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Social and governance gain greater sustainability focus amid ‘new risk reality’

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Companies across different industrial sectors are strengthening their focus on social and governance issues in their ESG strategy to promote sustainability.

Highlights:

  • Governance gains greater priority in sustainability strategies in line with shifting corporate risk picture.
  • Larger companies raise focus on social factors such as DEI as diversity and inclusion become market differentiators.
  • Sustainability now seen as essential, not optional, for business resilience in a greener world.
Social and governance metrics are rapidly rising up the corporate agenda as a growing number of companies recognise these as key pillars of their ESG strategy to generate sustainable business growth, according to DNV’s latest ViewPoint Sustainability Survey.

And having a certified management system in place to deliver both on Environment, Social and Governance (ESG) targets and UN Sustainable Development Goals (SDG) is seen as an increasingly important factor in building trust with customers, investors and other stakeholders in companies’ sustainability efforts, the survey shows.

“There is a notable shift towards a stronger focus on social and governance, particularly among large companies with greater market accountability, as the risk picture changes and these domains acquire more importance,” says Barbara Frencia, CEO of Business Assurance in DNV, in commenting on the findings. “In particular, governance has been assigned higher priority as companies increasingly seek to enhance performance in areas such as information security and AI implementation, which is no longer seen as optional but essential to building trust, developing resilience and ensuring business continuity.”


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Photo: Barbara Frencia, CEO of Business Assurance, credit to Marco Presenti


The extensive survey covered a broad cross-section of 893 companies spread across different industries in Europe, North America, Central and South America, and Asia. Companies surveyed range in size from small firms with less than 100 employees to medium-sized enterprises with between 100 and 500 staff, and large ones employing over 500.

Sustainability given high priority

The study demonstrates that sustainability is now a high priority for over half of respondents as it becomes an integral part of how companies do business - a must-have rather than a nice-to-have -  with 85% already taking action on this front and 15% in the planning phase. Furthermore, 70% have already or plan to commit to one of the SDGs.

Large companies are leading the way in sustainability, with 94% of these taking action versus 75% of small companies, driven primarily by the need to meet customer expectations followed by regulatory requirements, investor expectations and long-term development plans.

Green initiatives such as energy savings, waste management and reduction of greenhouse gas emissions remain the primary focus of many companies, accounting for 88% of their sustainability efforts, with large companies devoting 95% of their resources to environmental issues - in particular, cutting emissions.

This trend has probably been reinforced by the recent energy crisis, while other contributing factors could relate to trends like reducing plastic waste, packaging and materials to improve product sustainability, the survey states.

It is therefore not surprising that environmental benefits top the list of positive outcomes that include savings in resources, materials and energy, regulatory compliance, winning customers and improved corporate policies.

Social and governance gaining ground

However, it is clear that companies are paying more attention to social and governance issues, which accounted for 73% and 65% of sustainability efforts, respectively, and is on a rising trajectory, according to the survey.

This broader view of ESG especially applies in governance where the current figure of 65% is seen rising by 21 percentage points to 86% as more companies plan initiatives in areas like corporate responsibility, internal policies and regulations, and risk management strategy.

The survey highlights the “new risk reality” as a key driving force behind the heightened focus on corporate governance with issues such as anti-bribery, information security, and diversity equity and inclusion (DEI) at the forefront.

“This could be due to an increasingly volatile risk picture that threatens to disrupt business. Topics like cyber and information security, DEI and anti-bribery are putting pressure on companies to take a structured approach to business continuity and build resilience,” the survey report states.

Large companies are most active across all three ESG dimensions, with workplace health and safety taking precedence in the social sphere, followed by wellness and wellbeing, training and development, and DEI. Bigger entities also put more emphasis on DEI and human rights than others, possibly reflecting the greater market scrutiny to which they are subject.

Interestingly, research shows diverse and inclusive companies are likely to outperform those less diverse, with DEI performance an increasingly important prerequisite for doing business, the survey states.

Structured approach delivers value

Having a structured approach with management systems in place compliant with recognised ISO standards is seen by 83.5% of companies as supporting their ability  to deliver on ESG and SDG commitments, with independent certification of systems deemed to add value by 87% of respondents. This approach could also help meet one of the biggest sustainability challenges - data collection, availability, quality, validation and integration - by having a standardised model, the survey report states.

While sustainability is a relatively recent move for many, making this area a priority, being able to take a broad ESG perspective and adopting a structured approach to deliver on commitments are considered more decisive than the time spent on this path.

Also rated highly in the survey are “demonstrating regulatory compliance” and “trust towards customers and other stakeholders”, such as communities and NGOs, through a structured approach with an independently certified management system. This underpins the notion that trust is an essential part of companies’ sustainability journey.

Download the full survey report