In early 2020, just before the impact of the COVID-19 pandemic, the 2020 Deloitte “Climate Check” pulse survey found that many business leaders believed that they were doing enough, both professionally and personally, to address climate change. The survey also found however, that a short-term focus on initiatives – rather than embedding climate change into business strategy - was slowing down material progress.
In 2021, things have changed. The impact of the pandemic, including a recognition that nature cannot be “other” from humans and our built environment, as well as the ease of which COVID-19 took apart our systems, has resulted in a different perspective.
A new drive for change
In January and February 2021, 750 business leaders from around the world (including 250 from the Asia-Pacific region) participated in this year’s iteration of the “Climate Check” survey. The results show that while the pandemic may have slowed down some momentum related to climate initiatives in the short-term, there is a renewed determination that humanity can avoid the worst-case scenarios and create long-term value for businesses, their people, and their broader communities.
Here in New Zealand, we are seeing increased interest at the Board level on the topic of climate. The New Zealand parliament introduced The Climate Focused Disclosure (TCFD) legislation for listed companies and the finance, banking and insurance sectors, while the Climate Change Commission’s advice to Government and the public sector’s “carbon neutral by 2025” target will see additional investor scrutiny and potential activism if climate risks are not addressed. Difficult discussions around topics such as the social and environmental implications of Just Transition and removal of insurance for properties impacted by sea level rise are going to be needed.
Increasingly, organisations are reporting their progress against commitments such as science-based targets, but as with everything, one risk is that ESG-related reporting becomes a compliance or performance driven exercise, rather than an opportunity to create integrated value for the business. Uncertainty and change around regulatory requirements have been a consistent driver and barrier to climate initiatives over the last 20 years.
Weathering the impact
What is bringing these issues to life in 2021 is the increase in the number of climate-related events and the effect these are having on business operations. In the survey, the most cited operational environmental issues are increased disruptions to business models and supply networks worldwide, and increased scarcity and costs for resources like food, water and energy.
More than 1 in 4 of the businesses surveyed had been affected in some way by climate-related events. These impact not only the businesses themselves but the surrounding communities, and often have significant downstream effects such as higher insurance costs. In New Zealand, a yearly report by the Ministry for the Environment and Statistics New Zealand touches on changes to our climate over time. It noted that in 2020, we are seeing higher winter temperatures in most of the country, more instances of drought conditions, fewer frost days, and more warm days - all longer term indications of climate change that have been evident for some time.
The challenge for business
As mentioned earlier, there are obstacles in play that impede material progress. Shorter-term thinking, with a focus on near-term business needs, was identified as one of the biggest obstacles for making embedded change in both 2020 and 2021. In 2021 however, the pandemic was a significant distraction for many organisations, with the hyper focus that was - and still is - required. Sustainability initiatives also haven’t been getting airtime at the executive level – with 37% of respondents indicating their absence, up from 30% in 2020.
However, what has decreased markedly in 2021 is the concern of organisations about alienating a subset of stakeholders by taking a stance. While in 2020 this was a significant concern (42% of respondents), the proportion of firms concerned about alienation of stakeholders has reduced significantly to 30% this year. There is now a clear expectation for companies to make a commitment to climate action.
Finally, obtaining senior level buy-in seems to be on its way to being resolved, despite that reduced airtime at the executive table. In 2020, buy-in was the leading obstacle (38%) but in 2021 it is down to 17%. Leaders see the need to act, seeing the opportunity rather than simply the cost, and understanding the importance of being actively responding to the concern.
The report also notes that those organisations that have been taking meaningful sustainability efforts notice improved results on several fronts, including an increase in customer satisfaction, greater measurable impact on the environment, noticeable improvements in employee recruitment and morale, brand reputation, and profitability.
The pathway to progress
Executives are seeing education, advocacy and collaboration as the key drivers of progress. The idea that organisations can make a greater impact beyond just themselves is a common idea, and the idea also forms part of our internal Deloitte WorldClimate strategy. Working with organisations and driving more holistic solutions – rather than simply providing financial incentives or encouraging personal behaviour changes – was seen by the participants as a key driver of success.
Business leaders are witnessing the world at a tipping point, with just a few years to avoid, mitigate and adapt to the worst effects of climate change. The research in the 2021 survey validates the business case for tackling climate change, elevating environmental sustainability as a true imperative for executives. Given that climate change will impact all of us, and exacerbates social inequality, action must be taken in order to avoid even greater crises going forward.
I work together with Deloitte people and our external partners to build and lead our impact capability and portfolio. As internal consultant to firm leadership and the Chief Executive, I help guide strategic initiatives through to implementation. My background is in strategy and operations consulting, with expertise in facilitation, convening and collaboration.
I work as a Manager in the Corporate Responsibiltiy team at Deloitte New Zealand. I love working closely with organisations to understand and address social and environmental impacts. My background is in creatively designing, implementing and assessing end to end sustainability and ethics strategies and programmes, including culture, human rights, modern slavery and climate change.