Value wars: Navigating the tension of articulating the value of sustainability and ESG

The ‘Value Wars’ metaphor describes the internal strategic contest to allocate resources efficiently to a multiplicity of ESG topics that can be addressed. Our work with clients has revealed up to ~60 distinct topics can be in scope. These are not individual programmes or initiatives, but the functional and departmental topics that sit under the banner of ESG – from emissions to community development – while ensuring the economic viability of the business. It is a war waged on two fronts: on one side, the imperative to maintain profitability, and on the other, the need to add value in ESG terms not only to the business but also to its stakeholders and society at large.

This tension is not born from a lack of understanding of the importance of ESG initiatives; rather, it arises from the difficulty of integrating them in a manner that is both genuinely sustainable and economically justifiable. Executives are now navigating an explosion of expectations, with a broadened scope of metrics and focus areas that have expanded from a manageable set to an overwhelming multitude.

The heart of the challenge is twofold: justifying the cost of initiatives and articulating their value both in financial terms, and beyond financial metrics. Organizations face a unique struggle to prioritize which ESG topics to address, how to execute strategies efficiently, and how to measure the impact in a way that reflects genuine responsibility and adds true value. The current landscape demands not only a commitment to ESG principles but also an astute calculation of ‘return on responsible investment’ – a metric that accounts for the financial, non-financial, and societal impacts of ESG initiatives.

This has given rise to the very real temptation to masquerade what you are actually doing, and to tell a good story because of all of these pressures, while the actual integration and investments into these initiatives that a make them actually sustainable and bring about the change that is required, is probably lagging behind the story. As businesses strive to compete in tenders and bids, the pressure to present strong ESG credentials while remaining cost-competitive is immense. The dilemma is how to embed ESG so deeply within an organization’s DNA that it not only fulfils sustainability goals but also positions the company as a cost-effective option.

But fundamentally, evaluation on a bid or a tender still comes primarily down to cost and cost competitiveness. And so then this is where the masquerading really becomes problematic, because the win scenario is to integrate sustainability and ESG so deeply in your organization, and still be the cheapest option at your manufacturing or processing or supply or services. So how do you do that while you are being pressured and required to invest so heavily in potentially 57 topics across the breadth of your economic environment, social and governance dimensions, and remain cost competitive. And so there’s not much accommodation of a price premium for sustainability in B two B and B two C. Maybe that is shifting in small pockets and will no doubt improve. But there’s got to be a question around those with low cost and high sustainability credentials right now.

One critical aspect often overlooked is the capacity of an organization to truly support its ESG endeavours. The appointment of ESG personnel is frequently seen as the end of the commitment, rather than the beginning. These individuals, constrained by limited budgets and high expectations, often lack the tools and support to transcend mere data collection and engage in strategic, value-adding activities. The internal ‘Value Wars’ extend to the personal level, where ESG staff must justify their roles and prove the significance of their work amidst stringent cost considerations.

This situation calls for more than just good intent; it requires robust frameworks for evaluating the true value of ESG efforts. Organizations must establish clearer mechanisms to assess the worth of sustainability initiatives, weighing them against other business priorities without compromising their core economic objectives. To achieve this, companies need innovative strategies that allow them to report on ESG in a transparent, accountable manner, while also proving the tangible benefits to sceptical stakeholders.

In conclusion, the ‘Value Wars’ represent the intense strategic conflict organizations face in reconciling economic performance with ESG commitments. To emerge victorious, businesses must adopt a multifaceted approach that encompasses rigorous financial analysis, creative value measurement, and genuine integration of sustainability into their core operations. In doing so, they not only fulfil their corporate responsibilities but also ensure their long-term viability in a world where sustainability is not just a moral imperative but a strategic necessity.