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The Future of ESG – 2032 and beyond: Oxford

© Shutterstock / Deemerwha studioa hand holding a lightbulb with ESG written on it - symbolising the future of ESG

Global consulting firm Protiviti has released the results of a survey undertaken with the University of Oxford, in which it explores the importance of ESG to business today and in the future.

  • Despite the ongoing battle about the use of ESG as an investment lens, corporates are recognising the importance of its role in business success.
  • ESG as a lens on risk helps to capture information that traditional financial metrics cannot see – such as the longer term impacts of changing policy and weather.
  • While the backlash against ESG continues, it provides a reporting framework that helps to identify fundamental changes in the business operating environment.

The Protiviti-Oxford survey report, Executive Outlook on the Future of ESG, 2032 and Beyond reports that business leaders around the world agree that ESG (environmental, social and governance) will be either extremely or somewhat important to their business success over the next decade.

What is particularly interesting is that executives appeared to be evenly split —50/50 — on whether ESG would be “extremely important” or “somewhat important” to their business in 2033 with no respondents saying that ESG “won’t be important at all.”

Age and geography affect corporate perspectives on ESG

What also stood out was the difference in perspective dependent on geography. The survey found that while 98% of global business leaders cite ESG as a top factor in business success, only 25% of North American respondents think that prioritising an ESG strategy will be an ‘extremely important’ focus by 2032, compared to 71% of their counterparts in the Asia-Pacific region and 58% in Europe

This ‘enthusiasm gap’ could indicate a majority of North American business leaders are out of step with other leaders globally in establishing and/or achieving ESG goals. Regarding environmental factors specifically, 37% of North American executives shared that they believe their corporate greenhouse gas emissions will decline by 2032, whereas Asia Pacific and European leaders were much more optimistic at 88% and 81%, respectively.

Generational discrepancies were also identified, with younger C-suite executives (those under the age of 50) indicating that ESG will become extremely important over the next decade (60%). Overall, almost three-quarters of respondents note their company has established a dedicated ESG or sustainability post or office.

Despite the backlash ESG is now mainstream risk management

While the backlash against ESG continues, especially in the US, when understood as a useful lens through which to identify risks to business operations in the short term (financial) and the medium to long term (physical and policy) the debate doesn’t seem to make a great deal of sense.

In terms of spending on ESG, 64% of surveyed leaders globally expect an increase in corporate spending to manage environmental risks ten years from now. However, 61% of North American leaders report numbers that share a different reality, with responses indicating that their companies’ spending for environmental concerns will remain the same or even decrease in ten years’ time.

Identifying where ESG risk lies

Differences arise in tracking the extreme risks that companies are most worried about now and in the next decade. When assessing the highest amount of risk across the E, S and G currently facing their companies, 43% of business leaders cite the environmental factors, compared to 37% for social and 20% for governance.

When asked what area within the ESG spectrum will pose the most ‘extreme risk’ in the next decade, 21% believed that environmental factors were the most significant, whereas 7% report they are extremely concerned about governance factors and 12% think social risks will be the most extreme risk by 2032.

Adapting ESG over the next ten years

Over three-fourths of business leaders surveyed (78%) believed that ESG reporting will become mandatory within ten years. Fewer than half of North American business leaders (49%) believe ESG reporting will become mandatory by 2032.

The survey also found that consumer demand (42%) and regulatory requirements (39%) are expected to be the top two main drivers of change within the ESG space globally in the next 10 years.

“ESG reporting is not an end in and of itself. It’s a useful mechanism to shine light onto what companies are doing and the progress they’re making toward their ESG goals,” said Christopher Wright, global leader of Protiviti’s Business Performance Improvement Solution.

“Continuing to instill reporting and compliance, be it mandatory or voluntary, into ongoing business processes will help companies progress their ESG strategy over the next decade.”

The future of ESG

There is a genuine question to be asked about why an ESG approach is not simply considered best practice governance. After all, a focus on emissions reduction through energy transition and efficiency not only helps solve an environmental problem but cuts energy use and therefore cost.

Cory Gunderson, executive vice president, Global Solutions, Protiviti said the research: “indicates that ESG will remain a focus within business strategies for most industry sectors over the next decade. However, many organisations – especially those in North America – appear to be in more of a ‘wait and see’ mode and may not be on track compared to their global peers.”

That might be a wasted opportunity. A recent analysis by Credit Suisse on the impact of the Inflation Reduction Act (IRA) in the US suggests that the significant flow of funds to clean energy may drive a rapid transition.

That then entails a shift from the idea of addressing such challenges as a risk management requirement to a narrative of ‘capturing opportunity’. As the fundamentals driving business operations around the world are experiencing significant changes, can any business afford to be left behind the curve?

The survey was conducted in collaboration with the Global Centre on Healthcare and Urbanisation at Kellogg College, University of Oxford. Respondents were 250 board members, C-suite executives and other global business leaders who work for public, private and non-profit organizations representing a wide range of industries. The survey was conducted in June and July 2022.

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