Businesses revise climate targets as reality of long-term sustainability transformation hits

As the world was gearing up for United Nations Framework Convention on Climate Change (UNFCCC) COP 28, EY has published its 2023 Sustainable Value Study, surveying over 500 chief sustainability officers (CSOs) and equivalents representing companies with revenues over US$1b around the world.
In the survey, businesses report progress on sustainability has slowed, with a decline in progress on greenhouse gas (GHG) emissions reductions to a median of 20%, compared to 30% in 2022. Many businesses surveyed are also extending their target deadlines for achieving their climate goals with the median year shifting from 2036 to 2050, requiring large scale investment, planning and cross sector collaboration.

Rising inflation and geopolitical turbulence is impacting businesses’ ability to accelerate sustainability efforts with only 34% of those surveyed planning to spend more to address climate change, down from 61% in 2022. Furthermore, the number of actions that organizations are taking relating to climate change has also fallen from an average of 10 in 2022 to just four, out of a possible 32 benchmarked in the survey.

Despite the challenges, the survey highlighted that delivering on sustainability initiatives has significant financial benefits, with 52% of those surveyed experiencing financial value exceeding their expectations. Additionally, 63% of respondents witnessed better than expected improvements in product and brand value.

Widening gap between “pacesetters” and “observers” as fewer organizations make public commitments

As gains become harder to make, fewer organizations are leading the charge on climate action. Only 7% of those surveyed qualify as “pacesetters” - organizations taking the most action on climate change - compared to 32% in 2022.

The gap between “pacesetter” companies and “observers”, those taking the least action on climate change, continues to widen. 95% of “pacesetter” organizations continue to have public climate commitments, yet among “observers” this has dropped to 67%. Indeed, the number of organizations reporting not making public commitments has tripled compared 2022.

However, external market demand for climate action remains with over half of sustainability leaders surveyed saying that investors (58%) and customers (51%) are accelerators, motivating businesses to deliver on their sustainability programs. Furthermore, those that remain committed to sustainability targets are seeing benefits from their actions with eight in 10 “pacesetters” capturing higher than expected financial value, compared to just 45% of “observers”.

Embracing the role of the ‘transformational CSO’

The study also highlights the need for CSOs to become transformation agents. The research shows that organizations experience more success with their sustainability programs when CSOs are empowered to be transformational agents with a clear mandate, significant influence in the organization, involvement in corporate strategy, and authority to hold others accountable for sustainability performance.

‘Transformational CSOs’, who currently make up just one in five of those surveyed, are realizing higher than average emissions reductions (21.2%) and taking more action on their climate change commitments action on an average of 27 out of 32 identified initiatives. They are also able achieve greater collaboration across the C-suite, which continues to be an area for improvement noted by respondents.

Stavros Violaris, Partner, Sustainability Services Leader, EY Cyprus said, “Geopolitical tensions and global economic downturn are delaying actions on climate change right at the time when focus needs to move from public declarations to implementation and delivery. Against this background, sustainability leaders have to play an increasingly strategic role in navigating both internal and external challenges. They need to articulate a clear vision and effectively showcase the competitive advantage and financial value that can be derived from delivering on an ambitious sustainability strategy. From their side, CEOs must empower their teams to drive sustainability initiatives and provide them with the operational mandate to integrate their plans into a wider business strategy.”