When Tesla was dropped from S&P’s well-known ESG index, the move prompted more than just a few disparaging comments from Tesla CEO Elon Musk; it generated much discussion about the good, bad, and sometimes ugly state of ESG progress in different industries. ServiceNow (as discussed in this column in Forbes) sheds light on this issue by summarizing the results of a survey the company conducted with ThoughtLab to understand how businesses are “balancing the pursuit of profit with sustainability and social justice concerns.”
ServiceNow (which delivers digital platforms to enhance workflows) and ThoughtLab surveyed 1,000 executives in five industry sectors (manufacturing, telecom, healthcare, financial services, and the public sector) across 13 countries (access the full report here). Respondents were categorized as either Beginners, Intermediates, or Leaders on an ESG maturity curve, based primarily on:
- the state of their ESG vision, strategy, and budget (from robust to embryonic);
- how they communicate their strategy to stakeholders;
- whether they have developed metrics to track progress;
- how they harness technology to support ESG efforts.
The survey responses suggest that overall, every sector is making progress toward achieving ESG goals. However, the survey participants’ accomplishments to date, including where companies are focusing their efforts across E, S, and/or G, varies a great deal.
Interestingly, manufacturing came out ahead of other sectors—for a number of reasons. One is that manufacturers have been strongly criticized for contributing to climate change (industrial uses generate almost one-fourth of all greenhouse gas emissions in the U.S.), so they have been working hard to reduce their carbon footprints. Another reason: manufacturing firms tend to be large, and therefore have more resources than small firm to devote to reaching ESG goals. Some manufacturers are embracing the circular economy—i.e., designing products that can be produced more efficiently, used for longer, and recycled back into the company’s own supply chains. There are a number of challenges to address in this effort, as it can be difficult to track ESG compliance among suppliers. Still, this does not mean throwing up our hands and saying “it can’t be done” – it just means we need to seek better solutions (some of which can be technology-driven – see “Optimism in the C-Suite” below).
The heat is on (and not just from climate change)
Entities in all sectors say they are under pressure to make meaningful, measurable progress on ESG initiatives. On average, survey respondents reported feeling “medium to high pressure” to set and meet ESG benchmarks. While some politicians and naysayers frame ESG as a “do-gooder”, public opinion issue, most respondents said that their employees and shareholders, not the general public, are the main sources of the pressure they feel to make progress on ESG issues.
Not surprisingly, most of the organizations that participated in the survey are focusing primarily on the “E” component of ESG. Achieving net-zero carbon emissions and adopting renewable energy sources are at the top of the ESG list for most of the respondents, especially those that have relatively underdeveloped ESG strategies. That suggests that net-zero and related issues are now “must-haves” in demonstrating even the most basic commitment to sustainability. Survey participants who said they are in the earliest phase of adopting ESG policies are seeking to use green energy sources as a way to get started and show some progress.
The respondents also noted growing pressure to address the “S” of ESG, primarily with respect to their employees. Over half of those surveyed said say they are working to build a happier workforce where employees are treated more equitably. Efforts in this area may also include subsidizing employee education, providing more training, and improving workplace conditions. Sixty-four percent of the executives surveyed say their ESG efforts help them attract and retain talent and deliver better financial results.
Leaders on the ESG maturity curve
The survey results revealed what leaders on the ESG maturity curve are prioritizing:
- 77% are investing in greater data security/privacy compared to 47% of non-leaders.
- 61% are working to create a corporate culture that supports ESG versus 34% of non-leaders
- 44% are improving their companies’ health and safety standards; only 20% of non-leaders are doing so.
- 39% are making their buildings and plants energy efficient versus 23% of non-leaders.
- 37% are adopting circular economy and zero waste measures compared with 26% of non-leaders.
Although government agencies are responsible for enforcing adherence to ESG regulations, they and other public sector entities are often slow to make progress toward their own sustainability goals. The survey shows the public sector faces the most pressure to make progress on ESG. Telecoms were also on the lowest end of the ESG maturity curve.
Optimism in the C-suite
On a positive note, executives who participated in the survey are confident their organizations can make substantial progress on ESG. Most are adopting new technologies such as artificial intelligence and Internet of Things (IoT) devices (think of refrigerators that recognize you are low on milk, but apply that to an industrial setting) to automate processes, gather data that produces insights that lead to improvements, and monitor progress automatically, which provides feedback to generate more improvements in a positive feedback loop. The more things an organization can track and measure, the better it can understand its ESG progress.
Consumers and employees consistently report that they prefer companies that are committed to ESG principles. Entities that are spending on ESG are optimistic that these investments will pay off in terms of greater efficiency, customer loyalty, and a more satisfied workforce, all of which can support long-term competitiveness and profitability.