Lip Service Won’t Cut It – CEOs Must Invest In an ESG Strategy
Numerous studies have made clear that companies which display a social conscience are more likely to attract investors and loyal customers.
Joe Baguley, Vice President and Chief Technology Officer for EMEA at VMware, offers CEO Today his advice for multinational business leaders looking to implement an effective ESG strategy.
2020 was a year defined by crises in public health, social inequity and the global economy. So, it’s no surprise to see that Environmental, Social & Governance (ESG) issues have risen to the top of business leaders’ minds for 2021 and beyond.
ESG can no longer be considered a tick box exercise to maintain a business’s reputation. Investors today consider ESG measurements and ratings when making decisions, understanding the impact it can have on the bottom line and company performance. Indeed, $347 billion flowed into ESG investment funds last year and a record $490 billion of ESG bonds were issued.
Being able to show a vision for the future that is underpinned by resiliency, agility and adaptability built for that future has become the linchpin of competitive differentiation – and ESG plays a critical role within this.
So, what are the key considerations for CEOs when approaching their ESG strategy?
Sustainability impacts purchase decisions
Even those companies not actively seeking investment need to be able to articulate their green credentials to retain customers. The sustainable credentials of a business are increasingly important in consumer purchasing decisions. Indeed, new research from VMware revealed that 33% of British consumers will stop engaging with companies or buying from brands that don’t publicly share their ethical policies, while 35% would be willing to pay more for goods or services from a firm that has demonstrated how it is using renewable energy and supporting the transition to net-zero emissions.
Even those companies not actively seeking investment need to be able to articulate their green credentials to retain customers.
The environmental impact of digital services
Digital transformation initiatives have rapidly accelerated in the last year, as many organisations were forced to adapt their working practices and operational processes almost overnight to support a distributed workforce and disrupted supply chains. This was an incredible feat for CIO and IT leaders – a success that has unsurprisingly resulted in many CEOs asking: “what’s next?”
However, we can’t ignore the massive contributor of digital services to global carbon emissions. As a result, CEOs must ensure that the pursuit of digital transformation isn’t at the expense of the organisation’s carbon footprint.
Data centre usage, for example, currently accounts for a full 2% of the world’s greenhouse gas emissions, and researchers predict the sector will consume one-fifth of the global available electricity by 2025 due to the greater volumes of data being created at an ever-accelerating speed. The answer isn’t just pushing the carbon burden of your data centre usage onto a collocation provider. Instead, companies need to be looking at solutions that will help them reduce their output.
Virtualisation technology, for example, significantly improves the operational efficiency of IT resources and, in turn, drives down the number of servers required. Indeed, through the use of virtualisation technology, VMware customers have avoided putting 664 million metric tons of carbon dioxide into the atmosphere since 2003 – that’s the equivalent of the annual power consumption of Spain, Germany, and France!
CEOs must ensure that the pursuit of digital transformation isn’t at the expense of the organisation’s carbon footprint.
Forming sustainable partnerships
When it comes to ESG, you will be judged by the company you keep, so the credentials of prospective partners and suppliers must be considered before embarking on a commercial relationship.
The best partnerships are those where sustained support, collaboration and innovation bring continued success to the customer. To ensure that a partner will be a good match in the long-term, it’s important to not just look at what they are achieving today, but enquire about their future environmental ambitions, for example achieving net-zero carbon emissions and procuring 100% renewable energy.
Holding the organisation accountable
To move ESG strategies beyond vision to organisational transformation, everyone needs to work together to meet the company’s objectives. At VMware, for example, our 2030 Agenda introduced greater accountability and responsibility amongst management and leadership to meet our ESG targets and to implement it across the business.
Similarly, new research from PWC found that nearly half of FTSE 100 companies have linked executive pay to ESG targets. Introducing greater responsibility for the impact of decision-making against an organisation’s environment, sustainability and diversity commitments ensures that everyone is working towards making the goals a reality.
It’s time for CEOs to review their ESG strategy
There’s no escaping the importance of ESG: it is fundamental to the commercial success of every organisation, with customers, partners, and investors increasingly making decisions based on companies’ environmental credentials. It’s clear that lip service just won’t just cut it anymore. CEOs must ensure that their decisions – and those of the wider organisation – are working towards a sustainable future. Those that do so, while providing the transparency that potential investors and their customers crave, will be rewarded by the market.