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How sustainability can prevail during times of geopolitical uncertainty
In this episode of the Sustainability Matters podcast, Bruno Sarda and Matthew Bell examine how CSOs can maintain sustainability as a key priority in a changing geopolitical environment.
In a changing geopolitical environment, how can organizations stay true to their sustainability and environmental, social, and governance (ESG) goals? In this episode of Sustainability Matters, Bruno is joined by Matthew Bell (Matt), EY Global Climate Change and Sustainability Services (CCaSS) Leader. Together, they explore the megatrends that will likely impact businesses over the next ten years, and the potential challenges businesses may face as they navigate the choppy waters of economic downturns, global conflict and forced regulations.
In particular, Bruno and Matt discuss the evolving role of the Chief Sustainability Officer (CSO), and the responsibility for CSOs to look beyond short-term objectives and lead the C-suite in staying true to sustainability ambitions.
As more businesses begin to explore how environmental impact goes hand in hand with impact on people, how can they look beyond nonfinancial disclosures to drive organizational change? Additionally, how can businesses not only adhere to compliance standards, but go beyond to embrace sustainability and ESG throughout their corporate culture?
Matt and Bruno discuss the practical steps that businesses can take, and some of the ongoing CCaSS initiatives that can help clients achieve their sustainability goals. Finally, Matt also shares his thoughts for people looking to make sustainability a career and how everyone, regardless of their job role, can contribute.
Key takeaways:
CSOs and sustainability professionals are beginning to look beyond immediate performance to steer organizations on a long-term path to sustainability.
Organizations should focus on the social dimension of sustainability, corporate impact on society and the environment delivers corporate value.
Nonfinancial reporting is expected to achieve the same level of importance as financial reporting, which means that every area of the business should embed sustainability into their agenda.
Global downturns, conflicts and financial crises are unlikely to interrupt ESG initiatives and can potentially accelerate them as organizations look at new business models and alternative energy sources.
For your convenience, full text transcript of this podcast is also available.
Bruno Sarda
Hello, and welcome to the EY Sustainability Matters podcast. I'm Bruno Sarda. I'm a partner in the Climate Change and Sustainability Services practice at EY, and your host for this series. Sustainability Matters is our regular look at ESG and sustainability topics, and how they impact organizations around the globe. In each episode, we explore a different issue that's topical in the sustainability agenda, and I'm joined by a mix of business and thought leaders, as well as colleagues, as my guests. In today's episode, we'll explore the changing geo-political environment and how it could impact corporate sustainability initiatives.
As organizations prepare themselves to respond to potential challenges that emerge as a result of increased uncertainty, the evolving role of the chief sustainability officer is becoming increasingly important in ensuring that ESG performance remains at the top of the agenda. Joining me to talk about the changing economic climate and what that means for the future of sustainability is EY Global Climate Change and Sustainability Services leader, Matt Bell. Matt, thank you so much for joining us today for this important conversation.
Sarda
So, Matt, what are the mega trends that will shape the next decade, and from your point of view, you know, how will they affect the drive to sustainability and net zero?
Matt Bell
It's a great question, Bruno. I, I think the joy of sustainability in some ways is that we do get this, this opportunity to look out ten years and beyond and consider what is going to impact us in our roles, in our lives, in our jobs. And for sustainability leaders, you know, we are starting to think about, as you say, those mega trends.
Some of the most important, clearly, are the existential risks that we face to the environment, climate change probably being the most pointy of those. We know, for example, in the next ten years we're going to have to halve our greenhouse gas emissions globally, which is certainly not a small task to undertake.
But beyond climate change, you know, we've got other planetary limits and natural barriers that we come up against that we're going to need to significantly change the way that we work. We have considerable issues that are related to climate change, but not entirely in relation to human and social issues, too. You know, the pressures that we'll see from demographic change, the pressures we'll see from climate impacting, relocation of individuals out of low-lying nations. The next ten years is a, is a pretty powerful one from an environmental and a social perspective.
Sarda
You know, I think these physical and social realities certainly guide our work. Now when we think of and when we talk to business clients, who often don't always have the luxury of looking out as far or kind of beyond some of their own organizational boundaries, do you see danger to long-term initiatives that could potentially be sacrificed for the sake of potentially short-term performance or, or even, survival?
