“Sustainability is my strategy, but I am not sure I believe in it…” - 2023 may bring the clarity you need

Will 2023 reinforce the ESG Agenda in the corporate world or will it be put to a hold?

This is the question I hear and read so often in the last few weeks. I have no doubt 2023 will be a test of corporates around the world. As someone so nicely put it recently: “the year we will find out if corporate social responsibility (CSR) commitments and environmental, social, and governance (ESG) principles are deeply ingrained values or in fact only hobbies to be enjoyed in economic fair weather”

In my view, I cannot even understand how it is possible to doubt that there is only one way forward – the clear path to make Sustainability a core part of any business strategy. The one that leads, above all, to economic sustainability in the long run. And, in the process, ensuring the social and environmental sustainability we all should aspire to.

The interesting thing is that according to a recent KPMG survey, “CEOs have made significant strides in tying ESG to profitability, with 70% of U.S. CEOs acknowledging that ESG improves financial performance, up from 37% just last year. Yet 59% of CEOs said they planned to pause or reconsider their ESG efforts” Interesting, right? It is almost as if the mood is “yes, sustainability is my strategy, but I really do not believe in it!”.

In this context, 2023 seems to be the year in which corporate executives finally understand the need to pursue that strategy because…they will finally believe in it. Let us remind the C-Suite of three key reasons they need to keep going back to, to “weather any storm”:

1. Sustainability and employee engagement will intersect. Employees will look at sustainability as a part of the company’s value proposition—and organizations will need to respond by placing even more focus on educating and developing their workforce on key issues and business priorities related to sustainability. The fight for talent is widely recognised as one of the main challenges. Guess what: talent is making employment decisions based on corporate purpose commitments and actions.
2. More and more, customers make purchase decisions based on corporate commitments to sustanability. As a recent HBR article points out: “Consumers are even more discerning during increased times of uncertainty, which makes reputation and transparency key. While consumers are more attuned to rising prices, the differentiator will be brands that uphold their commitments to society through good times and bad. In fact, according to the 2021 Porter Novelli Purpose Premium Index (PPI), “73% of consumers say [that] to win their support, companies must show how they are supporting communities and the environment.”
3. ESG investors are on the rise and improved disclosures will provide the necessary clarity to trigger more investment. As Caitlin McSherry, Director of Investment Stewardship, Neuberger Berman describes it: “Regulators, as well as investors, will seek greater transparency on how funds and advisers consider ESG factors. “ESG integration”—the consideration of financially material ESG factors in the investment process—can be distinguished from “sustainable” funds or “impact” funds, in which ESG outcomes are not solely correlated with risk and return. We are optimistic that under expected new rules, investors will have greater transparency and consistency in disclosure as regards the application of ESG-related considerations, leading to better informed investment decisions.”

One of the core strategies of ESG investing is risk mitigation since ESG-related issues are material and can cause financial or reputational damage. Especially during volatile periods in the market, investors want to know that these environmental and social risks are being tracked and managed at the highest levels in the company. Moreover, geopolitics will strengthen the case for ESG as prudent investment strategy

In a nutshell: if Sustainability is already your strategy, stick to it, 2023 will only reinforce your leadership in the market. You just have to believe in the journey you already embarked on. If it is not, I would, at the very minimum…consider revisiting whatever path you have decided to pursue. Or you may regret in 2024 the time lost in 2023.

Have a great and impactful week!

Nuno Moreira da Cruz,?Executive Director?at the?Center for Responsible Business & Leadership?

This article refers to edition #171 of the "Have a Great and Impactful Week" Newsletter and covers SDG 1 to 17.?Subscribe?here?to receive the weekly newsletter.