Q&A: ESG takes centre stage on the tricky path to ‘good business’

How has the way busi­ness­es per­ceive and approach sus­tain­abil­i­ty evolved?

LB: Reg­u­la­tion has undoubt­ed­ly impact­ed stake­hold­er expec­ta­tions, but so too has the wider cli­mate change agen­da, social move­ments like Black Lives Mat­ter and #MeToo, and the pan­dem­ic. It is their col­lec­tive impact that has moved sus­tain­abil­i­ty and ESG from the mar­gins to the main­stream of busi­ness. Sus­tain­abil­i­ty is no longer some­thing you can have as an adjunct – it’s now firm­ly embed­ded with­in strat­e­gy, or it should be at least. If com­pa­nies don’t take this seri­ous­ly it could threat­en their rep­u­ta­tion, share price, access to cap­i­tal and tal­ent attrac­tion and reten­tion. We talk about it as ‘good busi­ness’. Pre­vi­ous­ly, a good busi­ness was sim­ply one that made finan­cial sense. But to be a good busi­ness today you also need a sense of respon­si­bil­i­ty and, cru­cial­ly, the abil­i­ty to opti­mise both respon­si­bil­i­ty and prof­it.

The big chal­lenge, of course, is how to do that. It’s all about devel­op­ing a strat­e­gy-led mind­set rather than a com­pli­ance-led mind­set. This allows for a broad­er set of con­sid­er­a­tions to be in scope, viewed through a ‘no regrets’ lens. For exam­ple, those who have to com­ply with reg­u­la­tions need to think beyond them and those who don’t should nonethe­less take a steer from them. The under­stand­ing of investors require­ments, and the abil­i­ty to attract and retain tal­ent, is also key. Our PwC 2021 Glob­al Investor sur­vey found that 82% of investors believe that com­pa­nies should embed ESG direct­ly into their cor­po­rate strat­e­gy, and 49% said they would sell their invest­ment if a com­pa­ny is not show­ing enough action to address ESG issues.

Our focus on help­ing organ­i­sa­tions become good busi­ness­es is sup­port­ed by a frame­work of 10 attrib­ut­es. This frame­work is designed to help organ­i­sa­tions think broad­ly but holis­ti­cal­ly, recog­nis­ing the val­ue of inte­grat­ed think­ing, which brings togeth­er pur­pose, com­mer­cial strat­e­gy and ESG strat­e­gy.

How is the rise of ESG impact­ing the finan­cial ecosys­tem?

JW: I’ve been doing this for over 20 years and for the first 10 years of that it was dif­fi­cult get­ting any­one to take ESG seri­ous­ly. Now every­body is talk­ing about ESG and devel­op­ing ESG prod­ucts and ser­vices. Banks have to make sure they take ESG into account when lend­ing. Insur­ers have to think about the cli­mate impact on and of the infra­struc­ture they under­write. Asset man­agers need to under­stand what ESG issues mean for asset val­ues and the devel­op­ment of new prod­ucts to meet clients’ ris­ing demand for respon­si­ble invest­ments.

I wor­ry that the rise of ESG as an asset class is the wrong way of think­ing about it. What’s impor­tant is the rise of ESG issues and how com­pa­nies man­age, inte­grate and com­mu­ni­cate them to their stake­hold­ers. Mate­ri­al­i­ty is key. Some­times com­pa­nies need to be able to con­fi­dent­ly say, I’m not address­ing these issues because they’re sim­ply not mate­r­i­al and I can’t influ­ence them or they don’t impact me. That hon­esty and focus on what is mate­r­i­al will res­onate with investors. Once you’ve decid­ed some­thing is mate­r­i­al, you need to artic­u­late the impact on, in the sim­plest form, your earn­ings and assets, your plan to mit­i­gate that impact and what it means for the val­ue of the com­pa­ny. And as an investor or asset man­ag­er, how do I ensure the val­ue that is either at risk or could be cre­at­ed, can be cap­tured?

COP26 was the year of the tar­get, it seemed. Are the ESG tar­gets we’ve seen pub­li­cised by com­pa­nies achiev­able?

