Creating opportunity at the intersection of climate disruption and regulatory change

There’s also significant stakeholder pressure for companies to act, the data shows, with 79% of respondents saying regulators, board members, investors, customers, and employees are calling for increased climate action (figure 2).

Within the context of these changes, it’s perhaps not surprising that respondents ranked climate change within the top three overall corporate priorities: Seventy percent say it will have a high or very high impact on corporate strategy over the next three years (figure 3).

The importance of sustainability to the corporate agenda seems to be borne out in the budgets, too. According to the survey, 85% of respondents say they have increased their sustainability investments over the last year (figure 4).

Many respondents now see sustainability as a core business strategy

The increase in budgets and alignment with corporate priorities are, in and of themselves, a milestone in the evolution of corporate sustainability. But what’s even more illustrative of the progress is how leaders are thinking about it.  

Where executives may once have framed sustainability as a compliance obligation or brand-building exercise, almost half of respondents to Deloitte’s 2024 CxO sustainability survey say sustainable business model transformation is a central component of their organization’s overall business strategy (figure 5).

Framing sustainability in terms of corporate strategy suggests that business leaders may be starting to integrate sustainability considerations into the decisions that matter to the company’s long-term performance. This may include areas such as the business’s overall value proposition, mergers and acquisitions strategy, and ability to capture future market opportunities in a decarbonizing global economy.

The current and expected benefits of this strategic shift seem to underscore how sustainability and climate action already could be strengthening resilience and delivering bottom-line results by fueling innovation, serving customers, improving employee retention, and increasing operational efficiency (figure 6).

Companies are building management systems and governance structures to support a climate-forward agenda

To realize some of the business benefits that sustainability can deliver, many organizations are making deeper changes to their internal systems, according to Deloitte & Touche LLP research.

More than half (52%) of the 300 senior executives surveyed in January 2024 by Deloitte & Touche LLP’s Audit & Assurance team (see methodology) report having created a cross-functional environmental, social, and governance (ESG) working group, while another 37% are currently in the process of building one (figure 7). This is a significant increase from March 2021, when only 21% of those surveyed by Deloitte had established an ESG council or working group.

This progress is noteworthy not only because it demonstrates that many companies are taking concrete action to integrate sustainability goals across internal functions, but also because governance like this helps drive results, the data shows. Responding companies with established cross-functional ESG councils or working groups were far more likely to make significant progress on their sustainability goals—38% compared with just 10%—than those without such a group.

There’s also evidence that companies are building capacity and allocating internal resources to support sustainability by creating new roles and shifting responsibilities to prepare for the implementation of new ESG reporting requirements (figure 8).

Building momentum for sustainability means making decisions today for a net-zero future

Although many companies are still in the early days of developing their programs, the emerging focus on business strategy, supported by operational plans, resourcing, and governance, is a strong indicator that sustainability has started to take root. As cross-functional teams integrate sustainability thinking into different aspects of the business, they help drive accountability, shape sourcing decisions, inspire new product development, and inform to mergers and divestments.

These foundational shifts are also likely to have ripple effects throughout value chains, putting pressure on companies with less mature programs to adapt or risk being left behind.⁵ Indeed, Deloitte’s research already shows how the landscape has already started to influence business development decisions. In the CxO survey, 51% of respondents say that customer preferences for sustainable products are a key driver today, and 48% say that they are likely to remain so into the future.

For those seeking to advance their efforts in anticipation of the transformational changes ahead, Deloitte’s research⁶ points to a number of areas where organizations can gain traction as the global economy decarbonizes to net-zero emissions: 

• Establish a clear business case for change. If approached in a reactive or siloed way, complying with evolving climate regulations could stymie a company’s future competitiveness or business relationships. But when approached proactively and holistically as a business management strategy, sustainability initiatives can be synergistic in minimizing risks, improving operational efficiency, building resilience to unexpected disruptions, and investing in initiatives that create long-term value in anticipation of future demand.
• Align internal resources to drive progress against goals. Commitments without operational plans or governance can leave an organization vulnerable to greenwashing accusations, whereas sustainability requires meaningful resource allocation and a commitment to continuous improvement. Building a clear governance structure can be empowering because it’s an opportunity for organizations to explore how sustainability can be embedded for strategic advantage and to shift the decision-making culture in service of the long-term objectives.
• Invest in data management systems. Given the complexities of global supply chains, just having access to the data needed to disclose greenhouse gas emissions can be a monumental challenge. But it’s essential to identifying the areas of opportunity for carbon reduction. Rather than focusing on software systems alone, successful organizations look at data management as a broader system that involves allocating resources to supplier data requests, mapping internal processes, identifying existing data sets, establishing the use and value of the information they have, and using that data to support the strategic decision-making.
  
• Actively seek stakeholder input. Delivering on stakeholders’ demands for climate action is about more than just complying with external reporting requirements. An authentic commitment to transparency will require business leaders to identify the stakeholders that matter to your organization, engage them in a dialogue about the sustainability matters that are material to your business, and demonstrate how those concerns are being reflected in your plans for change.
  

At the intersection of climate necessity and sustainability opportunity, the future is now. The business decisions that leaders make today could make the difference between a future diminished by fading relevance and competitiveness, and one defined by innovation and reinvention.⁷ In the net-zero economy of the future, the opportunities could come to those who are willing to embrace the path of change by integrating new thinking, investing in technology, building management systems, and approaching the future with an entrepreneurial eye to what’s possible.