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Environmental, Social and Governance (ESG) issues are now high on the boardroom agenda and this, coupled with wider societal momentum means that change is happening at the heart of the business. ESG and sustainability have moved from “nice to have” to “strategic to implement” and will become part of business-as-usual as the world decarbonizes over the next decade.
Big consulting firms like McKinsey announced plans this year to train thousands of employees on ESG over the next five years. Clearly, they see it as a business imperative but there are hundreds of thousands of others whose clients will need ESG strategy, reporting, governance, finance, operational plans, and change management.
And it’s no longer just the big companies, many of whom have made bold 2030 claims without a concrete plan for how to get there. The mid-caps and smaller companies will feel the pinch as the larger companies look to their supply chains to incorporate ESG as a requirement to remain a vendor.
In research published by CSR Talent Group, more than half of companies surveyed claimed they lacked the capacity needed to achieve their CSR, ESG, and sustainability goals. Lack of time needed to find the right talent, a limited network to connect with the right CSR experts, and the cost of hiring staff were top barriers to building out the team necessary to meet their ESG goals.
Meanwhile, reporting is at an all-time high and not showing any signs of slowing down. A study by the Governance & Accountability Institute shows that 92 percent of the S&P 500 and 70 percent of Russell 1000 companies published a sustainability report in 2021.
The good news out of COP26 is that the U.S. is back at the table on climate. The other news is that our government – along with other developed nations that have profited from the very industrialization that is causing the planet to warm – continues to shirk responsibility to pay its fair share so that developing nations can afford to grow and develop sustainably. Ending fossil fuel subsidies, putting a price on carbon, and phasing out coal were all proposed financing mechanisms that participating governments were unable to agree upon and so they stay, once again, on the sideboard.
While government plays a crucial role in meeting our reduction goals to stay at or below the crucial 1.5 degrees Celcius, the free market is comprised of companies that can make and meet whatever goals they believe are in their best interest.
When the U.S. turned a blind eye in 2017 and bowed out of the Paris Climate Accord, businesses joined together to oppose the move. Apple, BHP Billiton, BP, DuPont, General Mills, Google, Intel, Microsoft, National Grid, Novartis Corporation, PG&E, Rio Tinto, Schneider Electric, Shell, Unilever, and Walmart — who represent a combined market capitalization of $3.4 trillion – signed a letter urging the U.S. to stay in the Paris Accord on climate change. And while they failed to convince the Administration of the business case for climate change action, the world took notice of the 16 signatories that represented the largest U.S. companies in the retail, tech, power, energy, mining, pharmaceutical, manufacturing, and consumer goods sectors and the sharp incline of companies disclosing ESG targets skyrocketed.
As companies embedded sustainability into their core business, they performed better which caught the attention of investors. In 2018 Bank of America reported that three years’ worth of returns show companies with strong ESG records outperformed their peers. And last year, Blackrock reported that 88% of sustainable indexes did better than their non-sustainable counterparts during the first quarter of 2020.
In his annual letter to CEOs, Blackrock Chairman Larry Fink wrote, “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” What used to be a painstaking process, the creation of sustainable indices to guide ESG investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.
Take our ESG Consulting Quiz to see if you are ready to bring sustainability consulting into your practice.