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May 18, 2022

Pathways in transformative sustainability: banking CEOs own their impact

Financial institutions hold the keys to unlocking sustainability within their own operations and across industries

In the past decade, companies, their stakeholders, and society at large have focused more attention on business’s role in sustainability as the effects of climate change have become more apparent. But over the past year, something changed for CEOs worldwide. Sustainability talk turned into action as continued disruption–including upheaval from the pandemic–thrust an even greater spotlight on climate change with society calling for a transformation of economic activities and business priorities.

Transformational sustainability starts with a mindset that makes sustainability an integral part of an organization’s values and business strategy, fundamentally reshaping business models as well as delivering on community needs. One way banks and financial institutions can drive this transformation is by embracing digital technologies strategically and operationally to drive sustainability outcomes while expanding economic opportunities.

In this context, unlike most other industries, banking and financial market institutions (BFM) have two key ways they can execute on the world’s agenda for transformational sustainability:

• Leverage exponential technologies, like data, AI and cloud, to measure and embed sustainability into their IT architectures and applications - looking to opportunities beyond simply responding to regulatory demands to reduce the environmental footprint of their operations (consistent with other industries).
• Aid retail and corporate clients engaged in sustainability and help address return on investment concerns by better allocating financing and investments supporting the world’s transition to a “green economy” and other sustainable outcomes. (BFM-specific)

Therefore, sustainability is both an operational challenge and a business opportunity. In a recent IBM Institute for Business Value study that polled over 3,000 CEOs, including nearly 300 banking and financial market executives in 40 countries, we found that 80% of BFM CEOs expect sustainability investments to improve business results in the next 5 years. BFM leaders also recognize that executing promptly on transformational sustainability is among the top 3 operational challenges, preceded only by heightened cyber security risks and demanding regulations. CEOs feel the pressure from their Board members (72%) and community of investors (57%) who are calling for radical transparency about their sustainability programs. To respond, BFM CEOs are engaging a wide swath of their leadership teams and departments to make the right investments in sustainability initiatives. BFM CEOs have taken a broader approach than CEOs in other industries starting with engagement of their Chief Financial Officer (69%) and Chief Operations Officer (45%).

Accelerating sustainability is about mindset shift in the usage of exponential technologies

The leadership teams of banks and financial services institutions are engaged to reduce the environmental footprint, measuring their own sustainability while investing in exponential technology like data, artificial intelligence, and hybrid cloud.

We know that a company’s transition to hybrid cloud is an essential business approach, but it is also an important factor in sustainability. Transforming the operating model - how the workforce collaborates and operates with workflows on hybrid cloud - allows for a more energy-efficient usage of data centers and computing environments. According to the IDC, cloud computing could eliminate a billion metric tons of CO2 emissions over the next four years.

The transformation of banks’ data centers is an opportunity to further advance sustainability by increasing the adoption of renewable energy sources. In the UK, for example, IBM Cloud already uses a network of data centers that are powered 100% by renewable electricity. In Spain, BBVA upgraded their data centers leading to the reduction of the firm’s energy use by 50% and, in a period of five years, expect to cut BBVA’s carbon gasses in half.

As financial institutions adopt a hybrid cloud approach, a massive amount of data now exists, which can help financial firms and companies in all industries understand their environmental footprint. However, that data largely remains scattered across different databases, systems, and locations, making it hard for all stakeholders to access and understand. AI-powered software can help businesses take advantage of sustainability insights across their operations. This can make an impact in areas like:

• extending the life of physical assets,
• creating more efficient and resilient supply chains,
• understanding the impact of acute climate events and chronic physical climate risk, and
• understanding the impact of acute climate events and chronic analyzing and reporting on ESG data and initiatives.

This is key as good governance of data, AI and IT leads to better sustainability.

