Overcome common pitfalls to maximize ESG impact

4 ways to enhance the impact of ESG initiatives

Purpose is a company’s reason for being—its North Star—and its distinctive role in society. It has become an important factor in consumer, investor, and employee decisions and a common topic on boardroom and regulatory agendas. Other terms—such as sustainability, responsibility, or stakeholder capitalism—may be used to convey the same concept: to protect profit and stakeholder value, a company should credibly demonstrate its unique positive impact on people and planet. It can be hard for business leaders to know what to do or where to start. However, insufficient action to demonstrate organizational purpose can increase risks and costs for companies.

Deloitte surveyed 400 business leaders representing different industries to find out whether, why, and how their company prioritizes purpose.¹ While companies in each industry appear to have relative strengths and gaps in their approach to purpose, companies across industries share common opportunities:

• Walk the talk
• Act on the right issues
• Invest in data to measure and grow returns
• Look beyond your industry
   

Walk the talk

Forty-three percent of surveyed business leaders said their company views organizational purpose exclusively as a marketing and brand play. These respondents were much more likely to report that purpose does not get adequate attention at their company (52% vs. 23%). Consumers are no longer satisfied when companies say they embrace ethical behavior or purpose—they want to see measurable, transparent, and consistent actions from the brands they support.² Organizations face significant costs when they fail to meet these expectations, including loss of brand trust³ and increased legal action⁴. And employees may leave their companies when management’s stances do not align with their values.⁵

Executives should move toward an active strategy—one that is driven by the CEO, informed by best practice and standards, and embedded in all aspects of operations with an eye to long-term value and impact.⁶ Companies should rethink their core business strategy, including product design and delivery, use of technology and data, brand messaging, employee, and community engagement, and more through a unifying purpose framework. Companies that are perceived as leaders when it comes to purpose have sought to demonstrate their purpose through core business activities and investment.

Act on the right issues

No two industries, companies, or approaches to organizational purpose are exactly alike. Some environmental, social, and governance (ESG) issues may be more material to a given company: the issue impacts the organization’s financial condition or valuation, the organization has a significant impact on the issue, and/or the issue influences decisions made by the organization’s stakeholders.⁷ While some material issues are common across multiple industries, others are significantly more material to specific industries.⁸ A strong organizational purpose strategy identifies a company’s most material issues and establishes a holistic, differentiated approach to address them. Companies that effectively manage their most material issues see premium returns.⁹

Across all industries, respondents indicated that the most important issues for their sector include diversity, equity, and inclusion (61%); workforce development and economic inclusivity (55%); and climate and environmental sustainability (51%). However, surveyed business leaders revealed that inaction on material issues is prevalent. For example, among surveyed business leaders who identified diversity, equity, and inclusion as a top-three issue for their sector, only 68% reported that their company is instituting and measuring hiring and retention objectives to increase diversity. Business leaders should focus purpose investments and initiatives on the most material issues and communicate progress transparently to stakeholders.

Invest in data to measure & grow returns

Ultimately, a company will not invest in its purpose if it does not drive profitability. Most surveyed business leaders (82%) indicated that the primary focus of their company’s purpose strategy is to create business value. Respondents whose companies have a rigorous, data-driven business case for organizational purpose were more likely to report a broader range of expected sources of value, e.g., increased revenue from products, services, and new markets.

When asked what could help strengthen the business case to drive more significant investment toward purpose initiatives, respondents across industries overwhelmingly said they need better data, specifically on the impact of business operations on social and environmental issues.

Many companies are waiting for standards and frameworks to guide their measurement and reporting, as there are efforts underway to converge existing standards by the new International Sustainability Standards Board.¹⁰ However, business leaders should not wait and can even influence the way those standards are shaped—especially on social metrics—by proactively measuring ESG impact.¹¹ Companies should first leverage existing measurement systems and approaches to collect data on their performance against purpose priorities. To guide measurement, business leaders can establish a scorecard that includes the key business decisions informed by organizational purpose initiatives and the most salient sources of value from purpose.¹²

Look beyond your industry

More than half of surveyed business leaders said that purpose does not get adequate attention in their industry. Today’s social, economic, and geopolitical uncertainty can make it challenging to commit to organizational purpose strategy and action. Connecting the dots across disciplines and sectors can make companies more resilient and spark new ideas.¹³ Companies can differentiate their purpose strategy and have outsized impact through ecosystems and cross-sector collaboration.

For example, the World Economic Forum launched the Global Health Equity Network with over 20 organization spanning industries, recognizing that addressing health equity and racism as a public health crisis will require cross-sector collaboration to improve the interdisciplinary social, economic, and environmental drivers of health.¹⁴ Efforts like these help organizations across industries and geographies share best practices and make contributions toward a greater collective impact.

Relative organizational purpose strengths by industry

Act now or get left behind

The message from stakeholders is loud and clear: business leaders have a responsibility to advance a more sustainable and equitable future and, if companies are not a credible part of the solution, their bottom line will suffer. Across industries, companies should avoid common pitfalls by focusing purpose initiatives on these opportunities. They will help unlock premium value for your enterprise and its stakeholders as your organization makes a unique positive impact.

Endnotes

¹ The survey data were collected in October 2021 through a double-blind survey.
² Chicago Booth Rustandy Center, “Corporate Social Responsibility Metrics in S&P 500’ Firms’ 2017 Sustainability Reports,” 2021.
³ Deloitte, “2022 consumer products industry outlook,” 2022.
⁴ UN Environment Programme, “Global Climate Litigation Report 2020 Status Review,” 2020.
⁵ MIT Sloan, “Leading in an Age of Employee Activism,” 2022.
⁶ David Metcalf, “Verdantix Market Overview: Investor Focus on ESG Will Transform Sustainability Strategies,” 2021.
⁷ Value Reporting Foundation SASB Standards, “Exploring Materiality,” 2022.­
⁸ Value Reporting Foundation SASB Standards, “Exploring Materiality,” 2022.
⁹ Deloitte, “The purpose premium: Why a purpose-driven strategy is good for business,” 2021.
¹⁰ Deloitte, “The Role of the Board in Overseeing ESG,” 2022.
¹¹ Stanford Social Innovation Review, “Fixing the S in ESG,” 2022.
¹² Deloitte, “Purpose – a beacon of growth,” 2021.
¹³ Deloitte, “Making connections to cultivate greater resilience,” 2022.
¹⁴ Deloitte, “Measuring the business value of corporate social impact: Beyond social value to enterprise performance,” 2020.

Get in touch

John Mennel Purpose Strategy Leader Managing Director | Monitor Deloitte jmennel@deloitte.com +1 571 814 6054	John Peto Principal | US Head of Deloitte Digital jpeto@deloitte.com +1 206 779 6095	Shira Beery Senior Manager I Deloitte Consulting LLP sbeery@deloitte.com +1 347 768 3380