by Jeff Gowdy and Jessica Forrest
Transformational ESG goals seek to make changes across companies’ entire value chain and even society. But in a recent review of 50 of the Fortune 250 companies, incremental ESG goals are still the norm.
Archer Daniels Midland commits to no deforestation, no peat, no exploitation within its global palm oil and soybean supply chains.
Telefonica commits to transform the education of 10 million children.
Unilever commits to becoming carbon positive in its manufacturing by 2030.
ING aims to double its funding by 2022 to organizations that help combat climate change and positively impact society and the environment, from €14.6 billion in climate finance at the end of 2017 …
These are examples of the big, long-term, environmental, social and governance (ESG) goals that companies are now setting, as revealed in a recent review of 50 of the Fortune 250 companies. This review was completed in the lead up to a full update of the Pivot Goals Database, to be re-released in Fall 2019.
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ESG goals are important. They articulate company vision, direct strategy, and hold the company accountable to management, investors and various external stakeholders. When taken together, ESG goals provide a collective vision of the future. The scale at which these goals are set and implemented across the world’s major companies will have important implications for the environment and society over the next 10-50 years and beyond. And, when managed well, ESG goals create business value — they set the stage to build new markets, ensure proper management of resources, reduce costs, improve stakeholder relations, and ensure a company can continue to grow and adapt in a rapidly changing external environment and global economy.
In this preliminary review, we noted a few key findings:
ESG is no longer a niche, but a bar to compete. The vast majority of the world’s largest companies are giving serious consideration to ESG in their annual reports or stand-alone ESG reports, with 48 out of 50 companies making reference to social responsibility and/or sustainability. Why? For many reasons. Raw material sources are becoming less reliable as a result of over-extraction, political tensions, and climate change. There is an evolving external and regulatory environment that companies will need to adhere to, with respect to emissions at the international level, but also to local regulations over water quality and workers’ rights, among others. Finally, customer expectations about their products, and the process used to generate them, are changing. Companies are finding that addressing and mitigating their impacts are a strategic way of minimizing these risks.
ESG goal-setting is now widespread among Fortune 250 companies. Among the 50 companies reviewed, we identified a total of 715 ESG goals on topics ranging from greenhouse gas emissions, to waste, water, land use, forests, biodiversity, economic development, health and wellness, workplace diversity, worker safety, gender equality, transparency, and responsible procurement. Forty-three out of the 50 companies reported at least one ESG goal, averaging just shy of 17 goals per company, among those with goals.
The goals are good, but many need improvement. The best goals are big, bold, and science-based, argues Andrew Winston in his book, The Big Pivot. They are well-aligned to the best-known scientific guidance. The SDG Compass — a resource for business action on the UN Sustainable Development Goals (SDGs) — recommends that goals also be quantitative and linked to baseline and target dates, and that they are ambitious.
Among the 50 companies reviewed, 74 percent of goals are specific and dated, 12 percent are specific and undated, and 14 percent are intentional. This shows room for growth. While intentional goals are important for describing the big picture, specific and dated goals define explicit targets for directing strategy and gauging success.
17 of the 29 ESG categories in Pivot Goals can be measured against a science- or ethics-based threshold. Perhaps the clearest science-based guidance is with regard to climate change. Scientists warn that we must drastically reduce our emissions by 2030 (by 25-50 percent) and reach net zero emissions by 2050. While we found that climate goals were the most broadly reported — with 156 goals from 42 companies (representing nearly 22 percent of all goals from 84 percent of reviewed companies), only 18 percent of companies had climate goals that were well-aligned to — or exceeded the scientific guidance. Other companies had climate goals that made progress on this issue, but did not go far enough.
Transformational goals are still rare. Traditional ESG goals aim to reduce the negative impacts of existing company operations, and improve the value of their existing product offerings to stakeholders. Transformational goals, on the other hand, seek to make changes across their entire value chain and even society. They may change the direction of a company’s core business strategy or introduce remarkably new, innovative product offerings. They are unique from the competition, and trend-setting.
Among the 50 major companies, incremental ESG goals are still the norm. While these goals are important, there are limitations to this approach. An oil company, for example, can set a multitude of goals, but there is only so much they can do to reduce the footprint of their existing operations. These companies may need to consider changes to their core business products and strategies to meet the needs of a changing external landscape, environment, and consumer demand.
Our assessment indicated that transformational goals represented less than 20 percent of all goals. But these goals are truly powerful, as in the following example.
Transformational goals can drive innovation and set the company apart from the competition for years to come. Take JD.com — a Chinese company and one of the world’s largest retail and logistics companies — as one example. JD.com’s goals include:
- Teaming up with global partners to create the world’s largest ecosystem (200 million square meters) of rooftop photovoltaic power generation by 2030;
- Upgrading its nationwide fleet of direct-sale delivery trucks to new-energy vehicles within 2 years, and encouraging partners to adopt the same policy;
- Reducing its carbon emissions by 1 billion tons by 2030.
As a way of achieving the last ambition, JD.com is developing, testing and rolling out delivery innovations, such as drones, in rural provinces; and prototyping roving pharmacies that deliver medications to rural communities.
Transformational goals (such as these) are bold and require companies to innovate, but ultimately enable companies to define themselves strategically ahead of and apart from the competition. They address social, environmental and/or economic development concerns, reduce costs to the company, build new markets, and ultimately contribute positively to the company bottom line.
And, they might just save the planet, too.