Sustainability data and insights underpin relevant business opportunities for financial services ecosystems

By the end of 2021, 265 banks representing more than 45% of global banking assets had signed up to the UN’s “Principles for Responsible Banking,” leading to the development of products and solutions to meet these sustainability commitments. This commitment has included a greater focus by financial institutions on tracking financed emissions, forcing the companies they invest in, in all industries to examine and reduce their carbon footprint. Sustainability, therefore, has become an opportunity to differentiate and expand financial services businesses.

Our new CEO study reveals that executives in all industries feel pressure about executing on sustainability, amidst business challenges and uncertainty. 59% of the world’s CEOs indicate that unclear return on investments (ROI) and economic benefits are the biggest challenges in achieving their sustainability objectives, and 44% mention lack of insights from data. Banks and financial institutions closely monitor and rely on other industries’ transparency regarding their sustainability initiatives. In this regard, they are instrumental in mitigating the sustainability concerns of all other industries, granting short- and medium-term value in terms of financial levers.

Banks provide sustainable financing and prioritized access to capital markets through preferred inclusion in sustainable investment products for institutional and retail clients. Banks and fintechs are also collaborating to orchestrate sustainability-oriented data platforms that allow their ecosystem of clients and partners to extract value from participating in a standardized and transparent exchange of information.

An action guide to accelerate sustainability as a business opportunity

In a 2022 global outlook report, IBM draws from 12 months of research with leaders in the financial services industry and found a top imperative for banks today is in finding viable sustainability models that balance business value and stakeholder expectations. The industry is now developing and deploying initiatives to meet these commitments, while helping ensure targeted investments deliver on overall business and financial objectives.

These initiatives are emerging across 4 broad areas:

• Incorporating climate and sustainability data and insight to help manage risks,
• addressing the sustainability of banking operations—the financial industry’s journey to net-zero,
• developing new products and services to support the sustainability agenda, and
• reporting on sustainability performance.

May 17, 2022

Zukunftsfähige Finanzwirtschaft erfordert Technologie

Nachhaltigkeit hat sich rasant zum Top-Thema auf der Agenda der Unternehmensentscheider entwickelt: 83 Prozent der CEOs erwarten etwa, dass nachhaltige Investments in den kommenden Jahren deutlich verbesserte wirtschaftliche Ergebnisse liefern werden. Mehr als die Hälfte aller CEOs über alle Branchen hinweg nennen Nachhaltigkeit als Top-Priorität, verglichen mit 32 Prozent zum Vorjahr 2021. Dies zeigt die neue CEO-Studie vom IBM Institute of Business Value (IBV), bei der weltweit über 3.000 CEOs interviewt worden sind. Hierbei spielen vor allem Entscheider der Finanzwirtschaft eine Schlüsselrolle – und das weit über die Welt der Finanzinstitute hinaus. Seit diesem Jahr greift im Rahmen des Green Deals der Europäischen Union die EU-Taxonomie-Verordnung. Ziel ist es, Kapitalflüsse in ökologisch nachhaltige Wirtschaftsaktivitäten zu lenken. Über gezielte Milliarden-Investitionen sollen eine deutliche Absenkung des CO2-Ausstoßes erreicht und bis 2050 weitestgehend auf den Ausstoß von Treibhausgasen verzichtet werden. Berichtspflichten für Unternehmen stehen im Fokus, die Anlegern, Kunden und Partnern Transparenz bieten und den Umbau sämtlicher Wirtschaftssektoren beschleunigen werden. Erste Anforderungen der EU-Taxonomie gelten bereits seit dem 1. Januar 2022. Finanzunternehmen stehen im Fokus. Sie müssen einerseits selbst nachhaltiger werden – ihre eigenen Ziele entlang der ESG-Anforderungen definieren, Maßnahmen treiben und Fortschritt reporten. Andererseits sind sie mit dem Inkrafttreten der EU-Taxonomie die zentralen Akteure, die Unternehmen bei der nachhaltigen Transformation über Kapital fördern.