Bell
Yeah, I certainly do. You know, I don't see the, Chief Sustainability Officer [CSO] as we're increasingly seeing, you know, that individual arise within organizations necessarily being the canaries in the mine, but they're probably the one role that has the obligation, I think, to look out beyond the strategic window of an organization. If I'm being unkind, most companies look at risk in a one-to-two-year time frame.
They look at strategy in a three-to-five-year time frame. And yet a number of the issues that we know are going to fundamentally change the way that businesses exist, you know, they, they happen out beyond ten years. So, that requires organizations to think longer term. Does that mean they suffer from a risk of being short-termist in their risk management or in their strategic outlook? Yeah, potentially I think it does. So, not the, canaries in the mine, but hopefully the innovators within organizations that steer them on a more sustainable path.
Sarda
So, speaking of the role of the Chief Sustainability Officer, we've seen that role evolve quite a bit and now having to interface with many other parts of an organization. You talked about risk. What is the evolving role of the CSO in trying to advance that broader agenda that sometimes needs to integrate deeply into more traditional corporate functions, be they finance strategy, risk management?
Bell
Yeah. The sustainability role is going through a, I think, a fundamental evolution right now. Part of that, as you say, Bruno, is because we are starting to see the requirements that are being placed on sustainability functions, needing to be, if not picked up, certainly shared, by a number of the other functions within business, whether that's finance or risk, or strategy.
And so I think the role for the sustainability professionals is becoming much more focused on that concept of long-term strategy, and also that reflection on corporate ethics, on the broader stakeholder concerns, so you're thinking not just about returns to shareholders, and potentially, you know, other providers of capital and their worries, but a broader set of consumers, you know, your customers, your people.
You're thinking much more about the environment as a stakeholder. So, sustainability leaders, I think, are taking on a broader role where they are trying to help pilot organizations in a more responsible or more ethical, and as I say, hopefully a more sustainable way. And I mean that in the true sense of sustainability. So, organizations that are economically robust, socially just, and, I suppose, environmentally benign.
Sarda
Yeah, and I loved that point that for a long time there was this notion of sustainability as, you know, "save the planet", protect the earth, or save some, you know, name your favorite endangered species, but at the end of the day we realize that we are fundamentally evolving in human constructs, operated by and for, you know, human societies, and whether it's the human capital dimensions of the labor pool, as well as then the consumer of many of the organizations that are looking at sustainability, and of course, beyond society.
You talked about, you know, the potential vulnerable populations, facing things like extreme weather, forced migrations due to rising seas. How is the social dimension of sustainability evolving in concert with some of this increased environmental awareness?
Bell
I think it's, I mean it's not necessarily the poor cousin to the environment, but certainly I think environmental sustainability is, as you've articulated it's taken center stage for organizations. Particularly as I think the influence that companies and their corporate models have had on the environment and increasingly the environment is having on their corporate models, has become more, more understood, I guess, and more reflected upon.
The social side I think has been slower to be adopted. In certain cases, obviously it's been more well-thought-through. You know, the value from having greater levels of diversity, including gender and other forms of diversity in your workforce, on your board, in your management, I think that's been reflected well over the last decade, although there's clearly still a yardstick to run.
But I think what we are starting to see now is a recognition that, as you say, companies operate within society, and society operates within the environment. And so the consideration of your impact on society and society's impact on you has been much more reflected, I think, in sustainability leaders' views of how the businesses operate.
So, what does that mean? In some ways it comes back to this concept of double materiality, you know, the impact the business has on the world, and, and again, the world's impact on the business. But in others, I think it's this sense of really articulating the most pressing issues that the company could have a reasonable expectation of changing.
You know, how could you change the way that your business operates to ensure that it not only doesn't put people at risk from human rights risks and, you know, modern slavery in your supply chain, whatever that might be, but actually how do you get a positive outcome? We've seen this in cases like safety management.
So, organizations have had a strong view on occupational health and safety for a long period of time now. You know, it's institutionalized in most nations and the organizations that operate within them. But what we're now starting to see is a view that, you know, occupational health and safety needs to move beyond just keeping people safe.
