Our research suggests that the intention at the top of organisations to invest in responding to climate change and other sustainability challenges isn’t cascading through the organisation to change at a tactical level.
Let’s start with the good news. Recent data we’ve gathered suggests that 45% of organisations will be making a significant investment in responding to climate change and other sustainability / ESG-related issues over the next three years. An organisation’s willingness to invest in the climate and sustainability space isn’t dictated by its size or by the extent to which it feels it has emerged from the pandemic. It also doesn’t appear to be any more susceptible to political and macro-economic uncertainties than any other type of investment. There are some differences by sector. The likelihood of investing in ESG-related areas is highest in financial services, where 54% say this is the case. But even in the services sector, so badly hit during the pandemic, a respectable 35% of companies say they’re investing in this area.
So, what’s the bad news? For digital transformation, expectations around the level of investment are reasonably consistent at all levels of seniority. But a commitment to ESG investment is more marked among CXOs, of whom 51% say this will be a significant investment, compared to 43% of executives at the level below. At first sight, this doesn’t seem unreasonable—CXOs are, of course, the people who set priorities and who drive change across organisations as a whole. But when we look at the next layers down, the percentages of executives saying their organisation will be investing in ESG-related areas falls away: Only 33% HR executives say this is the case, for example.
Even worse, this isn’t simply an issue of hierarchy—that the message from the top isn’t being effectively transmitted to the lower levels. Ask the same 51% of CXOs who say that they plan to make a substantial investment in ESG-related areas, only one in 20 say that sustainability is currently one of the issues being most actively debated at the top of their organisation at the moment. That suggests the problem is one of distraction, that multiple, simultaneous macro-economic issues, from high inflation to war, mean that senior teams have more pressing challenges. That would be both understandable and unsurprising: The fallout from the 2008 global financial crisis their response to climate change back a decade, and it was only in 2019, as scientific evidence mounted and the world watched one environmental catastrophe after another, that this changed. Many people we spoke to during the pandemic were concerned that the cost of dealing with the latter would later eclipse the ability to invest in broader sustainability.
But that’s not the problem either. Ask them where they plan to use consulting support—another measure of investment—only 7% say it will be in sustainability-related areas. Could this be that they don’t want to rely on consulting support? After all, if one was taking the long view, organisations will have to respond to sustainability issues, so building up their own, in-house experts makes sense—and 84% of our 51% of CXOs who say they’ll be investing heavily in the ESG space say that sustainability skills are important. But even if they already have the sustainability-related skills they need—which is highly questionable, as 57% say they have problems recruiting them—there’s not much sign of tactical activity going on. Just 5% describe responding to sustainability issues is a key day-to-day activity.
We don’t think this is greenwashing, the deliberate attempt by those at the top to persuade their employees and customers that they’re committed to being sustainable while doing next to nothing in practice. Actually, we think it’s part of a wider execution gap in business, in which those at the top genuinely want to make change happen but find it almost impossible to convert an aspiration into front-line change. Why is that so hard? It’s partly about complexity. Sustainability, like so many of the big challenges facing organisations today, requires people in different parts of the organisation to work together. Organisations are likely brains, with billions of synaptic connections but, with so many people leaving and others exhausted and stressed by the pandemic and other crises, their nerve endings have been eroded. Thinking and acting has become harder—and at a time when organisations need to act faster. Eighty-four percent of CXOs who are making a significant investment in sustainability say that success will depend on organisational agility and adaptability.
Consulting firms are making a significant investment in developing the types of sustainability services they know clients will need in the future. The one that’s needed most now is how to translate genuine ambition into reality.