Finanzinstitute müssen eigene Emissionen reduzieren: Rechenzentren-Optimierung

Doch was kann ein Finanzunternehmen innerhalb seiner eigenen Organisation tun, um die Nachhaltigkeit zu verbessern? Längst bekannt ist, dass rund 80 Prozent der Emissionen von Banken allein durch die Rechenzentren verursacht werden. Daher hat das Kreditinstitut BBVA gemeinsam mit IBM die Mikroprozessoren in seinen Rechenzentren in Spanien und Mexiko erneuert. Damit verbraucht die BBVA bereits jetzt schon 50 Prozent weniger Energie als zuvor. In nur fünf Jahren reduziert das Kreditinstitut insgesamt 497 Tonnen CO2. Eine Gebäudemanagement-Software kann zusätzlich helfen, die Effizienz in Bereichen wie Energie, Wasser, Material und Abfallvermeidung zu maximieren. KI-gestützte Automatisierungsfunktionen lassen sich zur Optimierung von IT und Geschäftsprozessen einsetzen. Allein durch die Optimierung von Abläufen können CO2-Emissionen mehr als halbiert werden. Ebenso können CO2-Emissionen in Rechenzentren sogar um bis zu 90 Prozent gesenkt werden, indem Algorithmen verwendet werden, die mit gewichtbaren Leistungsindikatoren sowohl klassische Kostenfaktoren bei der Organisation von Auslastungen als auch die Verfügbarkeit von nachhaltiger Energie in Betracht ziehen und eine Vorhersage der Kohlenstoffintensität beim Verschieben von Arbeitsaufwänden berücksichtigen.

Indirekte Emissionen senken, Nachhaltigkeit finanzieren: Finanzwelt am Hebel

Investitionen im Bereich Nachhaltigkeit werden in den kommenden Jahren deutlich zunehmen, denn Kapital ist entscheidend für die Finanzierung „grüner“ Projekte, die Minimierung klimabedingter finanzieller Risiken und die Verbesserung und Rationalisierung von Abläufen – sei es in der Fabrik, im Büro oder im Labor. Die Frage, was im Einzelnen als nachhaltig eingestuft wird, ist detailliert in der EU-Taxonomie geregelt. Dies führt zu einer massiven Verschiebung von Investitionen: Das Glasgow Financial Alliance for Net Zero (GFANZ) prognostiziert eine Verdreifachung der jährlichen Investitionen in saubere Energien bis 2030 auf rund vier Billionen US-Dollar. Doch wie können diesbezüglich Investitionsziele identifiziert, validiert, kontrolliert und gegebenenfalls aktiv von Investoren im Sinne von Nachhaltigkeit entwickelt werden?

