ESG Champions embrace operational transformation
ESG is no longer a nicety; it’s a necessity. Customers demand it; investors require it; regulators are making it law. Still, most companies, while stating ambitious goals, have been slow to act. Transformation is costly and burdensome, and economic stresses are slowing efforts. But where many companies see challenges, some see opportunities.
The PwC Global ESG in Operations Survey of mostly large corporations shows many leaders think the same. Appearing to be green isn’t enough. To be competitive, operations must be reengineered to meet wide-ranging ESG standards. There is a subset of ESG champions emerging that enjoys top management support, has a clear strategy and vision and balanced focus on all ESG aspects. They rethink the end to end value chain and with that made their business more resilient for the future challenges. Those who lag behind need to speed up their ESG transformation to not lose ground.
The study at a glance
Key findings
ESG in operations is a competitive imperative for companies – the majority of companies have set clear targets along all aspects and almost all companies (99%) consider ESG criteria in future investments.
The environmental aspect is currently in focus – 80% of companies have clearly defined long-term targets for emissions, while only 60% have social and governance targets in place.
Big intentions and little realisation – only one third of companies have implemented measures for emission reduction with main focus on Scope 1 and 2, however only 21% have Scope 3 measures in place.
ESG Champions enjoy top management support, integration of ESG into their operational strategy and vision, short- and long-term targets by function, and balanced focus on all ESG aspects.
ESG Champions rethinking the end-to-end value chain – incl. reengineering of supplier network, own footprint, product design, and adjusting their own business models towards circularity – have already twice as many measures implemented.
As we see 26% more champions with companies’ revenue greater than €3 billion, smaller companies have to catch up to not lose competitive grounds and increase resilience for future challenges.
ESG maturity varies by region and industry. Comparing the relative share of ESG Champions, North America and Asia are ahead of Europe and the industrial manufacturing and retail / consumer goods industry is leading, whereas the process and service industry are lagging behind.
Five Focus Areas: Main Challenges
- High Costs/Insufficient Budgets
- Unclear Business Impact
- Material Shortages
- Insufficient IT / Digital Solutions
- Lack of Leadership
High Costs/Insufficient Budgets
42% of all companies mentioned this as a top challenge, and relatively smaller companies (those under €5 billion in revenue) were more likely to cite it. Amid inflation with energy and material costs continuing to rise, this challenge will remain.
Unclear Business Impact
Executives are finding it hard to convince other company leaders as well as stakeholders and shareholders that an ESG strategy is economically worthwhile. As Champion companies become more competitive, this may be an easier case to make.
Material Shortages
A third of companies blame a lack of ESG compliant goods and supplies. We remain in a time of severe crisis with shortages of key materials like microchips and steel – never mind more sustainable varieties.
Insufficient IT / Digital Solutions
Struggling with insufficient IT, digital solutions and data access plagues all companies. Digitization is what helps Champions succeed. They confirmed high levels of digitization and data transparency, and said having quality, reliable, easy to access data is fundamental to monitoring and steering impact and activities, cooperating with suppliers and customers, and meeting increasing reporting requirements, among other things.
Lack of Leadership
Nearly a quarter of companies cite insufficient top leadership support as a main challenge for implementing ESG strategy, compared to 13% of Champions who say the same. Significant and effective operational transformations rarely happen without support from key leaders and employee buy-in.
About the survey
We ran in-depth interviews between August 2 and September 13, 2022, with 900 senior executives at mostly large companies. 89% reported revenues over €1 billion. Industries included automotive, electronics, industrial manufacturing, process industries, retail and consumer goods, MedTech and pharma, the financial sector and service industries. Half of the companies are based in Europe but included were companies on every continent. Potential participants who said they had no knowledge of their company’s ESG strategy were excluded from the survey.
