The four profiles of ESG maturity

We know ESG (environmental, social and governance) is driving a complete reframe of how we conceptualize value. When we step away from the premise that success is based largely on financial measures, everything is upended. But an organization still needs to do well to do good. A long list of ESG activities that’s not defined in terms of the value they have to the organization won’t be sustainable.

Organizations need to develop an ESG strategy and roadmap that are integrated with business strategy and operations and deliver the right returns on investment. That way, they can continue to invest in transformation and evolve their business—not just their reporting.

So where should organizations start? How do you unify your shareholders, equity holders, debt holders, stakeholders, employees and customers? The first step is to take a hard look at where your organization is currently, both in terms of ESG maturity and ambition. Organizations need to know where they are and what they’re aiming for, and they need to have trust and transparency around how they report it.

Here at PwC, we can map most of the organizations we’re working with—and where they want to be—to four different ESG profiles of maturity and ambition: minimalist, pragmatist, strategist and trailblazer. But this isn’t a simple continuum. Regardless of starting point and ambition, every organization will need to meet a new bar of quality ESG reporting and transparency, which are fundamental to trust.

Furthermore, having a net-zero commitment, a chief sustainability officer, an ESG or sustainability report and some inclusion and diversity initiatives doesn’t mean an organization is a trailblazer—in fact, many organizations assume they’re further ahead than they actually are.

While it’s important to consider where your organization currently sits in terms of these ESG profiles, it’s also crucial to think carefully and strategically about your ESG ambitions and goals. Where are you starting out, and where do you see yourself landing? Which pieces will be the most impactful, both in terms of ESG outcomes and business outcomes? And what are the opportunities and risks of making any given decision? In the following sections, we outline some of the big questions we hear most frequently from organizations at each of these stages of maturity.

Organizations at the beginning of their ESG journey typically approach it from a reporting and disclosure perspective. They primarily measure performance for compliance purposes and largely focus their ESG efforts on environmental issues like energy transition and net zero.

If your organization is just getting started with ESG, you may be wondering why you need to do anything beyond compliance—but this is the bare minimum. Regulatory requirements and expectations of investors, lenders, suppliers, customers and other stakeholders are constantly evolving, so it’s important to understand how to measure your footprint and set evidence-based targets.

Key opportunities

If you have limited or no public reporting, you have an opportunity to set a net-zero strategy that will drive key performance indicators (KPIs) and determine what you do with your business. If you integrate your ESG strategy with your business strategy from day one, you’ll have an invaluable opportunity to leapfrog ahead of your competition in a way that’s trusted and reliable. It will also be an opportunity to gain market share, increase top-line revenue and attract top talent. Organizations just beginning may need insight into which ESG initiatives to start with in order to drive the greatest impact on cash flows, operations and balance sheets.

Pragmatists often aim for quick wins and typically focus more on managing risks than identifying opportunities. They may publicly report targets and promised actions, but these goals and activities are generally segregated across the organization.

Or maybe there are gaps: you have some public reporting but no evidence-based targets, or your ESG activities and reporting are segregated within the organization with limited executive compensation alignment. Expectations about the quality, repeatability and level of disclosure of reporting are continually evolving, and investors are relying on this information in the same way they rely on financial statements—particularly if those stakeholders are headquartered in jurisdictions where the ESG regulatory environment is more advanced.

Key opportunities

Perhaps you’ve been looking at ESG primarily as a reporting or risk management exercise. As your strategy evolves, you’ll have an opportunity to look at how ESG can play a role in business strategy. Perhaps greening or diversifying your supply chain can help reduce operating expenses or improve cash flow. Perhaps by lowering carbon emissions, there’s an opportunity to attract different customers, create new products or expand your focus, all of which will increase top-line profitability.

Those that see strategic opportunities elevate ESG responsibilities to the C-suite and develop ESG-differentiated products or services. Their reporting and disclosures contain science-based targets and are aligned with executive compensation.

Your organization may have more mature disclosure and reporting, science-based targets and strong alignment of executive compensation. And you may even have ESG-differentiated products or services. But again, the bar is constantly moving. For example, perhaps you’re doing complex scenario modelling around climate risk disclosure, but the frequency, quality and repeatability of those disclosures are changing.

Key opportunities

There’s no resting on your laurels. Even if you’re able to maintain the status quo, you’ll end up moving backwards on the maturity continuum rather than towards becoming a trailblazer. The drive to compete on the basis of differentiated ESG performance is creating new products and services and changing business and operating models. If you already have maturity in this space and can meet the rising expectations around reporting and disclosure, you can then focus on integrating ESG across your operations to gain competitive advantage.