Offenlegung klimabezogener Aktivitäten

Mit der EU-Taxonomie-Verordnung ergeben sich neue Berichtspflichten für Unternehmen: Kapitalmarktorientierte Organisationen mit mehr als 500 Mitarbeitern müssen qualitative Angaben darüber machen, in welchem Umfang ihre Wirtschaftsaktivitäten nachhaltig im Sinne der Taxonomie-Ziele sind. Dies betrifft zunächst die Ziele im Bereich Klimaschutz und die Anpassung an den Klimawandel. Als konform gilt eine Aktivität dann, wenn sie einen wesentlichen Beitrag zu den Zielen leistet und keines der anderen Ziele wesentlich beeinträchtigt. Damit werden Nachhaltigkeits- und Finanzberichterstattung erstmals auf die gleiche Ebene gestellt, sodass die Finanzierung nachhaltiger Aktivitäten von den Finanzmarktakteuren wahrgenommen und die Transparenz in Bezug auf nachhaltige Aktivitäten deutlich erhöht werden kann. Viele Unternehmen sind allerdings noch gar nicht in der Lage, die erforderlichen Informationen effizient und vollständig zusammenzustellen, geschweige denn einen rechtssicheren Bericht auf dieser Grundlage zu erstellen. Und so fehlt derzeit für Tausende von Unternehmen ein wesentliches Dokument, um nach der EU-Taxonomie als „finanzierungswürdig“ eingestuft zu werden. ESG-Transformationsfinanzierungen werden jedoch sowohl für die nachhaltige Transformation von Geschäftsmodellen als auch von Assets wie beispielsweise Gewerbeimmobilien und Produktionsanlagen benötigt. Ein IT-gestütztes Nachhaltigkeitsdatenmanagement und eine verbesserte Zusammenarbeit zwischen den verschiedenen Akteuren – vor allem aber zwischen Finanzinstituten und Unternehmen – sind daher dringend erforderlich. Allein diese Voraussetzungen sind notwendig, um überhaupt gesetzeskonform investieren zu können und die nachhaltige Transformation anderer Unternehmen aktiv mitzugestalten. Dabei müssen Finanzinstitute mit ihren Kunden neue Risiken bewerten: Welche Klimarisiken bestehen? Wie ist der tatsächliche CO2-Fußabdruck? Welcher Beitrag wird zur Klimaanpassung geleistet? Wie transparent sind die Risiken über die verschiedenen Lieferantenebenen hinweg? IBM bietet diesbezüglich ein Portfolio verschiedenster Technologien – von KI getriebenem Nachhaltigkeitsmanagement- und Reporting-Lösungen (u. a. Envizi) bis hin zu gesamtheitlichen Sustainability-Plattformen.

Nichts für die Glaskugel: Klimarisiken bewerten

Die Bewertung von Klimarisiken und ihre finanziellen Auswirkungen ist komplex. Sie erfordert die richtigen, validierten Daten, Tools und Fähigkeiten, um umsetzbare Erkenntnisse zu gewinnen. Kleine und mittelständische Unternehmen haben allerdings oft nicht die Kapazität, Details hinsichtlich ihrer Nachhaltigkeit zusammenzutragen und an ihre Bank zu berichten. Die britische Großbank HSBC und IBM haben daher die FAST Infra-Initiative für Mikrokredite aufgesetzt. Sie unterstützt Unternehmen, die nur eingeschränkte Möglichkeiten haben, ihre Nachhaltigkeitsdaten transparent zu machen und Investoren anzuwerben. Technologieplattformen und Cloud-Anwendungen sind in diesem Rahmen ein wesentlicher Bestandteil wichtiger Investitionsentscheidungen. Ein positiver Wandel in Gesellschaft und Wirtschaft zugunsten des weltweiten Klimas wird gefördert. Finanzinstitute können die Reduzierung der Kohlenstoffemissionen dabei gleich mehrfach vorantreiben: Zum einen, indem nachhaltige Geschäftsideen forciert und so insbesondere auch klimabedingte finanzielle Risiken minimiert werden. Zugleich sorgen innovative Technologien für eine verbesserte datengestützte Entscheidungsfindung nebst Definition und Realisierung nachhaltiger Finanzstrategien.

