A recent report by IBM, “Beyond Checking the Box” delivered a daunting statistic – spending on sustainability reporting exceeded spending on sustainability innovation by 43%. In a world where environmental, social, and governance (ESG) considerations should be an integral part of business strategy this raises the question as to why so many organisations are still approaching sustainability as a reporting exercise.   

It should be widely accepted that well managed sustainability efforts can enhance financial performance, manage risks, foster innovation, and strengthen brand reputation and talent acquisition opportunities, not to mention improve access to capital. The IBM study supports this when it also found that organisations that embed sustainability throughout their operations show better sustainability and financial outcomes. They are 52% more likely to outperform their peers on profitability, with a 16% higher rate of revenue growth, and are 65% more likely to outperform peers on talent attraction.

Despite these clear benefits, the reality is that embedding ESG into a business to drive performance improvement and financial enhancement is hard to do. Our own most recent research report, “ESG at a Crossroads” found that there was a general lack of understanding amongst UK PLCs as to how ESG can and should be effectively embedded to drive value. This is echoed by IBM. Executives in the study clearly recognised the value of sustainability, with 72% seeing it as a revenue-enabler rather than a cost centre. However, only 31% of organisations were incorporating sustainability data and insights into operational improvements to a great extent. Within innovation initiatives the equivalent statistic was a mere 14%. We believe this is reflective of a general view, best voiced by a Non-Executive Director of a UK plc who participated in our research, that ESG is still seen as a cost and an obligation. He noted “it is not seen by enough people as a factor of business strategy. For the better businesses, it is at the core of business strategy, and that has to be what happens; but for most people it is tick box.”

One of the pitfalls is the tendency of organisations to meet the sustainability requirements of regulators, rating agencies and investors through narrative rather than action. Many organisations started their sustainability journey as a result of stakeholder demand and frequently view it as a reporting exercise rather than a transformational undertaking. A wave of complex and interconnected regulations is not helping matters. The outcome is an excessive amount of time and resource being spent on compliance, undermining the true potential impact of ESG efforts.

Don’t get me wrong, reporting can be powerful. It provides transparency to stakeholders which fosters trust and confidence, but only if there is a real demonstration and evidence of progress and commitment. It can help to identify risks that could impact operations, but only if strategy and finance is put in place to mitigate those risks. It can enable you to demonstrate competitive advantage and a point of differentiation, but sustainability is not just about staying one step ahead of the competition, or regulation for that matter. It has to be more.

One of our favourite quotes from our research was from a Non-Executive Director who said: “We had an ‘ah ha’ moment where the business said, ‘we are not implementing a sustainability strategy, we are implementing a sustainable business strategy’. It’s a small change in emphasis, but meaningful nonetheless.” This small change in emphasis is the key to unlocking impact and meaningful change.

Realising the full potential of ESG integration requires a holistic approach and commitment from organisations to consider it at all business levels. It requires leadership, cross-functional collaboration, and continuous monitoring and reporting of ESG performance metrics, which also entails ensuring you have a real handle on the issues that truly matter to your business (understanding ESG materiality is key if you haven’t read our recent research or comment pieces).

By embedding ESG principles into corporate DNA, companies can not only mitigate risks and drive financial performance but also contribute to a more sustainable and inclusive future. As we navigate an increasingly complex and interconnected world, harnessing the power of ESG is not just a choice; it’s a strategic imperative for sustainable growth and long-term value creation.