After all the ink spilled over growing investor pressure on companies to start paying closer attention to their social and environmental footprint, our latest survey of America’s finance chiefs, conducted in partnership with Amazon Web Services, finds ESG initiatives primarily driven by employee demand—well ahead of consumer or investor demand.
Overall, 41 percent of the 170 CFOs polled in the fourth week of June say hiring and retaining talent is the main reason their companies are pursuing social initiatives. Only 2 percent cited investor demands as driving their efforts, and 10 percent selected consumer demand.
CFOs also attribute their company’s sustainability efforts to their workforce, albeit at a smaller proportion—25 percent—tied in first place on the list of drivers with those who say environmental initiatives are “just the right thing to do.”
Among other reasons for “doing ESG,” keeping pace with competitors (35 percent) and partner/client requirements (33 percent) round out the top 3 list.
Even more interesting, perhaps, is that only 15 and 11 percent of polled CFOs say their company does not have either an environmental or social strategy, respectively. This means, 85 and 89 percent of companies have developed and implemented different degrees of initiatives to address the E and S of the ESG equation.
According to the data, sector plays an important role in company’s progress on those fronts. For instance, 31 percent of CFOs at financial services companies report not having a sustainability program in place vs. 11 percent in consumer manufacturing. While that’s a significant gap, it echoes other research conducted by our sister publications, which has found that many companies in non-energy-intensive industries still struggle with understanding their carbon footprint and how they can best mitigate—and report—it.
Mark Schwartz, enterprise strategist at Amazon Web Services and the author of The Art of Business Value, says IT—and particularly new technologies—can play a vital role in supporting a business’s quest to deliver on their sustainability goals.
For example, “If a company has manufacturing equipment, sensors or machine learning can help monitor and adjust machine performance to minimize its environmental impact,” he says. “And if a company runs a fleet of delivery vehicles, technology can be used to optimize routes to use as little fuel as possible.” Schwartz points out that there are many other ways to use technology to drive sustainability initiatives in an organization—from operations and supply chain to human resources, facilities, product development and even IT infrastructure itself.
Environmental sustainability is just one component of ESG, and Schwartz says IT has a role to play in companies’ other goals, too. “It’s involved in product quality and safety, employee wellness, and inclusion and equity in the company’s products and services,” he says.
The proportion of companies that have social efforts in place seems to be more evenly distributed across sectors, however—ranging from 89 percent-in the healthcare space (including pharma) and 78 percent (in industrial manufacturing)—thus indicating that companies may have a better grasp on what they can do in that area.
But there remains skepticism among leadership teams about the true benefits of these programs.
“There is a lot of time and effort put into these initiatives with little return,” said the CFO of a midsized food supplier who is concerned about potential downsides to ESG in the longer term.
“ESG will hurt profitability,” added the CFO of a media corporation who says his company has social and environmental initiatives in place primarily as a way to support employee culture.
“The cost of implementing an ESG strategy negatively outweighs the benefits based on our consumer’s responses,” said the CFO of a large chain restaurant operator who reports doing the E because of regulatory pressures and the S to keep up with the marketplace.
And they were not alone in sharing this perspective. According to the survey, CFOs are evenly divided on whether having an environmental or social strategy will support financial performance. Overall, they rate the impact of those programs on the bottom line a 5.3 and 5.4 out of 10, respectively.
Schwartz says part of the issue with measuring ESG programs is that, like most of the other programs developed in the digital age, they must start with data.
“Before anything, companies need to think through the best data model that will support their ESG planning and measurement,” he says. “They must source the data and then make it available in dashboards, reports and operational intelligence that drives immediate process adjustments. That’s the best way to determine the impact on profitability, and to focus ESG efforts to maximize that impact.”
Read more about how Amazon integrates IT, digital technology and ESG here.