strategy+business | sustainability mandate
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In brief
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Finding your sustainability purpose
It’s challenging to engage on sustainability in a meaningful way. Yet doing so opens enormous opportunities, from the potential to win emerging (or as yet unknown) markets to attracting customers, employees, and investors. The first thing to do? Know your authentic sustainability identity: the unique core value, or true north, that you bring to the people you serve.
Finding your true north lets you set guardrails around what you’ll do with respect to sustainability, where you’ll play, and what capabilities you’ll develop yourself (and those partners may provide). This new knowledge makes it easier to create the business case that will persuade investors to trade short-term returns for long-term prosperity. Start with a simple question: what’s our strategic stance toward sustainability?
Embrace your true north
In brief
1. Finding your sustainability purpose
2. Telling your story, your way
3. Building trust
4. Putting your money where your emissions are
It’s time actions spoke louder than words.
Companies face intense pressure to act on sustainability issues, and many are committing to ambitious environmental, social, and governance (ESG) objectives. So, why is so little being achieved on environmental issues? Call it the gap between intentions and reality.
Building a better business for a net-zero world often requires tough trade-offs. Investors see the benefits of action but are unwilling to accept lower returns. Customers push companies to change but don’t want to give up convenience and low prices. And early-stage investment in climate technology largely targets sectors that account for a lower share of overall emissions.
In depth
Further reading
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©2023 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Strategy+business is published by certain member firms of the PwC network. Articles published in strategy+business do not necessarily represent the views of the member firms of the PwC network. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. “Strategy+business” is a trademark of PwC. Cookie Policy
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Portrait by Noli Novak
—Alison Taylor, Director of Ethical Systems, NYU’s Stern School of Business
The challenge for a CEO today is that you still need to create shareholder value. You still need to keep those shareholders happy. You still need to be showing progress quarterly. But now you’ve got all these other pressures and all these other voices saying that you shouldn’t be prioritizing shareholder value at all costs.… So, to me, that is really the challenge for today’s corporate leaders—and what’s keeping them up at night.”
Alison Taylor from NYU’s Stern School of Business spoke with s+b on the point of stakeholder capitalism:
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Tie it together
2. Telling
A company’s first moves on sustainability may not pay off in the near term, and investors are already loath to take a haircut on their returns, even as they say they support the sustainability agenda. The way to tie the pieces together is through a coherent narrative combining the needs of your stakeholders with a vision of where your company is headed and why—and how and when it will get there.
It’s not just investors that need to understand where your company is headed. Narratives work at multiple levels, so craft yours for investors, employees, stakeholders, and potential ecosystem partners. Make sure it retains some flexibility, given that ideas about sustainability can change as regulations shift, technology develops, and new markets emerge. And remember: your narrative only works if you live it.
In short, investors see sustainability as a priority for companies but want greater financial discipline and greater transparency in managing it. A case in point: an eye-popping 87% of investors believe corporate disclosures contain unsupported sustainability claims, or greenwashing. “The more a company talks about sustainability in a vague way and the less information I walk away with, the bigger the red flag gets from my perspective,” one investor said.
Investors already include action on environmental issues among traditional priorities such as innovation and profit when asked what they expect companies to deliver. Yet for two years running, PwC’s Global Investor Survey has found that 81% of investors would accept a reduction of only 1 percentage point in returns for companies in their portfolios that take sustainability actions. So, what’s the story?
Show your work
3. Building
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Further reading: Go deeper on sustainability
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Most stakeholders seem to recognize the climate change imperative and express a willingness to support meaningful responses. But closing the disconnect between corporate leaders and investors is critical to that effort—partly because investors want to minimize the financial impact on returns, but also because we’ve found that, when it comes to the energy transition, investors expect more action than CEOs do. Those expectations can be met if companies more clearly identify their sustainability purpose; tell their story, their way; and weight investment toward initiatives that have the greatest impact on climate change. The path to net zero must be walked, and there’s an opportunity for leaders to bring investors and other stakeholders with them.
—Johann Wolfgang von Goethe
What we agree with leaves us inactive, but contradiction makes us productive.”
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Illustrations by Aad Goudappel
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Why is it so hard to make real progress on sustainability?
How companies can effectively measure and manage Scope 3 emissions
Closing the green infrastructure gap
Managing nature risks: From understanding to action
Climate leadership wanted: How CEOs can better meet investor expectations
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Tell me more about building trust in sustainability data
How else can you make your sustainability efforts more effective? The solution is putting your money where your emissions are. If that sounds obvious, it’s not—as the experience of professional investors in climate technology demonstrates.
Although investment is a critical driver of business innovation and eight in ten investors plan to increase their investment in ESG products during the next two years, the money pouring into climate technology isn’t aligned with carbon impact. A PwC study of early-stage climate-tech investing found just 52% of funding goes to the sectors that generate 85% of greenhouse gas (GHG) emissions. Mobility, for example, attracts nearly half of investment flows despite contributing just 15% of total emissions.
Money talks
4. Putting your
Underpinning all sustainability efforts is the need for companies to have high-quality information with which they can make the right decisions—and for investors to have information they can trust. Building stakeholder trust in measures of sustainability is critical, and far too few companies get it right.
Companies that are forthcoming today may enjoy a competitive advantage over those that wait, so long as any deficiencies are accompanied by credible plans for improvement. And it will burnish a company’s credibility if it discloses definitions and procedures at a detailed, case-by-case level, ensuring they are comparable internally from group to group.
