C Suite executives can apply carbon accounting to achieve strategic objectives and strengthen bottom-line profits. 

Business leaders may recognise how critical carbon accounting is to complying with sustainability legislation and supporting emissions reduction plans. However, business leaders can apply emissions data to enhance benefits beyond compliance and sustainability. CFOs and senior executives can use carbon accounting to improve their business outcomes.

Carbon accounting refers to a process of calculating emissions emitted by an organisation. Similar to financial accounting, carbon accounting quantifies the impact of business processes, monitoring climate impact instead of financial impact. Carbon accounting is critical for businesses to recognise environmental impacts, ensure reporting requirements are achieved, and determine any opportunities for carbon reduction. 

Many companies are already under pressure to disclose carbon emissions, and new legislations are appearing. Regulations like the Corporate Sustainability Reporting Directive (CSRD) and the Streamlined Energy and Carbon Reporting (SECR) have mandated emission reporting for companies across multiple industries. This means carbon accounting is a necessity for many and a critical tool for CFOs managing the overall compliance process. 

Aside from compliance, CFOs can use carbon accounting to generate other benefits. Carbon accounting is a solution to reduce risk in business planning by removing any issues in record management and monitoring any possible problem areas. Rigorous carbon accounting enables risk-free auditing, which could show non-compliance or potential greenwashing without the necessary systems.

When companies use carbon accounting to determine emissions, the generated map of emissions hotspots can distinguish high energy areas, inefficient supplies and other supply chain challenges. This information can be applied to create cost-saving solutions, better supplier agreements and lower energy bills. According to McKinsey, these processes can improve profits by up to 60%.

This potential to be more efficient with compliance, reducing costs and lowering risk frees up resources and time for CFOs to apply in focusing on their overall financial strategy.

A detailed carbon emission profile can determine operational inefficiencies, providing targeted opportunities for improvements and cost reductions. By applying the detailed insights from carbon accounting, businesses can deliver measures such as investing in renewables or choosing low-risk service providers to generate a more efficient and resilient value chain.

Furthermore, businesses can attract and retain employees by applying sustainability measures and strategies revealed by carbon accounting. According to studies, 67% of employees are more willing to apply for jobs at sustainable businesses, and 68% are more willing to accept employment offers. By managing the development of carbon accounting-focused sustainability plans in recruitment and employer branding, COOs can decide how attractive their business is to potential talent. 

CEOs have a critical role in adopting and deploying carbon accounting processes. The leadership of the CEO is vital in aligning carbon accounting with the overall strategy, the culture and operations. Failing to adhere to decarbonisation plans will impact overall profitability. CEOs who deploy carbon accounting will empower businesses to achieve climate goals, build brand reputation and attract new talent. This enables leaders to strengthen the valuation of their organisation and improve shareholder expectations. A separate study from McKinsey discovered that investors are willing to pay 10% more for an organisation with a positive ESG strategy and record. 

 

The CSO has reached a critical point, with chief sustainability officers (CSOs), facing a range of new challenges and opportunities. CSOs have experienced a significant shift towards valued leaders within corporate governance, but their rise in responsibilities is shifting priorities from innovation to compliance.

Collaborating with business leaders

The CSO at Crossroads report produced by BSR suggests that over 80% of CSOs believe collaborating with other C-Suite leaders helps support the progression of sustainability plans. The focus on teamwork within leadership roles is critical for delivering ambitious sustainability goals and aligning these objectives with core business functions. Business leaders explain that sustainability has shifted from the peripheries into a core driver of long-term growth.

The next challenge of balancing innovation and compliance

While there has been clear progress, CSOs are experiencing a growing challenge of balancing regulatory compliance with the need to deliver strategic innovation. Only about 50% of CSOs spend most of their time on high-value activities, as rising compliance requirements are taking more of their time and attention. In the report, several CSOs emphasised that there is more focus on compliance, and a lot of time is allocated towards reporting, reflecting on how these demands can deter long-term innovation.