Dynamische Datenerfassung und optimierte Analyse

In den meisten Fällen sind Finanz- und Geschäftsentscheidungsprozesse nach wie vor manuell aufgesetzt und gestalten sich mühsam, da sie auf fragmentierten Systemlandschaften oder unvollständigen Datensätzen basieren. Gesucht wird daher eine Technologie, die Systeme und Daten nahtlos zusammenführt, Silos überwindet und die Analyse von Klimarisiken verbessert. Ratsam sind Lösungen, die sich an standardisierten KPIs, Benchmarks und Performance-Monitoring orientieren und die unterschiedlichen Branchengegebenheiten berücksichtigen können. Dies ermöglicht Akteuren im Finanzumfeld eine schnelle, konsistente, transparente und verlässliche Offenlegung klimabezogener finanzieller Risiken und eine datenbasierte Grundlage für Entscheidungen. Wie das in der Praxis aussehen kann, zeigt die Kooperation von IBM und The Climate Service (TCS). Sie bieten eine Analyseoption für Klimarisiken, mit der Investoren und Unternehmen die mit dem Klimawandel verbundenen, finanziellen Risiken besser messen und quantifizieren können. Die TCS Climanomics-Plattform setzt auf IBM Garage, einer Design-Thinking-Methode von IBM, und Red Hat OpenShift auf und wird in der IBM Cloud gehostet. Der Klimadienst ermöglicht es Unternehmen, die Auswirkungen des Klimawandels konkret messbar zu machen, um eine Grundlage für Investitionsentscheidungen zu haben. Wer Klimawandel und -risiken verstehen und nachhaltiger agieren will, benötigt die richtigen Daten und Technologien, um sicherzustellen, dass nützliche Erkenntnisse zutage treten und die richtigen Maßnahmen ergriffen werden können. Führungskräfte sind gefagt, Nachhaltigkeit als ein Kernelement ihrer Geschäftsstrategie zu betrachten. Sustainable Finance ist nicht nur die Zukunft, es ist bereits Realität. Aktionäre und Gesellschaft erwarten nachhaltige Ansätze und Lösungen, und immer mehr Regierungen erlassen konkretisierende Vorschriften.

ESG-Portfolios gewinnen zunehmend an Bedeutung

Der vielschichtige Begriff „Klimarisiko“ beschreibt zum einen das physische Risiko für Vermögenswerte – etwa durch steigende Temperaturen, Dürren, Stürme oder Überschwemmungen. Zum anderen müssen hinzukommende Risiken Beachtung finden, wenn Unternehmen etwa von einem kohlenstoffreichen zu einem kohlenstoffarmen oder sogar kohlenstofffreien Portfolio wechseln sowie Haftungsrisiken, die zunehmend zu finanziellen Sanktionen führen. Heutige Aktionäre wollen ihr Geld nicht in emissionsintensive oder risikobehaftete Anlagen investieren. Stattdessen gibt es eine stetig steigende Nachfrage nach umweltfreundlicheren und sozial verträglicheren ESG-Portfolios. Im Rahmen der ESG-Evaluierung, wird die unternehmerische Sozial- und Umweltverantwortung gemessen und offen dargelegt. Um relevant und erfolgreich zu sein, müssen Finanzinstitute ihr ESG-Modell neu aufsetzen und gegebenenfalls an aktuelle Anforderungen anpassen. Laut einer weiteren aktuellen Studie des IBM Institute for Business Value über „Nachhaltigkeit als Katalysator für den Wandel“ haben viele Unternehmen noch großen Nachholbedarf, wenn es um die Analyse und den Umgang mit Klimarisiken und - chancen geht. Zwar sind die Nachhaltigkeitsambitionen vielerorts groß – die Mehrheit aller Unternehmen hat eine Strategie formuliert. Aber nur 35 Prozent der Unternehmen haben bereits konkrete Handlungspläne. Skalierbare und passgenaue Technologie hilft, diese Lücke zu schließen und den Wandel zu meistern.

Wie lässt sich dies bewerkstelligen?

Ratsam ist es, in drei Schritten vorzugehen, die mit der Datenintegration und Validierung beginnen. Es folgt die Simulation der Möglichkeiten, das Nutzen und Verstehen der Daten und die Verbesserung der Kennzahlen. Am Ende steht das Reporting, die Integration in die eigene Operative und die Weitergabe nachhaltiger Produkte und Lösungen an Kunden und Partner. Hierdurch werden Finanzdienstleister zum Kern der nachhaltigen Transformation des gesamten Wirtschaftsnetzwerkes und ermöglichen ökologisch nachhaltige Wirtschaftsaktivitäten im Sinne der EU-Taxonomie.

May 12, 2022

How are Financial Institutions impacted by European Commission Green Labelling Nuclear gases and power plants?