LB: Com­pa­nies face a huge chal­lenge in achiev­ing these tar­gets. The impor­tance of glob­al, con­sis­tent stan­dards is key. It’s also vital to cre­ate the strat­e­gy and infra­struc­ture that will suc­cess­ful­ly sup­port a company’s tran­si­tion – whether that’s around data, process­es, gov­er­nance or KPIs – away from the cur­rent dis­joint­ed state of ESG data. These kinds of frame­works are very mature with­in finan­cial report­ing, hav­ing had hun­dreds of years of devel­op­ment. But as non-finan­cial report­ing is still at a nascent stage, com­pa­nies are strug­gling to under­stand the base­line they’re work­ing from and what to do to reach their goals. We fun­da­men­tal­ly believe it isn’t just about com­pli­ance – com­pa­nies need a more inte­grat­ed approach where they think holis­ti­cal­ly about pur­pose, ESG and com­mer­cial strat­e­gy. Sus­tain­abil­i­ty should­n’t be the side track to your busi­ness report­ing or strat­e­gy, it should be part of it, flow­ing all the way through to your annu­al report. For this to feel real, be real and to show it is lived and breathed in an organ­i­sa­tion, busi­ness and sus­tain­abil­i­ty report­ing should be inte­grat­ed and that should be very clear­ly reflect­ed through­out the busi­ness.

What will be the impact on peo­ple?

JW: Our Green Jobs Barom­e­ter esti­mates that 400,000 jobs need to be cre­at­ed in the ener­gy sec­tor alone in the UK to meet the require­ments of the ener­gy tran­si­tion. Now, while there is a pool of 270,000 skilled work­ers in the oil and gas sec­tor, 20% of them are expect­ed to retire soon, leav­ing a gap of more than 200,000 jobs to meet the demands of net-zero tar­gets.

I remem­ber the min­ers’ strikes of the 1980s and the impacts it had on whole towns because there wasn’t a prop­er reskilling strat­e­gy to take peo­ple out of the coal min­ing indus­try and move them into new indus­tries. The abil­i­ty to reskill and retrain is going to be crit­i­cal because if we don’t then there will be strand­ed com­pa­nies, jobs and economies in parts of the UK and glob­al­ly. We’ve got 10 years – two busi­ness cycles – to lim­it cli­mate change, and what we don’t mit­i­gate in those 10 years will then have to man­aged in the future. We need to ensure the peo­ple enter­ing the work­force from schools and uni­ver­si­ties today will have skills rel­e­vant for tomor­row, not for yes­ter­day.

How is PwC help­ing com­pa­nies over­come these bar­ri­ers?

LB: Every­one talks about sus­tain­abil­i­ty being a jour­ney. We are very clear that any jour­ney worth embark­ing on needs to have an excit­ing des­ti­na­tion. Bring­ing all our exper­tise togeth­er in our new­ly expand­ed sus­tain­abil­i­ty prac­tice enables us to sup­port clients across every stage of their sus­tain­abil­i­ty jour­ney, from strat­e­gy and imple­men­ta­tion through to report­ing. Our brand is based on trust around report­ing. We can help com­pa­nies build the cred­i­bil­i­ty of their non-finan­cial report­ing, includ­ing cli­mate report­ing. We’re help­ing them to devel­op and imple­ment invest­ment strate­gies for the future, and sup­port­ing them through a fair tran­si­tion, includ­ing reskilling and upskilling, while engen­der­ing trust and piv­ot­ing risk into oppor­tu­ni­ty. That’s also what we’re focus­ing on in terms of our own busi­ness. We’re devel­op­ing a strat­e­gy-led mind­set rather than a com­pli­ance-led mind­set. PwC has had a mar­ket-lead­ing sus­tain­abil­i­ty prac­tice for over 20 years, so it’s almost like the mar­ket has caught up in terms of demand. Most recent­ly, we’ve brought our tech­ni­cal exper­tise togeth­er with our pedi­gree for broad­er busi­ness acu­men to cre­ate PwC Sus­tain­abil­i­ty and ensure ESG strat­e­gy res­onates with the C‑suite lead­ers who are now being met with demands to do some­thing in this impor­tant space.

What is the future of sus­tain­able busi­ness?

JW: I don’t see any oth­er out­come than sus­tain­able busi­ness because, frankly, with­out a sus­tain­able plan­et and sus­tain­able soci­eties, you don’t have a viable busi­ness. We want to live in a soci­ety that is bal­anced with nature, decar­bonised and fair. But I don’t for one minute assume that we’ll get there on a nice, clear lin­ear path. We are going to have devi­a­tions because the roll­out of tech­nolo­gies does­n’t work as quick­ly, or because gov­ern­ments and pri­or­i­ties change, or because there might be fur­ther major eco­nom­ic or geopo­lit­i­cal shocks. Busi­ness­es need to be clear with gov­ern­ments about the urgency to do this. PwC can act as the con­nec­tor between what we hear our cor­po­rate clients say­ing, what we hear our finance-sec­tor clients say­ing and what we hear gov­ern­ments say­ing, ensur­ing we do our piece to dri­ve towards a sus­tain­able out­come. There is no alter­na­tive – sus­tain­able busi­ness has to become busi­ness as usu­al. It’s good busi­ness.

For more infor­ma­tion, vis­it pwc.co.uk/services/risk/insights/good-business-framework.html

Pro­mot­ed by PwC