Top 5 reasons why CEOs should be the ‘force’ driving sustainability

Environmental, social, and governance (ESG) imperatives are now front and centre for Middle East businesses and governments alike. Further, with the UAE Net Zero by 2050 strategic initiative and a national drive to achieve net-zero emissions by 2050 in line with the country’s roadmap for accelerating national economic development, organisations conducting business in the country aim to support and steer the UAE towards a green and circular tomorrow.

In fact, the UAE has been a trendsetter for climate change and is fully embracing ESG reporting with investors and consumers keen for businesses to be ESG compliant. ESG concerns are the top priority of most Middle East investors today.

Historically, CEOs have been responsible for the profitability of the organisation, leading the development and execution of long-term strategies with the goal of increasing shareholder – better yet, stakeholders – value. But the present time calls for over and beyond – the overall success of the organisation, anchored on  sustainability  These are far and few – only the woke ones. All CEOs and their boardrooms should, in fact, watch out for ESG very earnestly. From global climate frameworks to regional carbon-reduction pacts, to the UN’s Sustainable Development Goals (SDGs), new policies and regulations, as well as global reporting initiatives and duties, sustainability is designed to forge a new world and “compel” C-suite execs that still think it’s a buzzword down that path.

Here are the top five reasons why CEOs should be leading the drive for sustainability.

1. CEOs are personally responsible for ESG
Whether they like it or not. Now the question of such personal liability for ESG breaches has been answered by the latest developments at Deutsche Bank, for example. On June 1, chief executive of Deutsche Bank subsidiary DWS Asoka Woehrmann resigned after German law officials stormed offices over claims that the company exaggerated the sustainable credentials of some of its financial products. This happened right after the US Securities and Exchange Commission (SEC) released fines of more than $1m to BNY Mellon for misstatements and omissions about ESG in specific managed funds. Undoubtedly a case of personal responsibility.

With UAE having a firm grip on ESG and up and coming ESG regulations, corporates must stay focused on maximising the opportunities through ESG-driven transformation by getting ahead of the game. It’s therefore inevitable that CEO executives get more and more linked to ESG targets.

2. Risks and regulations are key ESG components of the CEO’s agenda
As organisations adopt sustainability practices, climate incidents, emissions or transitional risks inherent to changing strategies around planet and people, as well as physical risks directly related to global warming occur. At the same time, regulations in each industry and region are now a necessity to support the UN SDGs.

There is certainly a strong call for more government guidance and policies on ESG in the Middle East and in line with each country’s agenda, such as Net Zero 2050 for UAE. Corporates and businesses are clearly looking forward to more, better and clearer ESG regulation in the near future, given that these are still evolving in the region.

As per PwC’s ESG 2022 Middle East survey report, more businesses are now setting net zero targets since the time UAE, Saudi Arabia and Bahrain governments set their national net zero commitments around COP26 in 2021. This is a significant improvement since end 2021 when PwC’s 25th Annual Global CEO Survey was carried out.

Companies need to mitigate risks, comply with regulations, put procedures and policies in place to ensure resilience. This needs C-level buy-in, as it requires transformation and excellence in everything you do, thus this belongs on a boardroom’s agenda.

3. Sustainability is all about finance
Eighty-six per cent of Eurozone CEOs believe ESG is an important value driver, even more critical than revenue growth. In 2021, Larry Fink from Blackrock set the scene with his CEO letter: “I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”

As stated before, the EU taxonomy requires companies to report on their environmental, social and governance actions. Not only in the EU, but also in North America. The SEC is currently preparing new disclosure requirements.

That applies to the Global Reporting Initiative, the Value Balancing Alliance, the Task Force on Climate-Related Financial Disclosures, international sustainability standards, you name it. All these reporting frameworks require corporations to disclose their goals and progress on climate and society.

In fact, 46 per cent of investors use ESG indicators in making investment decisions, with consumers increasingly requesting more sustainable products and services. As the trend continues to grow, this leads to increased interest from chief financial officers.

4. ESG (non) actions impact brand reputation
A 2021 survey by Deloitte of more than 2,000 C-level executives across 21 countries found that 74 per cent reported regulation as the main external ESG driver, and 77 per cent reported pressure from governments to act on climate change and regulators. Eight out of 10 CEOs even believed that ESG issues were increasingly important to be discussed. Seventy-five per cent of that pressure comes from customers and clients; 65 per cent of that pressure comes from staff: young consumers and workers are increasingly demanding that social responsibility comes first. Seventy-five per cent of consumers are changing their preferences based on sustainability, and 46 per cent of employees would only work for a company with sustainable practices.

Whatever industry you are in, your customers will take a deep look at your business practices, and your activities will either make or break trust. They are looking for green producers trying to reduce the environmental impact.

In the Middle East for example, a region that is heavily dependent on oil and natural gas for its energy supply, decarbonisation becomes a major conversation. Hence with the region’s circular economy approach, the energy sector will be able to witness several benefits, more value and elevated brand reputation with increased investor interest.

Fast fashion brands are also making bold statements on sustainability while still substantially contributing to massive amounts of waste, water pollution or labour conditions. In less obvious industries, such as banking, greenwashing allegations can be dangerous for the image of your company, and you must be able to back up your statements with real proof.

5. Sustainability is a core strategic task
As we saw with all the above examples, sustainability impacts all business areas and operations and revolutionises how your business works. It requires deep transformation of your operations based on strategic decisions, for example, to support UN SDG number 8 to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Sustainability only becomes real when it comes down to processes.

To support climate action, you need to take a deep look at how your enterprise operates and where the potential and challenges are with your processes. Circular business models rely on a redesign of the processes. Social responsibility is anchored in the business processes, and ESG reporting sums it all up, needing insight into
the business.

A CEO is responsible for envisioning, nominating and enabling the company’s vision and sustainability strategy. This strong change needs to be enforced by C-level commitment to mature and increase resilience.

Josèphe Blondaut is the director ARIS Global Marketing at Software AG

Read: Cover story: Eugene Willemsen, CEO – PepsiCo AMESA, shares the company’s “positive” outlook on sustainability