What is the EU Green deal, and how does it shape the EU Taxonomy?

The European Union is transitioning towards a new strategy, prioritising climate neutrality, zero pollution, and affordable and secure energy. In 2019, the EU set foot to launch the European Green Deal, outlining the actions that need to take to transform Europe into “the first climate-neutral continent in the world”. The commitment from the EU commission with the Green Deal is to be climate neutral by 2050 and to reduce greenhouse gas emissions by at least 55% in 2030 compared with 1990 [1]. The Commission has estimated an additional investment worth €260 billion, which is 1.5% of the GDP when compared to the nominal GDP of 2018 [2]. The Commission will provide funds through its current budget and the Recovery and Resilience Facility (an initiative to mitigate the economic and social impact of COVID) to be funded by NextGenerationEU. With the help of NextGenerationEU, EC will raise over €800 billion (5% of the GDP) through funding operations on the international capital markets during 2021 – 2026 [3].

The EU Commission developed an EU Taxonomy, a classification system that establishes a list of environmentally sustainable economic activities under the EU Green Deal. The EU Taxonomy plays a vital role in helping the EC scale sustainable investments and implements the Green Deal across Europe. The EU Taxonomy provides companies, investors, and policymakers with the benchmarks and definitions for which economic activities can be considered sustainable, helping companies to become more climate-friendly and mitigate market fragmentation [4]. Soon, companies need to invest a part of their portfolios towards “green” activities to be labelled green from the EC. An economic activity that is “Taxonomy aligned” will be considered sustainable. For that, the movement needs to contribute to one of the pillars of the taxonomy and do no significant harm to the other pillars [5].

What do the EU Green Deal and Taxonomy imply for financial institutions and Banks?

In Europe, financial institutions, bank lending, and debt markets play an essential role in financing economies. Financial institutions and banks will be the key to sustainable finance, leading to the EU Green Deal. The banks lead the capital market financing and constantly work on different solutions to bear the transition risks associated with the Green Deal and the Taxonomy. Financial institutions have shown a rising interest in climate-linked and green bonds; with the rise of the Green Deal, the issuance of green bonds has significantly risen at a corporate and sovereign level[6]. Additionally, Asset owners/managers and insurance companies will play a crucial role with banks as they will need to align their portfolios to meet sustainability objectives. However, the EC is constantly changing the EU Taxonomy concerning the Green Deal, and financial institutions will need to align with the regulations to be successful.

What is the rationale behind the EC to label nuclear investments as green investments?

Recently, the European Commission has published that nuclear power plants and gases will be considered a sustainable investment if they meet a specific criterion in the EU Taxonomy as a part of the Green Deal. Compared to their previous draft, the requirements are expected to include minor changes that make it easier for some gases and plants to earn a green investment label. Currently, the draft grants plant the green label until 2030 if they meet the criteria with emission limits and a requirement to burn down fewer carbon gases by 2026 and be 100% low–carbon gas in 2035 [7]. The rationale behind the decision Is underlined by the Technical Expert Group, advising the EC; they mentioned that nuclear energy represents low–carbon energy sources, which is in line with the IPCC, OECD, and the UN Economic Commission.

How are banks impacted by labelling nuclear investments as green investments?

Now the question that arises is, what does the EU Green deal and the green labelling of nuclear energy imply towards financial institutions and banks? According to the EU Taxonomy, Banks will need to increase their disclosure to offer clients to identify green investments and ensure credibility; keeping this in mind with EC labelling nuclear investments as green, many banks will invest in nuclear powerplants. Research by Wealer in 2019 has shown that investments in nuclear energy have a negative expected NPV with high capital costs [8]. However, in countries like France, where 70% of the power supply is from nuclear energy, banks like BNP Paribas and Crédit Agricole have invested over €9000 million in nuclear initiatives EU Green Deal. Financial institutions and banks must evaluate the key transitioning, physical, and credit exposure risks. They will have to address both regulatory and political pressures as Europe moves forward to meet its sustainability goals as a part of the Green Deal.

