Cresting the Wave: Businesses Must Navigate a Course Towards Sustainability

Cresting the Wave: Businesses Must Navigate a Course Towards Sustainability

Oxford Economics examines the stumbling blocks companies are facing as they move toward greater sustainability and the strategies they are applying.

By Jake Kuyer, Bethan Jewsbury and Luke Pate

Originally published by Oxford Economics

As a business imperative, sustainability has moved from regulatory afterthought to strategic driver: according to a global survey of 1,800 companies conducted recently by Oxford Economics and Fujitsu, 97% report that sustainability is a top priority in 2023. Amid intensifying pressure from consumers, employees, regulators, and investors, businesses are steadily progressing from the early stages of sustainability target-setting to the complex and expensive work of implementation.

This journey will require major transformations spanning all aspects of the business from governance and reporting to culture and mentality, and the scale of this undertaking should not be underestimated. Companies have made commitments, but tangible progress is slow. Our research identified three substantial stumbling blocks:

  • The availability and quality of data. Two-thirds of businesses focus their sustainability efforts where the data is most accessible and insights are easiest to action – their internal operations. Only half extend this focus to their supply chain, or the use of their products and services in the market. Few organisations are collecting essential Scope 3 emissions data from their partners, suppliers, and customers – an important piece of the emissions pie – and are unable to accurately record today’s emissions to set a baseline against which the success of sustainability initiatives can be measured.
  • The scale of the task and resources required. In a separate study of 3,000 executives Oxford Economics conducted in partnership with Cognizant, roughly half said they find the complexity and enormity of sustainability transformation a key challenge. Meaningful change requires a strategy and execution plan, but many don’t know where to start.
  • Leadership and accountability. Typically, CEOs develop sustainability strategies, control the funding, and provide sign-off. They then delegate execution to the Chief Sustainability Officer and other senior managers. However, few executives are empowered or incentivised to follow through on these initiatives, causing them to stall – our research shows that only 19% of businesses currently incentivise and reward their managers for meeting sustainability targets, yet those that do so recognise it as the most effective way of promoting the cultural shift to sustainable practices.

 

Disclosing sustainability-related impacts and dependencies

Emerging sustainability reporting and disclosure standards will help set the direction for action, leading to a broader and more reliable evidence base to help leaders set baselines and benchmark their progress.

Many emerging standards have been supported or led by the markets, reflecting the demand from shareholders and other stakeholders for more sustainable operations. In other cases, such rules are being mandated by regulators – disclosures aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are already being rolled out in the UK and are on the horizon for the US. In the EU, the Corporate Sustainability Reporting Directive (CSRD) will require around 50,000 companies to make disclosures in line with the European Sustainability Reporting Standards (ESRS), starting from 2024 for large businesses operating in the EU.

These standards call for companies to disclose how they impact the environment and society, and what risks and opportunities arise from those impacts. In this way, the scope of sustainability reporting is broader than just environmental considerations, and the environmental considerations are not limited to climate; nature and biodiversity are also important, as are social and governance factors.

Making these disclosures will not necessarily be easy. Ultimately, though, there is a significant pay-off to measuring and managing impacts and dependencies in the way these standards specify. While they might once have been regarded as being outside the financial realm, considerations around issues like equality, human rights, biodiversity, and the climate will have a material impact on businesses’ bottom lines. Acting sooner than later should bring those pay-offs forward. Over time, with better access to relevant information, investors will be able to make more informed decisions about the risks and rewards associated with investing in different companies. This should improve capital allocation and reward companies that have a credible plan to address their social and environmental impacts and exposure to risks.

Thinking beyond annual reporting

Increasingly, executives will be confronted by a range of sustainability-related questions, such as:

  • Where would be the best place to focus resources on supporting suppliers to decarbonise their highest-emitting procurement categories?
  • What environmental impact repercussions might there be from relocating production to domestic markets to avoid potential trade-war-associated risks?
  • Would we have a greater social impact reducing water abstraction from water-scarce regions, focusing on reducing emissions at primary production hubs, or directing limited resources towards addressing both?
  • What is the scale of financial risk associated with potential climate change impact in areas they are economically active in?

 

These are not easy questions to answer, but economic principles can be applied to them to illuminate and inform decisions, giving clearer insight into the repercussions of business activities and leading to better management. This aids companies in their transition to sustainability. It is also just good business. When strategic decisions are based on evidence, aligned to company aims, and demonstrated to the market via established reporting and disclosure standards, it signals a forward-looking, competently managed, sustainability-focused enterprise.

There is no question about it, sustainability is a disruptive force, with all the uncertainty, complexity, and opportunity that that implies, and navigating it requires a meaningful understanding of how today’s business actions may play out in an uncertain future. This will crystallise effort and resources to where they can have the greatest impact, harnessing the cresting wave of business momentum to achieve remarkable – and imperative – progress towards sustainability.

About the Authors

Jake Kuyer
Associate Director, Economics & Sustainability

Jake Kuyer is an Associate Director and leads the Economics & Sustainability team within Economic Impact Consulting. He has extensive experience applying economics to challenges around the environment and social impact. He has managed numerous projects across the public, private and third sectors covering a broad range of fields. At Oxford Economics, he works with our economic models, such as our bespoke Global Sustainability Model, to embed sustainability into our offerings. He works with clients to understand both their impact and dependence on the environment, and to achieve their sustainability ambitions.

Prior to Oxford Economics, he worked for a multi-national engineering firm focusing on environmental impact, an economics think tank focusing on social value, and a boutique consultancy specialising in environmental economics. He has earned degrees with distinction from the University of Victoria, Canada, and the University of Edinburgh, UK.

Bethan Jewsbury
Senior Research Manager, Thought Leadership

Bethan Jewsbury is the Senior Research Manager for Thought Leadership. Based in London, she conducts global research programs focusing on a broad range of topics including the application of business technology, the future of work and sustainability. Since joining Oxford Economics in 2017, Bethan has been involved in all program aspects, from designing global executive and consumer surveys to analysing large datasets and reporting on the results in papers and graphics.

Prior to joining Oxford Economics, she was part of the Corporate Finance team at a global chemical shipping firm developing investor relations and corporate communications. Bethan holds a Bachelor of Arts in Economics and Social Studies from The University of Manchester.

Luke Pate
Economist, Economic Impact

Luke Pate is an Economist in the Economics & Sustainability team within Economic Impact Consulting. Applying our strong economics foundation, the team works with clients to understand how they impact on and depend upon the environment, and to realise their sustainability vision.

Prior to joining Oxford Economics, Luke worked for an economics and policy consultancy, where he produced research for a range of clients in the UK and elsewhere including the European Commission and HM Treasury. Luke studied Philosophy, Politics and Economics at the University of Oxford.

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