Embrace your true north

It’s challenging to engage on sustainability in a meaningful way. Yet doing so opens enormous opportunities, from the potential to win emerging (or as yet unknown) markets to attracting customers, employees, and investors. The first thing to do? Know your authentic sustainability identity: the unique core value, or true north, that you bring to the people you serve. Finding your true north lets you set guardrails around what you’ll do with respect to sustainability, where you’ll play, and what capabilities you’ll develop yourself (and those partners may provide). This new knowledge makes it easier to create the business case that will persuade investors to trade short-term returns for long-term prosperity. Start with a simple question: what’s our strategic stance toward sustainability?

Tie it together

A company’s first moves on sustainability may not pay off in the near term, and investors are already loath to take a haircut on their returns, even as they say they support the sustainability agenda. The way to tie the pieces together is through a coherent narrative combining the needs of your stakeholders with a vision of where your company is headed and why—and how and when it will get there. It’s not just investors that need to understand where your company is headed. Narratives work at multiple levels, so craft yours for investors, employees, stakeholders, and potential ecosystem partners. Make sure it retains some flexibility, given that ideas about sustainability can change as regulations shift, technology develops, and new markets emerge. And remember: your narrative only works if you live it.

Share of respondents who say it’s important for companies to report the following:

Show your work

Investors already include action on environmental issues among traditional priorities such as innovation and profit when asked what they expect companies to deliver. Yet for two years running, PwC’s Global Investor Survey has found that 81% of investors would accept a reduction of only 1 percentage point in returns for companies in their portfolios that take sustainability actions. So, what’s the story?

In short, investors see sustainability as a priority for companies but want greater financial discipline and greater transparency in managing it. A case in point: an eye-popping 87% of investors believe corporate disclosures contain unsupported sustainability claims, or greenwashing. “The more a company talks about sustainability in a vague way and the less information I walk away with, the bigger the red flag gets from my perspective,” one investor said.

What can your C-suite team do to build trust? They can:

Money talks

How else can you make your sustainability efforts more effective? The solution is putting your money where your emissions are. If that sounds obvious, it’s not—as the experience of professional investors in climate technology demonstrates. Although investment is a critical driver of business innovation and eight in ten investors plan to increase their investment in ESG products during the next two years, the money pouring into climate technology isn’t aligned with carbon impact. A PwC study of early-stage climate-tech investing found just 52% of funding goes to the sectors that generate 85% of greenhouse gas (GHG) emissions. Mobility, for example, attracts nearly half of investment flows despite contributing just 15% of total emissions.

For companies, there’s a balance to be struck. Leaders need to ensure their climate investments correspond with their overarching strategy and are reflected in their narrative. That likely requires addressing a mix of more mature and less mature technologies with varying potential to reduce emissions and to generate healthy financial returns. But the basic fact remains: more money needs to be directed at solutions to the biggest sources of emissions.

What we agree with leaves us inactive, but contradiction makes us productive.”

—Johann Wolfgang von Goethe

Most stakeholders seem to recognize the climate change imperative and express a willingness to support meaningful responses. But closing the disconnect between corporate leaders and investors is critical to that effort—partly because investors want to minimize the financial impact on returns, but also because we’ve found that, when it comes to the energy transition, investors expect more action than CEOs do. Those expectations can be met if companies more clearly identify their sustainability purpose; tell their story, their way; and weight investment toward initiatives that have the greatest impact on climate change. The path to net zero must be walked, and there’s an opportunity for leaders to bring investors and other stakeholders with them.