However, the green transition is linked to the financial sector’s transformation with the emergence of premium paid for climate-friendly activities. The EIB Investment Report, 2020 – 2021, has shown that with the rise of the ESG regulations in financial institutions, their shares tend to outperform than then equity markets, concerning green equity portfolios outperforming the brown equities since the global financial crisis [9]. Additionally, research conducted by ECB also shows that financial institutions that disclose their climate targets have reduced their emissions, resulting in a better credit rating. Investors have shown a significant interest in green assets and bonds over vanilla bonds, with the preference of portfolios with a sustainable profile. They are ready to pay a premium willing to lower their returns to hold greener stocks but only when they are more transparent about their environmental activities [10].

Banks need to prepare the forthcoming regulations in the EU Taxonomy.

Following the EU Taxonomy, the ECB and EC are developing numerous regulations. They will put the banks and financial institutions through rigorous stress tests to analyse different macroeconomic scenarios. The European Commission is constantly expanding the Taxonomy to further align it with the EU Green Deal. For Banks and Financial Institutions to be prepared for the EU Taxonomy and the different tests, they will need to ask themselves additional questions on how well they have interpreted the Taxonomy concerning the various sections and the stress tests, ECB plans to do conduct or on how they are planning to be updated and aligned with the constant changes in the Taxonomy.

We at IBM Consulting have launched a new initiative that supports banks and financial institutions with their ESG practises and goals, in line with the EU Taxonomy. We are developing an IBM sustainability platform that banks and financial markets can leverage for a sustainable future have all the information at their glance to establish a sustainable ecosystem. IBM’s ESG platform is infused with AI and automated data gathering tools that collect, analyse, organise, infusing data sources located anywhere to extract ESG specific information from reports and third-party sources. Additionally, clients can leverage IBM’s technologies and capabilities to align themselves with the four pillars of sustainable banking: ESG Qualifications & Assessment, Sustainable Operating Model, ESG Regulatory Reporting & Compliance.

Stay tuned to find out more on how IBM, with hybrid cloud and the sustainability platform, help banks and financial institutions prepare themselves with the EU taxonomy by aligning themselves with the regulations and achieving their sustainability-based targets.

[1] The European Green Deal Road Map. EUR. (n.d.). Retrieved February 24, 2022
[2] Recovery plan for Europe, NextGenerationEU. European Commission - European Commission. (2022, February 1). Retrieved February 24, 2022
[3]The new EU Taxonomy on Sustainable Activities. (n.d.). Retrieved February 24, 2022
[4] EU taxonomy for Sustainable Activities. European Commission - European Commission. (2022, February 2). Retrieved February 24, 2022
[5] Person, & Kate Abnett, S. S. (2022, February 1). EU to propose Green Investment label for Gas and Nuclear Energy, Source says. Reuters. Retrieved February 24, 2022
[6] Economics of Nuclear Power Plant Investment: Monte Carlo Simulations of Generation III/III+ Investment Projects. (n.d.). Retrieved February 24, 2022
[7] Eib. “EIB Investment Report 2021/2022: Recovery as a Springboard for Change.” European Investment Bank, European Investment Bank, 12 Jan. 2022
[8] Born, Alexandra, et al. “Towards a Green Capital Markets Union: Developing Sustainable, Integrated and Resilient European Capital Markets.” European Central Bank, 19 Oct. 2021

May 10, 2022

There has never been a more vital moment for CEOs to embrace sustainability as a core aspect of the enterprise. It’s clear that environmentally minded organizations are set up for long-term success—and the time to act is now.

We’ve reached an inflection point.

For some time, the role of business in sustainability has received steadily increasing attention from companies and their stakeholders. But over the past year, something changed for CEOs worldwide, and sustainability talk turned into action. Continued disruption—including upheaval from the pandemic—has society calling for a new approach to economic activities and business priorities.

