Photo by Sokorn Sukkasemsakorn on iStock
July 18, 2023
Authors
Key Points
- A BSR-led series of scenario workshops about the future of ESG in the US highlighted that the role of the Chief Sustainability Officer is more fraught and fragile than ever.
- Across the potential scenarios, vigorous action on sustainability will still be vital to addressing business risks and opportunities, responding to global mandates, and meeting stakeholder expectations.
- Sustainability leads can deploy new and updated tactics to strengthen their sustainability efforts and resilience.
The past few years have seen sustainable business on a rollercoaster ride—ascending one moment, plunging the next, twisting and turning, and yet racing along all the while. The role of the Chief Sustainability Officer (CSO) has required a steady hand and a cast-iron stomach.
As part of ongoing engagement with members, BSR convened 25 US-based Chief Sustainability Officers or their equivalents from leading companies in financial services, technology, retail, healthcare, energy, food, travel, manufacturing, and industrial sectors.
The workshops centered around four potential scenarios and examined the short- and medium-term future of corporate sustainability in the context of increased regulatory activity, the polarization of ESG, the macroeconomic context, state/national/ global shifts on ESG, and stakeholder expectations. Key issues included “greenhushing” with continued corporate action on sustainability but a pullback in communications; a scenario with a resurgent “sustainable growth” economy putting Chief Sustainability Officers in business leadership positions; and an “ESG winter” where a weak economy is blamed on ESG and companies withdraw entirely. Each scenario included an imagined “CSO Inbox” to bring the day-to-day concerns to life. The convening aimed to identify actions each individual and company could take to help them steer through different possible futures.
Despite differences in sector, geography, and even changes in current events across the two-month duration, three distinct themes emerged consistently across all the workshops:
The role of the CSO is more fraught and fragile than ever.
From increased mandatory ESG reporting requirements to scrutiny over "greenwashing," partisanship over "ESG", and economic uncertainty, it’s a challenging time to lead sustainability at a company. Participants were open about the obstacles they face, the pressure of mounting expectations, and the urgency of the problems they are aiming to solve. Some of the common challenges cited include:
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Maintaining ambition: In light of increased scrutiny and new regulations, setting ambitious targets that will be considered credible, not merely compliant.
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Navigating Upcoming Regulations: Tracking and responding to a myriad of fragmented, and sometimes conflicting new regulations and requirements.
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Data and Verification: Gathering audit-ready ESG data.
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Finding Signal in the Noise: Tuning out hype to focus on priorities and action, and helping internal stakeholders do the same.
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Scrutiny over language: With partisan concerns over ESG on the one hand, and heightened sensitivity to greenwashing on the other, corporate communications and language is subject to intense review and debate.
Every scenario requires robust action on sustainability.
It was helpful for participants to recognize that—regardless of economic volatility and the anti-ESG landscape in the U.S. —the underlying factors that have been driving increased sustainability action remain strong and undeterred.
Sustainability leaders said that they would need to continue to focus on progress on their most material ESG issues for several reasons:
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They have been focused on long-term business value, so their strategies will continue to be relevant regardless of the political or economic context.
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Direct business risks related to ESG (e.g. health and safety, climate impacts) are climbing the corporate risk register. While “ESG” terminology can be controversial, the fiduciary responsibility to address those risks is widely recognized.
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Nearly all of the companies will be subject to European regulation and mandatory reporting requirements.
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Stakeholder expectations for corporate action and disclosure remain high—especially among investors, employees and customers.
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The business-to-business relationship remains critical and drives much of the strategic imperative. This was true for traditional B2B companies, as well as consumer-facing that still have value chain expectations from retailers or business partners.
Participants expressed ambivalence around so-called “greenhushing” (the phenomenon of companies quieting their sustainability communications, even as they continue to take action). Some emphasized the importance of companies speaking up for sustainability and pushing back on politicization; others were content for the role of CSO to focus less on communications and more on substance; most agreed the work itself would continue even if the communications strategy may change.
Sustainability leads can adapt tactics and increase resiliency.
Participants were united in the need to maintain ambition: it’s a moment for leaders to be rigorous in their approach, vocal about what matters, focused on how their work affects people and business, and creative in solutions. Some tactics included:
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Focus on material risks and opportunities, not jargon.
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Participants recognized they need to better understand and articulate how salient and material issues impact long-term business value, and how short-term actions link to the long-term.
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The term “ESG” may feel controversial in some US political corners, but the substance is not. Rather than arguing for the importance of “ESG”, most companies plan to focus on using direct language to emphasize the importance of the underlying issues.
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Build integrity of ESG efforts, and anticipate global requirements.
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There’s value in integrating ESG into core systems and policies such as enterprise risk management, various compliance and data systems and controls, and financial filings.
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Drive purposeful leadership in policy and business.
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Companies may need to consider ESG regulations and attitudes as part of market and geopolitical risk analysis, including at the state level in the U.S. Many non-US based companies are beginning to carry out risk assessments for the United States.
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Participants also highlighted the increased need to align policy and sustainability priorities (e.g., in political spending, donations, policy agendas) and disclose activities.
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Build internal alignment and support from the Board.
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Most participants had noticed an increase in Board engagement on ESG, and a clear understanding of its direct relevance to strategic advantage and increased resilience.
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Participants were also trying to build bridges with other parts of the organization, notably legal, data science, and investor relations teams, along with P&L owners.
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Get comfortable with uncertainty.
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Finally, participants enjoyed using the scenarios exercise to identify potential risks/opportunities and potential steps for resilience and see value in customizing it to their particular industry.
Throughout all three events not a single company expected to backtrack or reduce their commitments. Instead, CSOs came together with a palpable desire for comradery, a mutual aspiration to maintain and grow their commitments, and an eagerness to share and explore best practices.
BSR member companies can contact their relationship leads for more information about upcoming events for sustainability leaders.
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