Models for driving climate impact

Deloitte’s 2022 CxO Sustainability Report: The Disconnect Between Ambition and Impact, reveals that global C-level business leaders (or CxOs) are increasingly concerned about climate change and see the world at a tipping point to act.

Eighty-nine per cent of CxOs agree there’s a climate crisis and 63% say their organisations are very concerned. Yet, they are struggling to fully embed sustainability into their core business strategies, operations, and cultures. 

Giam Ei Leen, Deloitte Southeast Asia climate & sustainability leader says Southeast Asia as a region is becoming increasingly vulnerable to climate change, and the time to act against is now.

She cites recent climate-related legislation introduced by governments in the region as playing a large part in putting climate issues on the agenda for CxOs.

She goes on to say that CxOs play a vital role in future-proofing businesses against climate impact and managing pressures from stakeholders.

“It is clear that organisations that take the long view and incorporate sound climate strategies into their policies will not only avoid the worst consequence of climate change, but it will also help to build a stronger reputation as powerful agents of social change,” she continued.

Motivators for change

The impacts of climate change are weighing heavily on executives’ minds. Seventy-nine per cent of CxOs believe the world is at a tipping point when it comes to responding to climate change. That’s up 20 percentage points from a Deloitte survey conducted eight months prior, underscoring the growing importance of acting swiftly.

Also, 88% of CxOs are optimistic that with immediate action, the world can limit the worst impacts to the planet. That is similarly higher than 63% eight months prior. The surge in concern, but also optimism, demonstrates that leaders are increasingly cognizant of the need to act now.

Pressure on CxOs is rising

• 97% indicated their companies have already been negatively impacted by climate change, and about half said their operations have been impacted (e.g., disruption to business models and supply networks worldwide).
• 81% of CxOs have been personally impacted by a climate event (e.g., extreme heat, worsening storms, wildfires) over the last 12 months.
• Additionally, stakeholder groups—including regulators, shareholders, consumers, and employees—are all adding to the pressure to act.

Jennifer Steinmann, Deloitte global climate and sustainability marketplace leader argues that what we make today will determine the quality of life for generations to come.

“A better future depends on a profound and lasting change in attitude and behaviour from governments, businesses, and individuals. The business community can help model new forms of cooperation that identify the best ideas, regardless of source—and create new and lasting solutions that will have the greatest impact for them, their stakeholders, and their communities,” she continues.

The disconnect

Companies are acting: Two-thirds of CxOs said their organisations are using more sustainable materials and increasing the efficiency of energy use. More than half have adopted energy-efficient or climate-friendly machinery, technologies, and equipment. A majority are intentionally reducing air travel and training employees on their climate actions and impact.

However, companies are less likely to implement actions that demonstrate they have embedded climate considerations into their cultures and have the senior leader buy-in and influence to effect meaningful transformation.

Deloitte identified five “needle-moving” actions that, especially when taken together, demonstrate a deeper understanding of the business benefits of sustainability. They are:

• Developing new, climate-friendly products or services;
• Requiring suppliers and business partners to meet specific sustainability criteria;
• Updating or relocating facilities to make them more resistant to climate impacts;
• Incorporating climate considerations into lobbying and political donations; and
• Tying senior leader compensation to sustainability performance.

Compared to other climate actions, companies are much less likely to have already undertaken these five, and more than one-third of organisations haven’t implemented more than one of them. While concern for the environment and optimism for change both remain strong, organisations will increasingly need to consider taking more decisive action to limit the worst impacts of climate change.

CxOs also chose brand recognition and reputation, customer satisfaction, and employee morale and well-being as three of the four top benefits of their companies’ sustainability efforts, suggesting many CxOs see climate actions as beneficial to their relationships with their stakeholders.

The lowest-ranked benefits (revenue from both longstanding and new business, asset values, cost of investment, and operating margins) suggest CxOs continue to struggle with the short-term costs of transitioning to a low carbon future.

Lessons from sustainability leaders

Deloitte’s survey revealed a group of leaders—19% of the sample—whose organisations serve as a model for tackling sustainability with efficiency and effectiveness while reaping the benefits in return. These leading organisations have implemented at least four of the five “needle-moving” sustainability actions. Compared to those organisations who haven’t implemented more than one—35% of the total (nearly double the leader group)—these leaders are:

• More concerned about climate change (74% versus 52%);
• Expecting climate change to have a high impact on their business strategies in the coming years (73% versus 50%);
• Planning to achieve net-zero emissions by 2030 (82% versus 50%);
• Less likely to see cost as an obstacle for sustainability efforts, indicating they may have a better understanding of the costs associated with inaction and have greater senior leader buy-in; and
• More likely to understand the business opportunity of sustainability to their bottom lines, stakeholder satisfaction, and general broader performance.

Deloitte Global CEO Punit Renjen says these actions are important markers of leadership as they require having a mindset that sees both the risks of inaction and the opportunity of sustainability, a culture that embeds climate directly into business strategy, buy-in from senior leaders, and the ability to influence third parties, including business partners, government, and regulators.