ESG (environmental, social and governance) issues are becoming increasingly central to corporate strategies, with the need to decarbonise at the heart of business efforts to become more sustainable.
But some companies have embraced the concept more thoroughly than others. What lessons can they offer for other corporates that want to address ESG risks and take advantage of sustainability opportunities?
Schneider Electric, the French energy management firm, headed the Corporate Knights Global 100 list of the world’s most sustainable companies in 2021 and has been a fixture in the index for the past 12 years. So what does it do that makes it such a sustainability leader?
Sustainability should drive decision-making
Firstly, sustainability does not happen by accident. It requires commitment from the board level down. Eloise Cotton, head of sustainable development in the UK and Ireland, says that the company “embedded sustainability at the core of our business 20 years ago” and that “it is at the centre of everything we do from setting our business strategy and operations to investment, innovation and R&D, employee engagement and remuneration and our customer relationships”.
Companies that want to have a lasting positive impact must synchronise sustainability and strategy, she points out. “They must ensure that sustainability considerations don’t just inform what they do, but that they drive corporate decision-making.”
Simply saying you are becoming more sustainable is not enough. You need to monitor and report on your progress as well. “We launched our first sustainability barometer – the Schneider Sustainability Impact (SSI), which reports our quarterly progress against our ESG performance goals – back in 2005,” Cotton says. “We view sustainability as a journey with no end point. Our sustainability goals are regularly reviewed, and new targets are set at the end of each impact period."
Eloise Cotton, sustainable development lead in the UK and Ireland, Schneider Electric
Understand your impacts – and your customers
The company sees its sustainability strategy, which is “built to deliver positive impacts in the long run”, as essential to its future health and profitability, she adds. “It’s our view that behaving like an impact company protects our licence to operation in the future.”
Impact means not just addressing what’s going on in its own operations (what’s known as Scope 1 and 2 emissions) when it comes to an issue such as cutting emissions, but those of its suppliers and wider value chain (Scope 3 emissions), says Steve Smith, head of global communications for energy management at Schneider. “You have to take your partners with you on your journey.”
Schneider surveyed 540 CXOs at companies around the world with turnover of $1bn+, many of whom were unsure of what they needed to do to meet their climate targets. “There is still a lack of understanding, even when it comes to the climate science,” Smith says, “but especially on how to put together a roadmap to deliver on their commitments. Where do you start if you want to decarbonise?”
There are a number of key measures that you need to implement, Smith says. First is stakeholder alignment – you need to work out who you need to bring along with you on this journey. “Over the last ten years there has been growing recognition that the climate crisis is far too big for any of us to tackle alone,” Cotton adds. “Companies need to co-operate with governments, regulators, their sector peers and other sectors to be more effective.”
Cotton points out that “we’ve seen the global community come together to develop policies, laws, and targets. From the 17 Sustainable Development Goals as part of the UN's 2030 Agenda for Sustainable Development through to the Paris Climate Accord and the EU's carbon targets.
“Consumers have also taken matters into their own hands. Who could have missed the rise of the activist, determined to bring climate change to the top of the news agenda – spearheaded by the likes of Greta Thunberg and Extinction Rebellion.”
As a result, businesses are increasingly accepting they are central to the solution. The number of companies making recognised sustainability commitments is doubling year on year, from around 200 in 2018 to more than 4,500 by February 2023. There’s progress, too, on the size and spread of companies making commitments, with SMEs and companies outside of Europe now constituting almost half of all those making commitments globally (46% according to the Science Based Targets initiative’s third progress report). This is a sign that the targets are starting to filter down supply chains as companies set supplier engagement targets, creating a full ecosystem of companies accelerating their commitments.
But commitments mean nothing without action, Cotton points out. “Last year, only 12% of Fortune 500 companies were on track to deliver their commitments. So, whilst we’re seeing an acceleration in commitment, we also need to make sure people understand what really needs to be done to deliver them.”
Looking forward
Schneider has set net zero science-based targets and is looking to address not just its own emissions but those of its customers as well. These 2025 targets include:- Helping - its customers save and avoid 800 million tonnes of CO2 emissions (since 2018)
- Reducing - CO2 emissions from the operations of its top 1,000 suppliers by 50%
- Ensuring - 100% of its strategic suppliers will provide ‘decent work’ to employees, in line with the International Labour Organization definition
- Providing - 50 million people with access to green electricity (since 2005)
- Training - one million underprivileged people in energy management
That means committing the necessary finance, because there is often an upfront cost to sustainability initiatives, although many people are unaware that energy efficiency measures, for example, will pay for themselves within one to three years.
Then you need a system in place to help you manage your efforts, along with the necessary technology and workforce skills to make your plans a reality.
This requires significant commitment over a long period of time. “Sustainability is not a one-off activity,” Cotton points out. Nor is it static. “It continues to evolve. The science around sustainability has changed so we need to be agile and respond.”
That response appears to be happening, Smith says. “A year ago, I would have said there needs to be more focus on this in the boardroom. But now, there is no boardroom discussion that doesn’t include energy, carbon and sustainability. There is definitely an increasing momentum to do more.”
Mike Scott writes on the scientific, social, economic, political and business/investment issues around environmental subjects. He worked for nine years at the Financial Times as well as at the London 2012 Olympic Games. He won the Contribution to Climate Change Journalism award at the 2021 Sustainability Media Awards.