PWC: The Economic Realities of ESG

Investors prize clarity about the initiatives companies are undertaking, the reporting they are doing—and the returns they will generate. Here’s how leaders can answer the bell.
For companies stretching to find their way amid similar trade-offs, our survey points to a few actions leaders can take immediately that will advance their ESG agendas and bring their investors and other stakeholders with them along on the journey.

1. Harness the power of the C-suite. In our survey, 82% said companies should embed ESG directly into their corporate strategy. Investors also emphasized the importance of leadership from the top team, starting with the CEO. The chief executive is particularly well-positioned to communicate the importance of ESG to all stakeholders—including customers, employees, and shareholders—while making difficult resource-allocation trade-offs associated with ESG initiatives. Other members of the C-suite have a critical role to play, too. Observed one credit ratings analyst we interviewed, it’s when C-suite leaders are “actively engaged” with ESG that “we have seen it cascade through the business.” Intuitive as all this may seem, it’s not always consistent with reality. For example, according to PwC’s most recent Global CEO Survey, just 40% of CEOs have factored climate change into their strategic risk management, without which it is more difficult to drive a corporate sustainability agenda.

2. Think holistically about your ESG story. According to our survey, investors use annual reports, sustainability reports, and investor presentations by far the most frequently to understand how a company is addressing ESG issues. These sources, and the ESG story they convey, are well within your control. The breadth of issues covered in ESG reporting points to the need for a wide range of expertise to pull it all together in a cohesive way. Sustainability teams, risk teams, financial reporting teams, and investor relations teams should work together—giving further evidence that a company takes its ESG reporting as seriously as it does its financial reporting, and recognizes the market-moving information that ESG reporting increasingly provides.

A holistic approach to reporting should not be an end in itself; your reporting will inform a proactive dialogue with your investors, helping to assure them that your company is on the right track when it comes to advancing ESG strategy. If they can’t see that you are making progress, our survey indicates that they’ll consider actions ranging from engagement on executive compensation to voting against directors and resolutions to—in more extreme cases—divesting