Even with record private sector participation in global climate conferences, such as COP26, the global average of companies with zero net emissions commitments was only 22% at the beginning of 2022. The data is from a survey of more than 4,400 CEOs conducted by the consultancy PwC.
According to the survey, environmental, social and governance issues continue to lag behind other issues that concentrate more of the energies of executives around the world. When asked about the biggest threat to the growth of their companies, half of the global executives globally mention cyber risks (50%) and health risks (48%), ahead of macroeconomic instability (43%). Climate change is the biggest threat to business growth in the view of only 33% of leaders worldwide.
However, most of the companies that participated in the PwC survey have net-zero or carbon-neutral commitments. And 29% have some kind of commitment in the pipeline to be made in the future. The main influencing factor behind Net Zero commitments is mitigating climate change risks (62%). The second factor is meeting consumer expectations (61%).
“Despite the growing interest in ESG issues, companies’ strategies are still mainly influenced by business metrics not conditioned on environmental and social issues. Companies that have made more ambitious decarbonization commitments tend to include greenhouse gas emissions reduction targets in their corporate strategies and in CEOs’ variable compensation plans,” the report says. “Without bold attitudes from CEOs, progress on society’s most challenging problems will be limited. This year’s survey highlights the growing pressures facing these leaders. Short-term financial imperatives remain critical, while societal demands demand more attention”.
With the diagnosis mapped out, the report suggests a roadmap of action to improve the scenario. A list of five priorities to help CEOs deliver the sustainable results that stakeholders increasingly demand.
The boards should talk to the CEOs, and the CEOs with the top executives, about the growing demands. Enthusiasm for ESG will not make the short-term financial demands go away. In fact, realistically facing up to the pros and cons of the actions to be taken may be the only way to attract investors and create a pragmatic strategic agenda, not a wish list, in a world where time, attention, and corporate resources are scarce.
The research highlights priorities for capacity building to deal with cyber risks, cultivate trust, and manage decarbonization. In addition, the problem of increasing demands from different stakeholders requires new skills and leadership models in top management and the board. A focus on growth, empathy, and a willingness to debate and accept disagreements have never been more important.
The leadership required to meet today’s challenges will need to incorporate different skill sets, from external hires and the training of new talent from diverse backgrounds. Succession planning is one area where executive leadership and boards can immediately start asking themselves questions to create the future they aspire to.
The strong association between incentives, Net Zero commitments, and other non-financial outcomes suggests that it is time for boards and management teams to take a hard look at the fit between priorities to be driven, the performance management system in place, and the reports those systems generate.
Tackling society’s most pressing challenges will not be an individual concern. It will require an unprecedented level of cooperation among business leaders, public authorities, policymakers, investors, and non-governmental organizations (NGOs).
Source: CEO Survey PwC