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For companies, there’s a balance to be struck. Leaders need to ensure their climate investments correspond with their overarching strategy and are reflected in their narrative. That likely requires addressing a mix of more mature and less mature technologies with varying potential to reduce emissions and to generate healthy financial returns. But the basic fact remains: more money needs to be directed at solutions to the biggest sources of emissions.
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Source: PwC’s Global Investor Survey 2022
The solution? Companies and investors need to find the right balance between short-term performance requirements and the action needed to meet longer-term goals. Doing so requires four steps.
1. Finding your sustainability purpose. Will it define your company’s reason for being or just focus on meeting legal and regulatory requirements?
2. Telling your story, your way. What’s your compelling narrative that marries the demands of investors and other stakeholders with your company’s sustainability purpose?
3. Building trust. Do you understand investors’ sustainability expectations, show how you consider them with every move, and report relevant metrics transparently?
4. Putting your money where your emissions are. How focused are your green-tech investments on innovations that will have the greatest impact on climate change—and your long-term prosperity?
Actions may speak louder than words, but the two aren’t mutually exclusive. Leaders must better communicate why prioritizing sustainability isn’t a luxury, but a necessity for long-term competitiveness. Creating and following a plan to accelerate your efforts will not only reward investors and other stakeholders; it will benefit the world we all share.
1.
Dive deeper:
Mastering the CEO’s ESG dilemma
your way
your story,
Share of respondents who say it’s important for companies to report the following:
Source: PwC’s Global Investor Survey 2022
trust
Source: PwC’s Global Investor Survey 2022
What can your C-suite team do to build trust? They can:
Incorporate effective systems, controls, and oversight into your reporting process to make it trustworthy and less susceptible to greenwashing.
Report sustainability performance with the same rigor and data quality you apply to financial performance. This may require bringing sustainability and finance teams together to review data sources, a move that also can make sustainability reporting more meaningful by placing it in a financial context.
Integrate sustainability factors into core business strategy and decisions—about capital allocation, investment, and other activities involved in strategic execution. Sustainability outcomes have become too important to investors for your company to treat them as mere add-ons.
Building trust in sustainability data
Note: Showing the share of investors who cited moderate or higher levels of confidence in company sustainability reports if given factor is present.
Source: PwC’s Global Investor Survey 2022
Dive deeper:
The ESG execution gap
money where your emissions are
Nadja Picard
Global Reporting Leader,
Partner, PwC Germany
Tarik Moussa
Senior Manager, Sustainability and Climate Change, PwC UK
Will Jackson-Moore
Global Sustainability Leader,
Partner, PwC UK
Peter Gassmann
Global Leader of Strategy&,
PwC’s strategy consulting business,
Partner, PwC Germany
Emma Cox
Global Climate Leader,
Partner, PwC UK
James Chalmers
Global Assurance Leader,
Partner, PwC UK
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Source: PwC’s Global Investor Survey 2022
Note: Based on a subset of technologies reflecting funds raised and technologies in hard-to-abate sectors.
Source: PwC’s State of Climate Tech Report 2022, PwC analysis of Pitchbook data
Dive deeper:
State of Climate Tech 2022: Overcoming inertia in climate tech investing
Dive deeper:
Mushrooms and other fashion must-haves
The fashion industry is responsible for anywhere from 2 to 8% of global GHG emissions and produces 20% of the world’s wastewater: making a single pair of jeans requires about 2,000 gallons (7,570 liters) of water. Yet the fashion sector is also a hotbed of innovation, particularly around the development of next-gen materials that are sustainable, biodegradable, and require fewer production inputs.
Many textile developers are focusing on mushrooms to use as biomaterials—in particular, mycelium, which makes up the understructure of fungi and can be grown simply and made into a paste that is then shaped around a 3D form. The result is a seamless, custom-made garment that fits well and does minimal harm to the environment.
Makers of these new fabrics are partnering with fashion brands. For example, Bolt Threads, a biotech company based in California, formed a consortium in 2020 with Adidas, Lululemon, Kering, and Stella McCartney to bring its mycelium material, Mylo, to market. The partnership produced a yoga mat, a handbag, and an Adidas concept shoe. A neighbor of Bolt Threads, Mycoworks, raised US$125 million in 2021 and has broken ground on a full-scale production facility in South Carolina to produce its trademark mycelium product, Reishi. Luxury group Hermès is among the companies Mycoworks already has contracts with. The future for biomaterials looks bright indeed—and the market could, well, mushroom.
Innovation in action
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A different kind of magic mushroom
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In brief
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In depth
In conclusion
©2023 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Strategy+business is published by certain member firms of the PwC network. Articles published in strategy+business do not necessarily represent the views of the member firms of the PwC network. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. “Strategy+business” is a trademark of PwC. Cookie Policy
Change analytics preferences
We use cookies to make our site work well for you and continually improve it. The cookies that keep the site functioning are always on. We use analytics to help us understand what content is of most interest. For detailed information on how we use cookies and other tracking technologies, please visit our cookies information page. It’s your choice to accept the use of analytics or not by clicking “Accept” or “Decline.”
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Explore the podcast series from strategy+business, which convenes a global community of solvers to tackle the world’s most important problems
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Check out The Leadership Agenda for more sharp, actionable insights from PwC curated to help global leaders build trust and deliver sustained outcomes
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In brief Find your purpose Tell your story Build trust Money talks
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
In brief | Find your purpose | Tell your story | Build trust | Money talks | Top
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