Our latest CEO study, drawn from interviews with 3,000 CEOs worldwide, reveals sustainability’s dramatic emergence onto the mainstream corporate agenda. For a few, this ascent is validation of long-held beliefs and years of planning. For most CEOs, however, an urgency to act is encountering the reality that turning sustainability aspirations and commitments into measurable results is easier said than done.

• Urgency is mounting
  CEOs feel increasing pressure to act—from all manner of stakeholders, many of whom are losing patience, frustrated by what they view as all talk and no action.
  
• Obstacles remain
  Effective execution of sustainability measures requires conviction, a strong technology foundation, and open innovation.
  
• Enterprise benefits are tangible
  CEOs that successfully integrate sustainability and digital transformation report a higher average operating margin than their peers.
  

Transformational sustainability

Transformational sustainability occurs when sustainability becomes an integral part of an organization’s business strategy. More than an initiative, sustainability becomes core to the values of the company. Leaders who embrace transformational sustainability recognize the opportunity to reshape major aspects of the enterprise. They view sustainability as a catalyst to define new business models, as well as deliver on community needs. Transformational sustainability embraces digital technologies strategically and operationally to drive sustainability outcomes while expanding economic opportunities.

From assessing to transforming

If sustainability were easy, everyone would be doing it. And CEOs know achieving sustainability goals is not easy. Yet some are managing to make real progress. What is it about their methods that makes the difference? One obvious differentiator is strategy: Organizations with clearly defined sustainability strategies and committed leaders are better able to navigate changing regulations, along with stakeholder attitudes and expectations.

Asking CEOs to characterize their organizations’ sustainability investments revealed some clear distinctions across a range of priorities, actions, capabilities, and outcomes related to sustainability. 4 distinct groups of CEOs emerged, each with a characteristic sustainability approach:

1. Transformational
Investments reshape major aspects of the enterprise

• Sustainability driven by purpose, open innovation, and ecosystems
• Focus on sustainability as business opportunity
• Hybrid cloud and technologies redefine value creation

2. Operational
Investments in some core/noncore business areas

• Sustainability driven by efficiency
• Focus on operational improvements
• Smart technologies used to optimize discrete processes

3. Complying
Investments to comply with regulations and mandates

• Sustainability driven by regulations
• Focus on organizational reporting and compliance
• Technology used to monitor

4. Assessing
No sustainability investment to date

• Feel pressure to act around sustainability
• Perception of sustainability as a cost
• Technology and skills gaps identified as challenges

Begin your journey to transformational sustainability with our action guide.

Embrace personal responsibility for your organization’s sustainability agenda

• Be proactive in the pursuit of sustainability.
• Shape the narrative and champion a compelling sustainability opportunity for your organization.

Build and maintain your technology foundation

• Invest in open and interoperable technologies that enable you to employ data software and innovation at scale and speed across your enterprise.
• Create the technology and data foundation and governance for orchestration, cooperation, co-creation, agility, and informed decision making.

Engage employees and talent

• Attract and retain purpose-driven people with the skills and domain expertise to execute.
• Actively engage employees in the development and execution of your sustainability initiatives.

Make sustainability an enterprise-wide concern

• Engage leaders across key functions and lines of business in a coordinated effort and insist on shared accountability.
• Embed a sustainability mindset across core functions and drive improvement throughout the enterprise.

Seek collaboration opportunities with ecosystem partners

• Actively build and engage your ecosystems to advance shared sustainability objectives.
• Accelerate insights, initiatives, and impact by leveraging collective capabilities and driving open innovation.

Anticipate challenges and stay focused on outcomes

• Define and track measures and metrics emphasizing transparency, long-term objectives, and new sources of value.
• Think big, start small, and scale fast to show the value of sustainability and build buy-in from key stakeholders.