Leaders Acknowledge Internal Alignment, Metrics, Capabilities, Culture and Governance Needed to Achieve Sustainability Goals Are Not in Place, New LEK Consulting Survey Finds
LONDON , July 20, 2022 /PRNewswire/ — Companies around the world have made serious, often specific, commitments to environmental, social and governance (ESG) goals, but are struggling to meet them. In many cases, the gap between their aspirations and the ability to achieve them is significant.
Some of the barriers they face include divisions within the leadership team over how to balance short-term business and financial priorities with long-term ESG goals, lack of processes and capabilities to create ESG programs, disconnects in strategy, product and service portfolios and supply chains. , and internal cultures that are not aligned. Aligning incentives and creating executive compensation programs to support ESG is another significant challenge. Designing and implementing effective ESG programs will require a thorough rethinking of all of these barriers and issues, in particular greater internal consensus on the trade-offs required by ESG and sustainability objectives.
These are among the conclusions of the Global Corporate Sustainability Survey 2022a large survey of 400 C-Suite executives in the United States, Europe and Asia and report by global strategy consultancy LEK Consulting in collaboration with Longitude.
“Companies are ready, for very sound business and societal reasons, to become more sustainable, but they are not quite ready, and far from able at senior management and board level, to achieve these ambitions,” said John GodardPartner at LEK Consulting and Vice President, Sustainable Development.
Companies see great potential in their ESG commitments
Sustainability and ESG have significant momentum in the private sector. More than 700 of the 2,000 largest publicly traded companies have claimed net zero liabilities; 60% of the FTSE 100 have committed to net zero by 2050, and two-thirds of the S&P 500 have emissions reduction targets.
And most companies with ESG commitments see them as much more than just ways to comply and reduce certain risks. According to the LEK survey, 51% of organizations see ESG as a driver of growth, and 20% focus on it in the context of innovation.
In fact, 51% of executives agree that their company should address ESG issues, even if it reduces short-term financial performance, with 54% of executives of publicly traded companies confirming this position.
“The most enlightened companies are moving towards clear sustainability goals, instead of being purely compliance-focused. They know it’s better for the business, better for the planet, and better for society,” said declared Goddard.
Significant challenges abound
Yet a fundamental challenge that companies need to overcome before achieving ESG goals is achieving internal consensus on managing the tension between short-term priorities and investments for sustainable growth.
Indeed, 58% of leaders said there are “significant differences of opinion within the leadership team” on the balance between short-term priorities and long-term ESG goals. “Analyzing the financial and non-financial benefits of strategic choices to achieve ESG objectives is a difficult task. This means quantifying the non-financial benefits in a way that enables prudent strategic choices to fully engage in ESG,” said declared Goddard.
Alignment is also challenging due to the range and complexity of risks associated with ESG and sustainability. LEK’s broader work has highlighted key ESG risks facing organizations, including:
- The cost of energy transition, supply chain sustainability commitments and regulatory compliance
- Finance-related areas, including stranded assets with reduced value, ESG ratings, which are not yet standardized or consistent, and pressure from activist investors
- Related to reputation, including growing consumer sophistication, “cancel culture” targeting companies and talent, and retention issues related to perceptions of a company’s ESG stature
“Boards and executives are increasingly aware of key sustainability risks, but often lack the full context, characteristics and tools to advise and make decisions to manage them,” Goddard said.
Part of the challenge is the lack of metrics or key performance indicators (KPIs) to track progress towards ESG objectives: only a quarter (27%) of companies have implemented enterprise-wide ESG KPIs. company, let alone have a complete package in place. (only 3%), according to the survey.
Without these measures, companies will continue to struggle to align executive compensation with ESG objectives. “Business leaders recognize that linking executive compensation to sustainability goals will be a key step in achieving the ESG objective, but too few companies are at this stage yet,” Goddard said.
Leaders paint a detailed picture of their ESG barriers
The LEK survey asked leaders to select challenges that could affect their ability to achieve their sustainability goal. Thirty-four percent selected “lack of strategic alignment between key stakeholders; » 33% selected “the management team is not aligned with what the ESG ambition should be;” 33% selected “lack of relevant skills/skills for clear decision-making and accountability” and 33% selected “lack of the right culture/mindset”.
When asked to select key areas where their organization is least prepared to achieve ESG objectives, 43% selected “rewards and incentives frameworks” and 40% selected “the right culture, including understood the tone and commitment of management”. Among other key findings:
- 79% of executives said the organization had more to do to build the skills and capabilities required to achieve the Sustainable Development Goals
- 59% said their company had not made substantial progress in understanding the financial risks and financial opportunities posed by the climate
- 54% said their company has not made significant progress in integrating ESG factors into how the company allocates capital
- 48% said they don’t think their company’s current product and service portfolio meets the needs of a more sustainable future
Actions Company Leaders and Boards Can Take
“There are a number of avenues organizations can take to overcome barriers to achieving ESG goals,” Goddard said. “They involve establishing a common language with which to develop sustainability goals and begin to understand the strategic choices needed to achieve the goals; investing in educational programs and support; engaging the entire management team in analyzing the financial and non-financial strategic choices that could be involved in achieving ESG objectives; start setting measurable objectives to define KPIs and enable reporting and monitoring, and set milestones so compensation can be linked to ESG progress.”
About LEK’s Global Corporate Sustainability Survey
We interviewed 400 high-level decision makers from around the world, with a quarter coming from the ranks of CEO or C-suite and the rest from other senior positions, including those in charge of ESG issues, such as directors of sustainability and climate change. Respondents were drawn from all over North America, Asia Pacific and Europewith particular attention to Australia, China, France, Germany and the UK. More than a quarter (28%) came from companies whose turnover was $10 billion a year or more, and a wide range of sectors are represented, including: consumer products, healthcare, pharmaceuticals, industrials, and travel and transportation.
About LEK Consulting
We are LEK Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients’ businesses, revealing opportunities and enabling them to master their moments of truth. Since 1983, our global practice – spanning the Americas, Asia Pacific and Europe – has mentored executives in every industry, from global corporations to emerging entrepreneurial ventures and private equity investors. Do you want more ? Visit www.lek.com.
Longitude is a thought leadership agency owned by the Financial Times. We combine strategy, research, content and enablement services to produce true thought leadership that empowers our clients to truly influence and inspire their audience. We work with a wide range of the world’s most prestigious B2B brands across Europethe United States and Asia Pacific. Our more than 80 clients are concentrated in the professional services, financial services and technology sectors, but also extend to the energy, infrastructure, manufacturing and other sectors. Based at Londonthe company was founded in 2011 and has been selected as one of the Top 200 Marketing Agencies, Best Marketing Agencies of 2020, an Inc. 5000 Europe in 2018, an FT 1000 Company in 2017, and a UK company with strong Leap 100 growth in 2016 by City AM and Mishcon de Reya.
Michael Jon Romano
SOURCE LEK Consulting