Germany Finance
Globally, companies are setting ambitious ESG targets, but only 6 percent are fully implementing the measures required to achieve them. Most companies (53 percent) are still at a relatively early stage of ESG transformation, implementing only basic measures such as offsetting carbon emissions with carbon credits. These are the findings of the “ESG Empowered Value Chains 2025” study, for which the auditing and consulting firm PwC Germany (PwC) surveyed more than 900 executives worldwide on the status quo of their ESG transformation. The study suggests that many companies are struggling to implement measures, some of which are complicated and difficult to measure, such as redesigning products or improving diversity and inclusion. Meanwhile, a small group of advanced companies, which the study authors categorize as ESG champions, are working to incorporate ESG measures throughout their value chains to make themselves and their suppliers more sustainable and competitive.
Growing pressure from many sides
Companies are under tremendous pressure: The effects of COVID-19 and the war in Ukraine continue, resulting in supply chain disruptions, raw material shortages, and rising inflation, among other things. At the same time, companies are under increasing pressure from consumers, employees, investors and regulators to transform their business to meet a growing number of environmental and social standards.
„ESG transformation can seem like an added burden in these times – the transition is costly, demanding and complex. Nevertheless, it is of existential importance for companies to understand the environmental and social consequences of their actions and align their operations with ESG standards. This is especially true for companies with a capital market orientation.“
The advantages of an ESG pioneering role are also seen by some decision-makers in the study. As with digitization, the earlier the transformation takes place, the greater the benefits. “The pioneers were able to learn quickly from mistakes and continue to develop. Those who hesitated must now invest heavily to catch up. It is better to be an ESG champion than a follower,” says Kutschera.
ESG champions focus on speed, holism and transparency
The study shows that there has been a major shift in attitudes toward transformation to ESG-driven business operations as a driver of resilience and competitiveness. A small group of champion companies (6 percent) are making large investments under these auspices and foregoing short-term gains to make their businesses sustainable in the long term.
„Die ESG-Champions weisen ähnliche Merkmale auf. Sie sind in der Regel größer und haben einen Umsatz von mehr als 3 Milliarden Euro. Sie sind besser darin, Pläne zu machen, sie mit konkreten Maßnahmen zu untermauern und sie langfristig zu verfolgen.“
ESG champions have detailed, short- and long-term roadmaps covering most of their value chains. They also have a comprehensive overview regarding human rights risks in their value chains, as well as robust, product-specific standards for areas such as animal welfare or raw material sourcing. More than 70 percent of their products and services are in line with ESG goals. They have ESG targets and KPIs that are linked to business objectives, broken down to operational functions, and subject to regular monitoring. Eighty-one percent of champions are significantly realigning their business models, for example by moving to circular business models or aligning their product portfolio with ESG goals. By comparison, only 15 percent of other companies do this.
ESG champions are also further ahead in digitization and have higher levels of data transparency and accessibility. 81 percent say their ESG data is fully available and used for decision-making. By comparison, only 13 percent of companies outside the champions claim this.
„It appears that ESG champions are also more resilient when faced with ESG challenges. On average, champions are 25 percent less likely to report that challenges such as cost, access to data, and unclear business impact hinder implementation.“
According to Stefan Schrauf’s assessment, the trailblazers are significantly less affected by problems that cause other companies great concern, including, for example, insufficient support from top management, a lack of ESG strategies and unclear responsibilities. While around a quarter of respondents confirmed these challenges, only 13 percent in the champions group cited these aspects as a problem. The biggest concern of ESG champions is inadequate access to data.
Advanced digitization accelerates sustainable transformation
Most companies indicate that inadequate IT infrastructures, a lack of digital solutions, and limited data access are among their top ESG challenges. Because many companies’ digital capabilities are still evolving, these findings are hardly surprising. For example, recent PwC research showed that 64 percent of industrial manufacturing companies are still in the early stages of digital transformation.
The study illustrates that a high level of digitalization is essential for the implementation of ESG measures – especially with regard to the data required for this. This must be reliable and accessible everywhere in the company in order to be able to effectively monitor, track and control impacts and activities. Here, pioneers typically rely on modern IoT solutions to measure environmental KPIs in real time and determine the environmental footprint of entire factories as well as individual machines and products. In addition, analytics can help predict energy consumption. Technology is also key to ESG-focused collaboration with suppliers and customers across the value chain and essential to meeting growing reporting requirements. Gaps in digitization thus quickly lead to falling behind the competition.
Gap between pioneers and laggards
The results of the study support the thesis that a gap is forming between the pioneers and the laggards. While some act quickly and implement ESG standards across the board, those that merely agree to the minimum fall far behind. ESG champions focus on areas such as advanced tracking or supplier collaboration, improving their entire value chain. As a result, companies that do not take these measures find it increasingly difficult to compete.
„It appears that ESG champions are also more resilient when faced with ESG challenges. On average, champions are 25 percent less likely to report that challenges such as cost, access to data, and unclear business impact hinder implementation.“
Download the full study by PwC here: https://www.pwc.de/de/pressemitteilungen/2023/esg-studie-grosse-ambitionen-geringer-tatendrang-nur-ein-drittel-der-unternehmen-hat-massnahmen-zur-emissionsreduzierung-umgesetzt.html