ESG isn’t a drag on business performance: here is why

Do we really need ESG? A new global study by the IBM Institute for Business Value (IBV), The ESG ultimatum: Profit or perish, conducted on managers and consumers, reveals that environmental sustainability remains a top priority, but when it comes to achieving personal and corporate environmental, social and governance (ESG) goals, inadequate data presents itself as one of the major challenges for both categories.

All the obstacles to achieving ESG progress

The study reveals that managers surveyed cite inadequate data (41 percent) as the biggest obstacle to their ESG progress, followed by regulatory barriers (39 percent), inconsistent standards (37 percent) and inadequate skills (36 percent). Without the ability to access, analyze and understand ESG data, companies have difficulty providing greater transparency to consumers-a key stakeholder-and meeting their expectations.

64 percent of managers surveyed believe that stakeholders understand their organizations’ ESG goals and performance, but on average only 4 in 10 consumers surveyed believe they have sufficient data to make environmentally sustainable purchasing (41 percent) or business (37 percent) decisions.

“Consumer engagement in environmental sustainability and social responsibility has intensified and consumers are ‘voting’ with their wallets,” said Jonathan Wright (pictured), Global Managing Partner Sustainability Services and Global Business Transformation, IBM Consulting. “Since most consumers prefer to buy from and work for ESG leaders, companies must prioritize transparency and break down ESG data barriers.”

Key findings

Some of the key findings of the study include:

• Companies invest in ESG and see it as good for business

• 76% of executives surveyed say ESG is critical to their business strategy.

• Nearly 3 in 4 executives (72%) see ESG as a driver of growth rather than a cost, suggesting that, contrary to common opinion, ESG criteria and profitability are not at odds.

• Seventy-six percent of managers surveyed agree or strongly agree that their organization focuses on achieving ESG outcomes, not just reporting requirements.

• Consumer commitment to sustainability has intensified, but consumers do not feel they have enough information to make informed choices

• About two-thirds of consumers surveyed say that environmental sustainability (68 percent) and social responsibility (65 percent) are very or extremely important to them.While more than half (51 percent) say that the rising cost of living in the past 12 months has made environmentally sustainable choices more difficult, about 6 in 10 say that at least half of their purchases have been directed to a brand that has demonstrated environmental or social responsibility.
• Only 1 in 3 consumers say they have enough information to make sustainable investment and savings decisions.
• Executives admit that companies have not made significant progress toward ESG goals, indicating that data challenges impact their ability to measure progress and meet consumer demands
• Ninety-five percent of executives surveyed say their organizations have developed ESG proposals; however, only 41 percent have made progress toward doing so.
• Nearly 3 in 4 (73%) surveyed executives say their companies struggle with manual data management overload, while 7 in 10 say they have difficulty consolidating or analyzing data.

The study highlights ESG leaders, a sub-set of respondents with greater maturity in integrating ESG into their operations, who are experiencing increased revenues, improved profitability, and increased customer engagement due to their chosen approach that emphasizes transparency and creates strategic business opportunities. These companies are a model for other organizations that are trying to overcome data challenges and create sustainable changes that include: automating ESG processes and reporting capabilities to keep data up-to-date; using artificial intelligence to improve performance, predictive analytics and scenario development; aligning with ecosystem partners on ESG metrics definitions and standards; and proactively defining ESG data governance principles with stakeholders.

“Data is the lifeblood of ESG. Now is the time for companies to act. By operationalizing ESG plans, organizations are putting information in the hands of their stakeholders who can make informed decisions to improve their ESG impact on a daily basis,” Wright said. “Organizations looking to increase stakeholder support and meet ESG reporting requirements should implement a sustainability roadmap that includes technologies, services and ecosystem partners that can position them for greater success and help them address regulatory compliance,” Wright added.