90% of CEOs Doing More to Incorporate Green into Core Strategy

                                                                                    

CEOs are under more pressure than ever to incorporate environmental, social, and governance (ESG) practices into their core strategy — and as many as nine in ten are up to the challenge, according to a McKinsey survey.

An artcile (MCKINSEYceosonstrategyandsocialissues) in the October issue of McKinsey Quarterly summarized the survey findings, reporting that 90% of the CEOs said they were doing more to address ESG issues than they did five years ago. An overwhelming 95% said public expectations for corporate responsibility are higher now than they were five years ago.

In addition, many survey respondents noted that consumers punish companies that don't meet their expectations for corporate citizenship. Surprisingly, the CEOs ranked employees as having the most impact on a company's ethical reputation, with consumers coming in second. In five years, however, CEOs expect consumers to overtake employees as the single stakeholder group with the most influence.

Globalization and the emergence of powerful economies in China and India have complicated the landscape, as corporations are called upon to deal with a variety of social norms and expectations on ESG performance. Companies that successfully navigate these issues not only minimize risk but also gain competitive advantage, according to the study. "Water is the biggest issue for our company right now," said the CEO of a packaged-goods company. "The ability to do business in water-stressed areas is critical for us right now."

Despite the obvious advantages of good corporate citizenship, most companies struggle with competing priorities, such as shareholders' demand for short-term financial performance. Fewer than 20% of CEOs surveyed said current financial markets are equipped to take ESG issues into account. While standards do exist, they "have yet to become benchmarks to look up in the Wall Street Journal," said one CEO.

The most common refrain was that, while companies are doing more to incorporate ESG into core strategy, they are still not doing enough. While 72% of CEOs said ESG performance should be a pillar of company operations, just half said their own companies actually do this. The numbers were lower for supply chains: 59% said ESG should be enforced upstream, compared to 27% who said they have actually tried this approach.

The article concludes that while barriers to ESG "seem very hard to overcome," the report's authors were struck by the level of creativity and innovation companies are displaying in addressing key environmentally challenges.