LONDON and BOSTON, January 30, 2023 /PRNewswire/ — ESG and sustainability remain a priority for business leaders and consumers. And a survey by global strategy consultancy LEK Consulting indicates that both groups are committed to becoming more sustainable – and are willing to pay a price and compromise for it.
In fact, according to a LEK Consulting survey of over 2,700 consumers in the UK, US and Australiamore than half say they are turning their back on unsustainable products and services, while 55% say they might switch brands due to ESG considerations and 56% say they are willing to pay up to 40% more for sustainable products.
And the thirst for sustainability is the same within organizations. The majority of large companies around the world have made net-zero carbon commitments, and 54% of executives say their companies should address ESG issues – even if it hurts short-term financial performance, according to a LEK survey by 400 C- world leaders in the suite.
But there’s also a big gap between the desire for progress and the ability to make it happen, says John GodardPartner at LEK Consulting and Vice President, Sustainable Development.
“Unless the disconnect can be resolved between this desire for sustainability and the current capacity of organizations, there is a danger for both business and society – financial costs, reputational damage and continued damage to the environment. environment,” Goddard said.
There are a number of hurdles – on the business side – related to how sustainability is implemented, particularly in terms of the trade-offs that executives believe should be made for longer-term ESG gains. According to LEK’s survey of C-suite leaders, nearly three in five leaders (58%) report that there are significant differences of opinion within their leadership teams on how to balance priorities short-term with long-term ESG objectives.
And the majority say their companies have yet to figure out how to:
- Align executive compensation with ESG
- Create effective KPIs to track progress towards ESG objectives
- Make substantial progress in understanding the financial risks and opportunities posed by the climate
- Integrating ESG factors into capital allocation
Notably, nearly half of C-suite leaders say they believe their company’s current products and services fall short of the needs of a more sustainable future — an added concern, especially given the results of the C-suite. consumer survey of LEK.
Why is sustainability difficult to implement?
“There are several potential reasons why ESG is apparently so difficult for companies to implement, but the good news is that all of them can be addressed and resolved. mind and a bit of time,” said Goddard, who noted the following obstacles:
- Internal company barriers: According to the survey of leaders, the main obstacle to organizations’ ability to achieve their long-term sustainability ambition is the lack of strategic alignment between internal and external stakeholders. For example, when it comes to executive accountability and compensation, 43% of executives say this is the area where they are least prepared to achieve ESG goals.
- Misperceptions of ESG-related costs: Myths persist about the cost of net zero, but a new study from the Oxford University – based on renewable energy and fossil fuel price data and modeling of their evolution – finds that a rapid green energy transition is likely to result in billions of dollars in net savings, because the cost of solar and wind power continue to decline.
- Real sustainability initiatives against greenwashing: Companies worry about “greenwashing” – embarking on initiatives they believe are sustainable but are not. Greenwashing can have significant consequences – take the recent corporate crackdowns in Europe. A contributor to “greenwashing” is likely the state of ESG measurement, which is often non-standard, imprecise and misleading.
- ESG may be perceived as too difficult: Some suggest that the ESG framework itself is disjointed and confusing – that environment, social concerns and governance are difficult to address together – and that measuring and valuing them is an arcane undertaking.
Where to focus for real ESG progress
While it’s not easy and requires new decision-making frameworks, leading organizations are making great strides. Here’s what they have in common, according to Goddard:
- Integrate sustainability into the strategy. Successful companies don’t manage sustainability as a separate set of activities – their key strategic choices include a clear vision of their financial and sustainability goals.
- Education for sustainability. ESG management is a new discipline and few executives have studied sustainability. The most mature companies have looked externally for support to build ESG and sustainability knowledge and education in their highest ranks.
- Establish organizational awareness. “It is not enough to have informed senior management and to think about sustainability. This can only be achieved if awareness permeates the organization,” Goddard said. Internal communications, training, web resources and similar initiatives can help cascade the ESG focus to almost every level of the company.
- Brand and purpose. A company’s purpose and brand values must explicitly adopt and align with the Sustainable Development Goals if they are to be achieved.
- Establish the right culture. While culture is purpose-bound – or at least should be – one dimension of culture that is particularly important is an enduring mindset. Where this is the case, sustainability is integrated into R&D and product development. This, in turn, helps future-proof the company’s offerings.
- Assess the benefits of sustainability as it relates to the company’s portfolio. Successful companies will adopt increasingly holistic approaches to investment and capital allocation, factoring sustainability impact into their decisions.
- More strategic supply chain management. Whether it’s emissions, labor practices, raw material sources, or countless other variables, supply chain management should strive to be as sophisticated as possible, given the the impact of the supply chain on an organization’s ability to achieve ESG objectives.
“To begin to put all of these elements in place and ensure strategic alignment across the organization, senior management and boards must establish an unambiguous and pervasive common language for corporate sustainability initiatives. Equally important, leadership will need to choose the Sustainable Development Goals with precision – and identify the choices that will make those goals achievable,” Goddard said.
With strategic choices in hand, leaders will need to analyze and articulate financial and non-financial benefits, ensure the organization is nimble enough to respond to new demands, and establish KPIs that actually enable accurate measurement of progress.
“Playing to win, as difficult as it can be, has never been more important – both for the long-term value of the business and for the long-term future that will result from a more sustainable planet and of a fairer society,” says Godard.
For more information, please see Global Corporate Sustainability Survey 2022 and Consumer Sustainability Survey 2022.
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 empowering 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.
Michael Jon Romano
SOURCE LEK Consulting