There is no question that sustainability is a core issue for business today, driven by the concern about the growing impact of climate-induced extreme weather, as well as an increase in regulatory disclosure demands. In 2021, for example, over ten times the number of published 10K reports referenced Net Zero versus 2019, with 2022 set to see an even greater number. But how should executives address sustainability and the need to embed it in operations?
Justin Keeble, managing director of global sustainability for Google Cloud says, “[I] can attest to a new urgency, both in the scientific reports and in the awareness among business leaders – we are now facing industry transformations as companies are forced to re-invent themselves for a net zero world. Consumers, employees, and investors are demanding it and our planet urgently needs it. If we don’t prioritize sustainability, we soon won’t have a world to operate in. The companies that embrace sustainability as the core of their business will be the ones that move forward. ”
The business case for sustainability continues to grow. According to a study by the United Nations Global Compact and Accenture, “between 2013-2019, companies with consistently high environmental, social and governance (ESG) performance enjoyed 4.7x higher operating margins and lower volatility than low ESG performers over the same period. ”
As consumers increasingly embrace social causes, they also seek products and brands that align with their values, with nearly eight in 10 consumers indicating sustainability is important for them. It’s a core factor for talent retention and recruitment as well. Alphabet chief executive Sundar Pinchai has been quoted as saying, “… I think our employees demand this [sustainability] as a value. We’ve always had it as a value. It will help us hire the best talent over time. That’s one example of a business case. ”
Google Cloud has released a new survey exploring the challenges and opportunities of business leaders around sustainability. In the survey, 63% of executives said they believe that sustainability is viewed as a growth center in their organization, while 74% state that sustainability can drive powerful business transformations. There is a growing concern however about the disconnect between how well companies think they’re doing on sustainability, and how accurately they are able to measure it.
At face value, 80% of executives give their organization an above average rating for their environmental sustainability effort. Eighty-six percent (86%) believe their efforts are making a difference in advancing sustainability. However, only 36% of respondents said that their organizations have measurement tools in place to quantify their sustainability efforts, and just 17% are using those measurements to optimize based on results. Over half (58%) of executives say their organization is guilty of greenwashing – conveying a false impression or giving misleading information that says a company’s products or practices are more environmentally friendly than they actually are. Overall, 66% asked how genuine some of their organization’s sustainability initiatives are.
The truth is, there’s a confusion on how to move the needle on sustainability. Sixty-five percent of leaders agreed that they want to advance sustainability efforts, but don’t know how to actually do it. Many businesses still continue to struggle with understanding material issues for example, and with managing and analyzing the data needed to underpin target setting and action. Keeble says “Businesses can’t solve this on their own. They need to work with their supply chains to get full visibility of impacts, they need to work with customers and investors to support their business model transformation, and they need to work at an industry level to enable these new models to be adopted and successful. It will be imperative for companies to have better visibility into their data so that they can make more informed, impactful decisions. ”
Supply chains are one of the trickiest areas for businesses to handle – often complex, lacking in transparency, and the source of many emissions. While many companies have announced plans to address Scope 1 and 2 emissions (which are under the company’s direct control), credible net zero emissions require reductions in Scope 3 or the supply chain. According to the Net Zero Standard of the Science Based Targets Initiative, net zero targets requires rapid action to halve emissions before 2030 and long-term deep emissions cuts of 90-95% before 2050. And to be robust, that final 5-10% of overall emissions should be neutralized through carbon removal or nature-based solutions. That is a huge challenge for businesses now.
Keeble believes that the innovation and scale required to solve the toughest climate challenges will come from technology, in which cloud technology will play an important role. Google is currently working with many industries to increase their climate resilience, applying cloud technology to key challenges such as responsible materials sourcing, climate risk analysis and sustainable logistics planning. For example, Google is working with companies like Unilever to help end deforestation in their supply chain and improve both biodiversity and water usage. In addition, the company is building tools in search and software development that help companies grow their business with the lowest environmental impact.
Brandon Owens, VP of Sustainability at Insight Sourcing Group says that what matters is data transparency. The key is to understand which spend categories are generating the highest embedded emissions and then trying to understand the GHG footprints and sustainability practices of individual suppliers. Owens says, “Once you have this information then you can make decisions about either identifying alternative suppliers (presumably with a more favorable sustainability profile) or developing programs to influence suppliers to decarbonize. If an organization can successfully switch suppliers and / or influence them at a lower cost, then they can reduce their Scope 3 GHG emissions levels. In some cases, this can be done more easily than reductions in other areas (Scope 1 & 2), so supply chain decarbonization can be an effective strategy for meeting sustainability / decarbonization commitments at the least cost. ”
That means that fast, easy access to ESG and sustainability data has never been more important – every industry is responding to sustainability challenges and data lies at the heart of that transformation. And while efficient systems are critical for global companies facing mandatory climate reporting regulation, access to relevant data will be key. March 2022 saw news that ESG Book was partnering with Google Cloud to deliver next-generation ESG data solutions through cloud technology. Launched by Arabesque in December 2021, ESG Book enables companies to be custodians of their own data through a digital platform run according to the principles of the UN Global Compact, which encourages companies to adopt sustainable policies.
Of course, at any company in any industry, bold climate action begins with bold leadership. Leaders must have the courage and ambition to make decisions that will reshape their business, and the willingness to champion that change at an industry level. Leaders with conviction, and who are competitive in creating new business models that incorporate sustainability, will be at the forefront.
Keeble says, “What’s required of companies goes far beyond good ESG performance and disclosure. What’s needed is a company-wide transformation and enough of those companies to pivot entire industries. We must see a rewiring of how businesses create value. This is where true change lives. ”