Navigating climate uncertainty: Strategic planning with imperfect data
by Sam Gill
Written by David Fatscher from Corporate Citizenship, an SLR company.
In an interview with the Financial Times last month, Mars CEO Poul Weihrauch decried the “nonsense” political attacks that are threatening to cool corporate commitments to environmental, social and governance (ESG).
It’s likely that Weihrauch’s ire was in part prompted by the recent weaponisation of woke in the United States, where ESG has been blamed for the failure of crypto-currency exchange FTX, the collapse of Silicon Valley Bank and the derailment of a train operated by Norfolk Southern, which saw hazardous materials released around the Ohio town of East Palestine. None of these events would have happened, so the argument goes, if only the affected companies had spent less time worrying about diversity and other “woke” issues.
Almost 30 years on from John Elkington’s famous advocacy of assessing business performance via a “triple bottom-line” model of people-planet-profit, and despite a 2019 McKinsey study finding that companies focused on ESG concerns, experience no drag on value creation (“in fact, quite the opposite”, says McKinsey), there is now a movement determined to promote the notion that success and sustainability are somehow incompatible.
Meanwhile, those pushing for more sustainable business practices (and tougher regulation) are almost opening a second front, as they fear ESG is just being viewed as a faddish exercise in corporate branding, with the accompanying rise in “greenwash” diminishing the efforts of those more genuinely driven by positive change. One scene of recent fierce fighting has been carbon offsets, and earlier this year, an investigation found that over 90% of the most commonly used credits were largely worthless, despite being deployed by companies to label products and services as “carbon-neutral” (the scheme certifier has since agreed to phase out and replace its programme by mid-2025).
So how can businesses address this credibility gap? Well, while the concept of annual reporting is nothing new to companies, there has recently been rapid growth in the development of ESG reporting frameworks and standards. These not only review past performance against targets (as traditional financial reporting does), but also seek to understand if a business has in place effective strategies to anticipate ESG risks (and also seize opportunities for more sustainable growth). As a result, investors are increasingly promoting the adoption of ESG reporting standards – so that resilience is more comparable – and regulators are mandating them (in the UK, listed and large private companies are already required to report climate risks and opportunities under the framework of the Task Force on Climate-related Financial Disclosures, and the scope of the new EU Corporate Sustainability Reporting Directive extends to listed SMEs and also some non-EU companies based on their operational EU footprint).
One of the best defences against unfounded “wokeness” and “greenwash” is to ensure that a business is fully on top of reporting on its purpose, goals and performance, identifying gaps in controls and able to more confidently promote its probity. A holistic approach to managing and aligning financial and ESG data requirements is vital: this is not a time for maintaining silos of issue-ownership. Scrutiny from stakeholders (however they may be motivated) will only become more intense, but for organisations that are prepared and willing to be proactive, ESG reporting can help companies better manage risk and clearly communicate their ambition. In so doing, greater transparency will only boost trust and transformation.
Weihrauch remains confident that the coming decade of what he terms “responsible” growth will deliver the chocolate and petcare giant a doubling of sales (“we don’t believe that purpose and profit are enemies”). What’s more, ESG is seen as an enabler for future success: “Environmental and social goals have become politicised but quality companies are deeply invested in this and if I walk out of my office and take a 25-year-old that has joined Mars from university, they will want us to do it.”