You know, the zero-harm concept that we saw through the nineties and the noughties to actually this model of plus one. I mean, how does somebody who either enters your premises as a customer, or enters your place of work as an employee, leave at the end of the day better than they were, when they joined in the morning? So, I think this construct of how your business model operates and its impact on humans is becoming something that, uh, individuals are wrestling with more. But again, I think there's a long way to run with that.
Sarda
Yeah, I mean I love that concept. You know, I think when we talk to clients about this idea of value creation, you know, they're always very focused on “how do you create organizational value?” But this idea of how do you create value for your stakeholders, for your employees, for your customers, for society at large, and how does that translate into organizational value, and think when we talk to clients about their priorities and challenges, they are often interested in how to find better ways to manage that dynamic. So Matt, as we look ahead to the client landscape and the conversations you have, what are some of the key priorities and challenges you see our clients facing?
Bell
Well, one of the things, I think, is that, you know, as sustainability has become part of the zeitgeist, increasingly organizations are recognizing they need to be able to have form and function across the business that embeds ESG and sustainability, and I think in a meaningful way. So, Bruno, we know from talking to, you know, CFOs [Chief Financial Officers] and finance leaders, for example, as well as heads of tax and other functional leaders in organizations, they are all trying to understand how their business model changes in the context of sustainability.
So, for example, the finance function, they have both strategic and operational requirements inside the organization as it relates to financial performance. They are now recognizing, as we have, I think, for a while now, the nonfinancial performance is just as important and arguably more so. I mean, if, if we go back to the 1970s, the intangible value of most listed companies was something like 15 to 20 percent of the share value, and nowadays that's completely flipped on its head.
Intangible value is 80 percent or plus. So, we're starting to see finance functions, thinking about how they are monitoring performance, measuring impact from an environmental and social, you know, perspective, getting the right controls over that, so that the data that they're reporting is robust and measurable, and ultimately, assurable as well. But we're seeing it across the board, you know, how is the strategy function thinking longer term, embedding materiality concepts from sustainability into their sustainability process and challenging that?
From a tax perspective, you know, how are you ensuring that your tax transparency initiatives are robust, and they meet, you know, an ethical framework? How are you ensuring that, your process of considering taxation, for example, which is now a much broader remit internationally for the sorts of green taxes we're starting to see is taking a true representation of your, your business's risk? So, in many ways, the challenges are the embedding and industrialization of sustainability, which is, I guess, not that sexy or exciting.
But the other side of this, in terms of challenges, ensuring that when we do all of this and we are mainstreaming sustainability, that we don't, we don't lose the overall objective, which is that we are trying to ensure that businesses are sustainable. You know, and in some ways, we need to go back, you know, we need to go back to the concepts of sustainable development, that were articulated in the [Bronden ] report.
You know, this concept of meeting the needs of today without compromising the needs of future generations. And so, you know, there is a real challenge for organizations to ensure that they are codifying sustainability in a way that they can manage it functionally, but also ensuring that they don't lose their wider obligation, which is to say, "How do we ensure that we are piloting our business in a way which is within planetary limits?"
Sarda
No, I think that's a terrific way to frame it. And as I think about just like in organizations have sometimes well-established, sometimes still relatively nascent sustainability departments to help them communicate these priorities and manage through them, at EY, with this core nucleus that Climate Change and Sustainability Services group that you lead globally. So, what is the role of CCaSS, and what are the practical steps we can take to support organizations through this journey?
Bell
Well, we're pretty lucky in some respects, Bruno, right? You know, you and I have got 2,500 colleagues around us who all have similar backgrounds to us, you know, some sort of scientific engineering or similar professional discipline that's helped them in the sustainability world, and so I guess the question is what are we doing on a day-to-day basis?
And the answer is pretty dependent on the maturity of organizations. What we do know is that sustainability leaders, who tend to be our partners in delivering services, they've kind of been the superheroes of the last ten years. You know, they have not only been responsible for considering what sustainability means to companies, they've also had to think through how they capture data that represents the performance of the organization in the context of those sustainability challenges.
You know, they've had to find ways of systematically putting in place processes and systems so that they can continue to monitor performance and make strategic directions. But they're also the eyes on the horizon as well, so they've been a miniature strategy function within, inside organizations, too. And so in many ways, the work that we do with our clients reflects that, so we are clearly supporting organizations with pure sustainability services, whether that's helping them with their sustainability strategy, helping them to consider what sustainability risks they face, or even helping them with their disclosures.