The Three possible routes for CSOs

Based on the report findings, CSOs have reached a stage and could take several paths forward:

A balanced manager approach – focusing on compliance and risk management, delivering steady progress and improvements.
An integrated and strategic approach – embedding sustainability into corporate strategy, leveraging it for business growth.
Transformative approach – applying sustainability plans to adapt the business model, committed toward innovation and long-term resilience.

Each option represents different ways to manage the rising challenges and opportunities facing CSOs in their evolving roles in an organisation.

Business executives and team leaders agree that sustainability takes priority over shareholder value, but determining and agreeing on the solutions is the challenge. A survey of present and future leaders indicates that businesses must transform, and this requires making difficult decisions, including impacting short-term success to enable future growth.

At a time when concerns are mounting about sustainability and resource consumption, it’s no surprise that today’s leaders are prioritising these issues. Studies on the leaders of tomorrow alongside senior executives emphasise a shared sense of urgency towards resource depletion, but both groups differ in their approach to tackling these issues. While both existing and future leaders agree that sustainability should be a priority, the groups have different perspectives on who should be accountable, whether technology is the solution and whether responsibilities should be passed on to younger managers.

Resource depletion represents a global challenge

All leaders agree that the scarcity of natural resources is a major global challenge. The latest report indicates an overwhelming consensus across all age groups, even if it means slowing down economic growth in the short term. Of the future leaders and senior executives, over 80% and 72% believe that protecting natural resources is critical, even if it intermittently hinders economic progress.
This transformation in mindset is significant. For years, business growth has been a priority over other factors, but today’s leader recognises that long-term sustainability must take precedence over short-term financial gains.

One of the most critical findings from the report is the call for businesses to adapt their goals. Many younger leaders believe businesses must prioritise social and environmental values over shareholder profits. In total, 88% of future leaders believe shareholder value is still considered a priority over the social and environmental impacts of their business. 83% believe that they should rebalance their goals and prioritise sustainability. This way of thinking resonates with many of today’s leaders, suggesting there is a growing recognition that businesses cannot primarily focus on profits at the expense of our planet. There is, however, some resistance from other leaders, with 32% of senior leaders remaining focused on shareholder values.

Who needs to drive change?

While both generations agree on the urgency, they diverge when considering personal responsibility. A large percentage of the young leaders of tomorrow (63%) argue that executives should be accountable for their company’s sustainability goals, suggesting that bonuses and rewards should be tied more closely to environmental outcomes than to financial performance. In comparison, only 32 per cent of senior executives agree with this approach, highlighting a gap in how the two generations view accountability in leadership.

Another difference between the two generations lies in their views on the ability of technology to solve the scarcity problem. The leaders of tomorrow are much more sceptical that solutions to tackle natural resource scarcity will be found in time to avoid a collapse of global systems. Furthermore, results indicate that the leaders of tomorrow are much less optimistic about technology’s ability to overcome the Earth’s limited natural resources than the older generation of leaders are.

Transforming business models

Both types of business leaders agree on the need to adapt their strategies in response to resource scarcity. The majority of future leaders and existing senior executives believe natural resource scarcity is a critical driver for sustainable transformation, encouraging businesses to innovate and create new ways of working. Business leaders are exploring sustainable models to reduce resource consumption and tackle long-term environmental impacts. More efforts are needed, and future leaders have called for a complete rethink of how businesses operate.

Bridging the leadership gap

Despite the consensus on strategy adaption, the report also suggests a rising tension between the differences between leadership responses. According to the report, the leaders of tomorrow are looking to take on more responsibility, but a reluctance from existing leaders to share this approach. If businesses are going to succeed in managing the transition towards a more sustainable future, they must bridge this gap and determine ways to collaborate across different leadership groups.

