3 Brutal Barriers that Challenge ESG Action in Business
Struggling to scale your sustainability efforts?
For many, sustainability is a hot topic, yet some companies still find it challenging to fully embrace. Why? A big part of the problem lies in justifying the return on investment (ROI). It’s hard to put a price tag on something as abstract as reputational damage or the future costs of carbon taxes. Add to that the challenges in establishing ESG metrics that work for your business, and it’s no wonder business leaders are hesitant to invest in sustainability. But is this cautious approach a smart long-term strategy, or are organizations missing out on future-proofing their business?
Here are 3 hidden barriers that often stop you from gaining traction with your sustainability strategy.
Do these sound familiar?
Money, Money, Money
Many companies hesitate to invest in sustainability, because they fear the return on investment (ROI) might not be worth it. This concern is understandable, as the benefits are often intangible and difficult to quantify. How do you measure something like reputational damage or the future savings from avoiding carbon taxes? On top of that, organizations often face competing financial priorities, which makes allocating funds to sustainability even more challenging.
Recent developments have further complicated the situation. For example, S&P’s analysis indicates that ESG (Environmental, Social, and Governance) funds don’t generate “alpha” or financial outperformance. They’ve also recently removed numerical ESG ratings, relying solely on qualitative information. This shift adds to the difficulty of quantifying the ROI of sustainability efforts, shaking the confidence of leadership in pursuing these initiatives.
One solution, as suggested by the World Resources Institute, is for Chief Sustainability Officers (CSOs) to build stronger partnerships with Chief Financial Officers (CFOs). By giving CSOs more authority over capital budget decisions and involving sustainability teams early in the planning process, companies can better align their financial and environmental goals.
Despite these challenges, I view this hesitation as short-term thinking, driven in part by political factors. As the impacts of climate change become more severe and the cost of carbon continues to rise, the case for sustainability investment will grow clearer. The real question is: will companies act before it’s too late?
2. Lack of Leadership Support
Leadership’s reluctance to engage with sustainability issues often stems from a few key factors. First, a lack of scientific literacy among executives can make sustainability seem overwhelming and complex. ‘Science can be scary’ with some. Without a background in science, many leaders struggle to interpret climate data or understand the urgency of environmental issues, and don’t know where to start leading to hesitation or outright dismissal of these topics. I was at a business conference only last month where someone told me that scientific data doesn’t exist to prove climate change is happening!
That being said, leadership can be influenced by a range of voices. HBR put together a 2X2 to help leaders make sense of the range of voices and their underlying motivations. Knowing the underlying motivations, can then help leaders determine a course of action.
Second, sustainability is often perceived as a cost center rather than a strategic investment, especially when the financial benefits are difficult to quantify. I’ve seen so many newscasts of the scaling back of sustainability initiatives in the past year, that I’ve lost count.
Additionally, short-term business priorities, such as quarterly financial targets, can conflict with the long-term vision required for sustainability initiatives. This focus on immediate results can cause leaders to deprioritize sustainability, fearing it might distract from more pressing business concerns.
Lastly, political and regulatory uncertainty surrounding climate policies adds further hesitation, as leadership may not want to commit resources without clearer guidelines or incentives.
It therefore comes as no surprise that leadership and their supporting teams play a big part in moving sustainability initiatives along. Without strong leadership support, sustainability efforts inevitably lack momentum and fail to become integrated into the broader business strategy.
3. Lack of Integration into the Wider Business
For years, I’ve seen sustainability roles tacked onto other roles. People with titles like ‘Head of DEI and Sustainability.’ I’ve seen rebranded QHSE roles that now also include Sustainability. And I’ve seen sustainability roles reporting into the VP of Marketing. When I see this, it hits me that these companies have been caught off guard. They’ve had an ‘oh shit, what do we do with this moment?’ And, so have bundled it into some other role, or worse are using superficially to manage optics only, particularly when sustainability reports into Marketing. 🤦🏽♀️
What this means is that any sustainability initiatives are removed from key corporate functions, like finance, strategy and innovation, and so efforts will be silo’d and ad-hoc at best. Ultimately, the organization will struggle to embed sustainability across the organization, without clear goals and aligned incentives and will be considered to have low sustainability capability, and little influence.
In other times, sustainability initiatives fail to gain traction because procedures and metrics remain anchored in traditional thinking. Selecting the metrics that work for your organization and communicating that across for common understanding is difficult. It can be difficult to attribute how sustainability maps into traditional metrics like Price, costs, profits, or market share, which can then cause efforts to stall. It’s instead recommended to establish a set of metrics that work for your business within your operating environment. Establishing those metrics can act as a collective effort and aid buy-in on your sustainability initiative.
Conclusion
While it’s clear that integrating sustainability into a business is no small feat, the cost of inaction will only rise as climate change accelerates. Companies that fail to align their strategies with sustainability risk being left behind in both reputation and revenue. The time to act is now. Prioritize sustainability not as an afterthought, but as a key driver of innovation and growth. Ready to take the next step? Start embedding sustainability into your core business functions today for a greener and more profitable future!