But beyond that, and I think this is the concept of why we are seen as, I guess, the nucleus of the organization in EY, anyway, we are fundamentally re-engineering how we work as a firm, because our colleagues, for example, who provide advisory services to our clients around supply chain and procurement, if you are not embedding sustainability principles in those services that we carry out, we're probably not helping our, you know, our clients into the future. The same goes for almost every single service we provide across EY.
Our audit and assurance services, for example, it will be hard to imagine that at some point in the future, every financial audit doesn't require some level of attestation or internal representation around key environmental and social issues. So, we're helping, you know, internally as much as we are externally, to try and make sure that we're supporting our clients for their needs today and into the future.
Sarda
So, Matt, earlier you talked about this idea of compliance, and as we see across regions, regulations catching up to this movement, and starting to put more compliance requirements on organizations to meet certain standards, set some goals, and for sure, report against. What do organizations need to do to make sure that they can meet these increasing compliance requirements, but not lose this traction of going beyond compliance and staying focused on what is really needed to advance sustainability at the pace and scale that is needed?
Bell
Yeah. That's a great question, Bruno. I mean, interestingly, we are seeing increased compliance requirements, largely around disclosure, so, you know, nonfinancial reporting in Europe, in North America, but also through the Asia-Pacific regions as well. And it is fair to say, there is an awful lot of work for companies to do, to be prepared for the coming requirements, the compliance requirements around disclosure.
You know, we know the proposals here in the US by the SEC and the Corporate Sustainability Reporting Directive in Europe are going to set really challenging targets on organizations for their disclosures, including, by the way, the need for third party attestation. And in Europe, to a level of reasonable assurance, which is pretty similar, by the way, to, to financial audit. And what we know, from having worked with companies for 20 years on their data management reporting is that, most of them, the vast majority, are not ready.
They're absolutely not ready for that level of scrutiny yet. And so, there's actually an awful lot to do inside organizations today to improve an understanding of the sustainability challenges they have, and then the data that underpins the ability for them to be able to track their performance, to measure that and to disclose on it. And then certainly for them to be able to withstand some level of attestation.
However, you are right. It can't just be about compliance, because I think there is a real threat that we box ourselves in to just meeting a minimum requirement for standard setters, which will increase year on year as we increasingly recognize that we need to have greater insight into how organizational performance relates to planetary limits and relates to our broader needs of society. And so, you know, I really encourage sustainability leaders.
And you know, there's a lot that listen to these podcasts, Bruno, right? I really encourage them to have the courage to continue to strive for more, right, to continue to look at the greatest challenges for which they could have a really profound impact and drive sustainability programs that are, that are really, you know, really achieving those..
Compliance is fundamental, and it's important, and we've still got a lot to do inside companies to get there. But we really need to maintain the passion for sustainability that, that was the, you know, the formation of the roles that you and I have and, and chief sustainability officers around the world have today.
Sarda
So, as you look ahead and across our teams globally, and as, as you engage with our teams globally, what, what are you most excited about?
Bell
Well, I'm firstly pretty excited about our teams themselves. I mean, the experience that we've got now in our, not just in our leadership, but across all of our teams is, is reasonably profound. I'm pretty sure that very few people recognize the sort of breadth of work that we deliver, or-- and you know, the, the exciting roles that we play.
We are one day, you know, I'm, I'm out atone part of the world where one of our clients is Extreme E, so you know, it's a sports company that are trying to pilot the most sustainable race series in the world, and our teams are helping them not only to understand, you know, what the most sustainable way of them delivering motor vehicle, electric motor vehicle races is, but also that they do that, you know, in a way that leaves as, as minimal a footprint as possible and creates as big a message as possible around things like climate change.
You know, on the other end of the spectrum, we're, you know, working with some of most emissions-intensive businesses in the world to try and accelerate their move towards net zero. You know, we supported one of our clients in Asia, for example, who's one of the largest coal-fired power station organizations and energy providers, more holistically, to accelerate their move towards net zero which means that they will be early closing some of those coal-fired power stations and making much more significant early investments in renewable energy, to move them in that direction.
So, a real breadth of services globally, and I think, you know, I think that's really testament to the way that we've built out our, our practice over the years. You know, we, we're in 150 countries in EY, and I think we have teams, Bruno, in 70 of them. It’s cool to see.
