influencing their ecosystems to magnify impact beyond their own operations and address climate change at a systems level. This includes working with suppliers, business partners, clients, peers, governments, regulators, and NGOs to share leading practices and inspire greater commitments.

Embed climate considerations into every part of the business. For many, infusing climate considerations throughout the organization requires a fundamental business model transformation, with implications for procurement, talent, supply chain, product development, customer relationships, and more. This necessitates new processes, as well as a shift in mindset throughout a company’s workforce, its suppliers, and its customers.

As our data shows, not all businesses are at the same stage in their climate journeys, but all companies will soon need to move from “why?” to “how?” to “how fast?” when it comes to climate action. We’re in a decisive decade to act against climate change, and bold actions resulting in measurable impact are needed to accelerate the pace of intervention—while there’s still time to limit the damage… click here for more

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