LEADERSHIP INSIGHTS

Global climate data revealed the hottest week in 125,000 years unfolded in July, with heatwaves and forest fires engulfing large swathes of southern Europe. These developments underline the importance of governments and businesses achieving their environmental goals.  

The World Economic Forum (WEF) outlines in its report, Fostering Effective Energy Transition 2022, that added cost pressures and squeezed profit margins are forcing some businesses to scale back on their commitments to tackling climate change. This certainly presents a problem as businesses need to be doubling down on their green commitments.

Lorcan O’Connor, Group CEO of Córas Iompair Éireann (CIÉ), summarised the problem in a recent interview with Criticaleye. “Given the various economic pressures facing businesses at the moment, it’s inevitable that questions will be asked about the benefits of an organisation’s sustainability strategy,” he said. 

It can be challenging for organisations to justify green investments as higher interest rates increase the cost of debt financing, while the potential for a short-term windfall from these long-term investments can be minimal. However, such investment is vital if businesses are to stay on track to meet goals for a Net Zero transition.
 
“With some organisations, sustainability strategies have clearly become more abstract and deprioritised,” said Dominic Emery, former Chief of Staff at BP, during Criticaleye's recent Sustainability Forum.  “Unfortunately, we are going to see more companies trying to backpedal on their sustainability commitments in certain circumstances.

"There are a number of reasons companies have had to water down their targets, with one of the primary reasons being short-term investors saying, ‘we think you’re going too fast’,” said Dominic, who is also a Criticaleye Board Mentor. 

Attendees at Criticaleye's CEO Retreat, which took place earlier this year, highlighted concerns around the pace of change within their organisations. Over half (55 percent) of respondents to a survey felt that their organisation isn’t moving fast enough to achieve its targets for Net Zero. 
 
Governments have the potential to provide the regulatory framework necessary to support businesses to help them move faster. However, there continues to be much debate about whether enough is being done.

Catriona Schmolke, a Non-executive Director at Scottish Water and a Board Mentor at Criticaleye, said, “from my perspective, governments remain in the backseat on the implementation of sustainable initiatives. There remains inconsistency in the regulations surrounding how and what a company reports on, with multiple reporting vehicles being used to create bespoke combinations to satisfy the pressures that may be felt from a business’ multiple stakeholders.”  
 
She outlined how the Taskforce on Climate-related Financial Disclosures (TCFD) commitments is “an example of holding businesses to account and do cover a significant tranche of the elements a responsible business should be looking to measure and report”. However, she added that TCFD reporting is mandatory for some companies but not all, which illustrates some of the shortcomings in the system. 

Lorcan emphasised the importance of collaboration. “We need the public and private sector pulling in the same direction. It is essential that businesses and governments work closely together over sustainability – perhaps more so than in any other area.”  

Meaning It  

While governments and regulators certainly have a role to play in accelerating the transition, responsibility also falls squarely on the Boards of companies to demonstrate there is real integrity behind their public statements. 

There is a sense that progress, particularly around governance and transparency, is steadily being made. Mohan Sodhi, Professor of Supply Chain Management at Bayes Business School, commented in a recent Criticaleye feature: “There is definitely less greenwashing than there used to be, for the simple reason that there is no incentive to greenwash environmental results. By reducing C02 emissions and meeting other environmental-focused sustainability goals, your operation is becoming more efficient and saving money."

Strong leadership is vital when there are myriad short-term distractions, which is why Boards have a massive obligation to drive sustainability in an organisation. “Some targets can be much more difficult to gain traction at a corporate level,” said Dominic. “It can be a real challenge to make these more abstract strategies quantifiable in a way people can latch onto.” 
 
As ever, business leaders will need to make tough decisions and trade-offs, but the topicality and urgency of the sustainability agenda only serves to reinforce the dangers of being left with alienated customers, employees, shareholders and a business comprised of stranded assets.  
 
Catriona summarised: “The Board … [needs] to set the policy framework to embed in governance on how they will deliver their commitments; this is very specific to every business. Once embedded in governance, there is then less risk of reprioritisation … Any company that has not embraced sustainability as an integral way of doing business will fall behind their peers and lose market share. Frankly, it’s a no brainer.”
 
The link between sustainability and access to capital through ESG investing and ‘green finance’ has certainly focused the minds of senior leaders in a way that perhaps wasn’t the case in previous years. Mohan said: “The group I see driving the sustainability agenda are the shareholders. They have a vested interest in the organisation surviving and succeeding in the longer term, and sustainability efforts are important in achieving this aim.” 
 
A report by the WEF estimates that by 2030 nature-positive solutions will create $10.1 trillion in business opportunities and generate 395 million jobs. However, it’s evident that governments, consumers and shareholders all need to make choices if this green, post-industrial revolution is to become a reality. For Boards, the spotlight is very much on Chairs and CEOs to show the resolve and resilience needed to hold true to targets and, in many cases, drive significant business model transformation. 
 
The sad truth however, is that the goals set out in the Paris Agreement in 2015 feel unachievable if change keeps happening at the current pace.  
 
Grace Palmer, Content Intern, Criticaleye

This is an abridged version of a recent Criticaleye feature. Find the full version here.