Sarda
So, Matt, here we are in-- well into 2022, and now well over two years of all kinds of societal disruptions, from, you know, pandemics to political division, to global conflicts, supply chain shortages, a rise of many other disruptive factors, inflationary pressures, potential economic downturns, and lots of reasons why some might say it's time to take the foot off the pedal on, on some of these longer-term initiatives. What do you think about that?
Bell
You've really hit on my, [LAUGHS] hot button issue here, Bruno. I mean, so, the issue I think we face, and certainly, you know, there have been statements made by people particularly recently, actually, with the conflicts that we've seen in Russia and Ukraine, whereby somehow there has been a change to the drive for sustainability more broadly.
It couldn't be further from the truth, in my mind. We have had two decades now of sustainability really being driven at the, at the corporate level, and, you know, if there's one thing that we've seen, whether it's the, you know, the first global financial crisis, or, you know, the economic impacts of the pandemic, as you say, what we've seen is the importance of sustainability.
Like, fundamentally, far more important than we ever probably could have imagined it would be. Not just in the context of the needs of society, you know, or the needs for us to address some really significant environmental concerns, but actually corporate performance. It sounds really crazy to say, but we know from, you know, the data, that organizations that assess and act on the most challenging sustainability opportunities that, that are in front of them, really are going to perform into the longer term. You know, they're going to be around into the long term to begin with.
And when we reflect on things like the energy crisis and a need for national protectionism, I actually think what we're going to see as part of that is a bigger push towards greater sustainability outcomes. We're certainly are going to see an acceleration. I think of the less reliance on some fossil fuels, and an increased investment in things like renewables. But beyond that, I think we're going to start to see much more of a recognition that, you know, the social implications of not acting quickly enough are far more dramatic than the short-term implications on corporate performance.
We got a really big challenge ahead of us. When we think of things like climate change, the action we need to take is massive. I believe it's the biggest economic transformation we'll see in our lifetimes. And if that's true and you are a company, and you see in front of you actually incredibly well-articulated scientific evidence that tells you the pathway you're heading on, you've actually got a window to the future that allows you to pilot your organization towards a more profitable, more constructive and hopefully, you know, hopefully better organization.
So, I think it could be easy for us to reflect on challenges, whether that's inflationary pressures or conflicts, or energy crises, and reflect on those as a need for us to double down on the historic ways of creating performance, right? But I actually think it's, it's the opposite. I think it drives us in another direction.
Sarda
So, Matt, at EY we say, you know, "Sustainability is everybody's business," and I think your comments today have certainly confirmed that. Many people who actually choose to listen to this webcast are interested in bringing more of that either to their current job or maybe to their next job. What advice would you have for them?
Bell
I mean, the first thing I'd say is go and do it, Bruno, right? Um, if there's one thing about the sustainability profession, I guess, if we can call it that, is that it's too limited a gene pool. Right? There are too few people who are driving towards professions in sustainability. The truth is, I actually think that you can bring sustainability to any role that you're currently in, or one you're
looking for. I mean, if we want to make this a call out, we are certainly hiring in EY in masse, so people who are looking for entering the role should look to organizations like ours as we try and help organizations globally with their sustainability challenges. But regardless, I think whether you are in academia, whether you are in any form of enterprise or in the not-for-profit space,
I think having a better understanding of the environment, of society, of the biggest challenges that we face, and taking a slightly longer-term view of how you, you know -- the implications of the role that you have, I think it's going to be fundamental. So, I think everybody should double down.
Sarda
Well, Matt, that was terrific. Thanks so much for your insights and your foresight in helping us at EY and many of our clients find their way into this sustainable future we all wish and long and work for.
Sarda
On that note, thanks to you for listening to Sustainability Matters. If you enjoyed this episode, please check out our previous episodes on EY.com and wherever you get your podcasts. We'd love for you to subscribe, and ratings, reviews and comments are also very welcome. Please also visit EY.com where you'll find a wide range of related and interesting articles that will help
put these bigger topics in the context of your business priorities. I look forward to welcoming you on the next episode of Sustainability Matters. My name is Bruno Sarda. You can find me on LinkedIn and feel free to connect with me there. Thanks so much for listening.
