Why companies need an overarching ESG strategy – and why Europe needs joined-up regulation
We’ve just published the top-line findings from our EU Green Deal Survey, based on responses from nearly 300 businesses across 13 European countries. Our goal in conducting the research? To understand our clients’ awareness of the European Union Green Deal, and its implications for their operations across different geographies and industries.
This is the first entry in a blog series which aims to deliver an industry perspective on the findings of the EU Green Deal Survey. The first of which delves into the consumer markets industry.
Consumer markets: fragmentation and complexity
Companies across Europe are doing a lot to operate more sustainably but their actions tend to be discrete point solutions targeting specific environmental issues rather than part of a coordinated ESG strategy. And I must say I can certainly see these traits in the industry I work with, consumer markets.
This matters. Consumer markets companies’ direct contact with the public and society puts them under the spotlight when it comes to sustainability. From building more responsible apparel supply chains to managing inventory to reduce food waste, most are taking positive steps. The problem is that they’re focusing on different issues in different sub sectors and different markets – often as a tactical reaction to local environmental regulations.
For example, in the United Kingdom, companies are focusing on taxes on packaging. In Germany it’s the forthcoming laws on supply chain responsibility. But whatever the cause, the effect is often fragmented responses to environmental issues, which in turn dilute the collective impact. For companies operating across multiple European countries it’s a nightmare, as they struggle to keep up and comply with constantly-evolving rules in each territory.
Meanwhile the EU Green Deal sits on top, creating a further layer of complexity. Hardly surprising then that many consumer markets companies are poorly prepared for its impacts. Some aren’t even aware of them. Europe has a multi-layered, complex, range of environmental regulations, which can often leave companies struggling to keep up and thus the danger of actions not being able to deliver on the goals of the Green Deal.
What needs to change
So, what needs to change? In my view, we need a new approach on both sides – from regulators and companies.
On the regulatory side, it is clear that the multitude of regulations makes life challenging for companies to deliver. Further steps on regulatory harmonisation should benefit all, from easing the administration of regulations, and also the ability for companies to accelerate a more strategic approach.
Equally significant change is needed on the part of consumer markets companies. Most of the businesses I speak to are continuing to react in a piecemeal way, rather than having a structured strategy governing and coordinating all their initiatives around ESG in every area of the enterprise. Such a strategy is exactly what they need, for several reasons.
For starters, it would help them prepare and respond better to the Green Deal, reducing the risk of penalties or higher taxes. But that’s just one of the benefits of a structured ESG strategy. It also provides strategic and reputational advantages, through advances like enabling the supply chain to be organised in a more efficient and compliant way, or creating a clearer route to net zero. And it helps a business plan out and allocate its ESG actions in ways that qualify for government incentives for things like carbon reduction.
But perhaps most important, an ESG strategy equips a business to manage ESG’s rising importance. In the coming years, as ESG becomes ever more central to companies’ value creation, the relative value contribution from different functions and entities will shift: procurement, for example, will advance from its past as a routine function to a key player in ensuring supply chain responsibility. This in turn means profit allocation within the group will change – including between countries – affecting areas ranging from intercompany transfers and transfer pricing to investment allocation. The key to managing and making sense of all this is an overarching ESG strategy.
What’s next?
The EU Green Deal is a great opportunity for Europe – and consumer markets companies have a pivotal role in realising it. But for them to play this role to the full, new approaches are needed, both from regulators and the companies themselves.
If you have any thoughts on this blog, please get in touch. The second blog of the series focuses on industrial products. Stay tuned!
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Clients and Markets Leader, Global Tax and Legal Services, PwC United Kingdom
Tel: +44 (0)7738 310500