Moving forward

The report emphasises a call to action and that acknowledging the challenges is not enough. Leaders must take action and look beyond sustainability. Businesses must make difficult decisions that likely will impact short-term benefits but enable long-term progress. We must transform companies by taking an innovative approach and a willingness to adapt. Senior leaders must recognise the younger generation and create a path towards the future that enables sustainability and economic growth.

The EY Sustainable Value Study suggests that while investment has enabled many businesses to progress on sustainability, this period of early wins is ending. The survey of over 500 chief sustainability officers (CSOs) indicates business progress is slowing at a stage when climate action is critical to achieving our climate goals. The research shows a decline in the average number of actions businesses have completed as part of their climate strategy and further delays in the target year to achieve their climate plans.

There has also been a notable increase in businesses taking few measures to address climate change and a widening gap in sustainability-based investments and emission reductions compared to companies taking the most action. Despite these findings, most sustainability executives are still confident, with over 60% feeling their business is doing enough to make a meaningful impact on climate change. For organisations that are driving change, the benefits can deliver significant value. Companies taking the most action are more likely to secure higher financial value from climate plans. Empowering CSOs to be drivers of transformation by working with business leaders is critical.

While a separate study of CFOs suggested that sustainability measures are considered a long-term investment priority, they are also the most likely to be cut or paused to achieve short-term earning goals. The existing geopolitical conditions, rising inflation and pressure on supply chains have caused more businesses to adjust their climate plans over the last year.

CSOs have played a significant role in strengthening sustainability on corporate agendas. Studies clearly show that companies with a CSO are more committed to sustainability, create more ambitious emission targets and achieve higher emissions reduction, compared to other organisations. More work is needed, but CSOs cannot achieve this alone. They need to empower the whole C-Suite to drive change, build value and generate results.

The role of the CSO has become very strategic, prioritising sustainable value creation. CSOs focus on determining the sustainability issues having a big impact on financial performance and the risk profile of an organisation. The lack of collaboration across the business and slow level of progress impacts the overall satisfaction of CSOs. In a separate study, only 17% of CSOs said they were highly satisfied with their role. This figure is concerning as it could impact further progress in the ongoing planning of sustainability measures.

The challenge for CSOs

Aside from the existing economic and geopolitical conditions impacting progress, CSOs often find there in an organisation that prioritises short-term goals and results. Only a little over 50% of respondents stated that they can hold C-Suite members accountable for their performance on sustainability measures. This means CSOs are often considered responsible for achieving corporate climate goals, but their business leaders are not necessarily accountable to them for achieving the results of climate action.

Transformational CSOs

The required skills for a CSO are changing. You don’t want an independent sustainability strategy and a business strategy – you need a sustainable business strategy. Transformational CSOs are those empowered by the CEO to work as transformational leaders. Compared to other CSOs, these members have more resources available and can influence other team members.

Today’s CSO plays a significant role in building the company strategy and actively working with shareholders, investors and customers. Businesses must continue progressing with their sustainability plans if they are to achieve the necessary climate goals. Those businesses led by transformational CSOs can deliver the most progress and the greatest value from their sustainability plans.

The progress of the battery storage industry in the UK is continuing, with reports suggesting that the pipeline of battery storage projects in the UK has increased by two-thirds in capacity over the last year. The EnergyPulse Energy Storage report by RenewableUK indicates that the total pipeline of battery projects has increased from 57.1GW to 95.6GW in the last year, representing an increase of over 67%.

The total pipeline of projects includes those already operational, under construction or secured consent and others in the planning stage. Based on data from RenewableUK, over 30GW of capacity has received consent, and an additional 30GW is in the development phase but is yet to be submitted for planning permission. 

The size of individual battery storage projects has continued increasing over the last few years. RenewableUK states that the average project capacity submitted for planning approval has increased from 27MW in 2019 to 80MW, equating to a 196% increase. This capacity rise comes at a time when the battery storage market has prioritised technological advances in an attempt to play a critical role in the UK’s energy transition, providing storage for intermittent supplies of energy from renewables. