Unlock greater value through bold sustainability actions

An EY survey revealed a complex dichotomy between intention and action among organizations when it comes to building business strategy around climate action.

Canadian companies are bullish on climate change goals and optimistic about creating financial, employee, customer, societal and planetary value through bold sustainability practices. Still, market and regulatory uncertainties mean organizations here are more likely to be cautious and play the waiting game on these priorities. And it’s time for that to change.

Global organizations are translating climate action into financial value

Companies have broadly accepted that the private sector has a role to play in addressing climate change. The global EY 2022 Sustainable Value Study of more than 500 companies leading on sustainability reveals that 93% have made public climate commitments.

What’s more telling, though, is the way these pacesetter companies are challenging the perception that organizations must trade off between financial and nonfinancial impacts. Nearly 70% of all respondents report that they capture higher financial value than expected from climate initiatives.

It seems what’s good for the planet is equally good for business. Building business strategy around climate action is helping deliver value across a whole host of measures. Even so, the EY survey revealed a complex dichotomy between intention and action among organizations here in Canada

What’s holding Canadian companies back? 

Across sectors, Canadian organizations demonstrate they have both the will and the way to derive value from pursuing sustainability initiatives and climate change goals.

On the one hand, Canadian companies are more likely than their global counterparts to see value captured from climate change initiatives compared to initial expectations. Companies here realize somewhat to significantly higher financial, employee and societal value than anticipated at the outset of climate change investments. They also outpace global companies across each of these pillars by at least 20%. 

By the numbers:

• Some 45% of Canadian companies say climate change initiatives are focused on creating new sources of value, compared to 37% of survey respondents from the rest of the world.
• Creating nonfinancial value for the organization is the top motivating factor for Canadian organizations, capturing 23% of survey responses, compared to just 8% at the global level.

With big, bold climate change goals, Canadian companies are ambitious. Organizations here are more likely to pursue aggressive climate change targets — like net zero or carbon negativity — compared to companies in the rest of the world. They’re also inherently optimistic, and more likely to be confident in the world’s ability to reach climate change milestones:

•  In Canada, 89% of companies are very or extremely confident the world will limit warming to a 1.5-degree Celsius increase, in line with the Paris Agreement. That’s compared to 63% globally.
• At the same time, 86% of Canadian companies are equally confident the world will achieve net-zero emissions by 2050. That number dips to 68% for companies outside of Canada.
• Among Canadian companies, 89% are very to extremely confident their organization is being ambitious enough to make a meaningful impact. That figure drops to 69% for global companies.

All of this is important, yet perplexing. These factors constitute a solid foundation on which Canadian companies could be much more proactive in building the future and enabling this country to lead the way on climate change. That said, companies here buck global trends by waiting for certainty on external conditions — including regulations and market factors — before channelling their fundamental optimism into meaningful action and progress. It begs the question: when does optimism translate into action? 

Positive ambition is stalled by uncertainty

Among Canadian companies:

• 37% say they’re waiting for certainty on regulations or market conditions before proceeding with climate change plans. By contrast, just 16% of companies globally are holding back for similar reasons.
• 26% consider cite “waiting for greater certainty” as the ideal approach to addressing climate change right now.
• 40% plan to spend moderately or significantly more on climate change initiatives next year, compared to the 63% of companies around the world that are poised to up their climate change investments.

That contrast between ambitious outlook and deliberate action represents a cavernous gap in Canada, one companies here should aim to close sooner rather than later.

Companies that wait for stability to return after recent disruptor events could be waiting forever. Instead, they can embrace agility and resilience as superpowers, and double down on climate change to make meaningful progress even as the broader operating environment continues to shift. 

Backing up bold ambitions 

Public commitments to key climate change targets, such as carbon negative or net zero, are coming under increasing pressure to be validated by third parties as material organizational commitments. Canadian companies are more likely than the rest of the world to make these public commitments. But are they prepared to provide support to substantiate their target realization or likelihood?

Of course, Canadian companies can undoubtedly benefit from a clearer regulatory understanding of what they’ll ultimately be accountable for to build future plans. Failing to act now, though, puts the bottom line at risk, and threatens to derail climate change success. Regardless of the regulatory requirements for financial and nonfinancial measures to be disclosed, organizations that haven’t taken action to ensure their measurement/reporting and governance/oversight processes and controls are accurate can’t even be sure of their current performance.

On the whole, Canadian organizations are making good progress on climate-related risk disclosures. This year’s EY Climate Disclosure Barometer reveals Canada is well above average in terms of climate disclosure quality and coverage compared to its global counterparts. 

Still, that traction may not be enough to drive the kind of lasting change the planet now requires. Case in point: even with bold ambitions, corporate Canada’s commitments — and those of global companies surveyed — nevertheless fall short of the 45% reduction required by 2030 to keep up with temperature targets mapped out in the Paris Agreement.

Standing still is simply no longer an option. 

How can Canadian companies generate greater value from their sustainability actions in the face of ongoing uncertainty? 

1. Canadian companies can unlock value sooner by ramping up the focus on measurement, reporting, governance and oversight.

Organizations here lag significantly behind their global counterparts in implementing these kinds of initiatives. Yet those that did forge ahead with sustainability activities have been more likely to create societal value that exceeded financial and employee expectations. Put simply: moving forward with sustainability initiatives is more likely to drive higher-than-expected value. 

Moving forward:

• Continuously develop your measurement and governance processes, revisit your targets, and use interim targets, milestones and scenarios to accelerate action.
• Recognize the complexity of driving true impact on emission reductions and build in measurements to track progress and assess ROI from the outset.
• Understand key stakeholders’ expectations now and map their alignment to corporate strategy and value creation. Governance structures to identify, report and monitor sustainable activities can evolve over time. But organizations shouldn’t wait for globally accepted standards before establishing a governance structure.
• Weave sustainability into your corporate culture. The more deeply embedded sustainability is, the better the outcomes will be. 

Key takeaway:

Start your organizational journey to unlocking value through sustainability by understanding stakeholder expectations and building a flexible governance structure to manage the investment plan to align to your strategy. Start with high-impact, high-priority initiatives and increase your sustainable investments over time.

2. Canadian companies can seek partnerships with industry organizations, governments and policymakers to compel progress now. 

Only 18% of Canadian companies have already engaged in a strategic partnership or joint venture with industry organizations. That’s compared to 46% for companies in the rest of the world. In terms of government or policymaker collaboration, 27% of Canadian companies are making strides here, compared to half of global counterparts. This is a seriously missed opportunity. These efforts to collaborate within industries and between sectors can bear significant fruit.

Moving forward:

• Collaborate within your industry and across sectors. This is a collective challenge — working with industry groups will accelerate change.
• Expanding your partner ecosystem to include key suppliers, customers or even regulators will accelerate and align your sustainability investments and outcomes. Building sustainability into an organization will require different skills, education types and experiences. Organizations can certainly acquire those over time.
• Coalesce competitors into a cooperative investment strategy. This is a proven strategy to improve sustainable impacts in homogenous supply chains.
• Collaborate to address common climate challenges. Research and development will be a critical driver for many organizations to achieve climate milestones and targets. Partnering in this way can drive a much higher likelihood of effectively and efficiently hitting targets.

Key takeaway:

Look at your current ecosystem of key suppliers and customers to explore opportunities to collaborate more effectively on innovative sustainable initiatives. Share familiar challenges in a transparent fashion and seek support/input as a collective group. Design and execute internal sustainability innovation challenges for your employees and encourage them to provide inputs and ideas. Internal innovation challenges often provide great ideas. They also foster increased employee engagement.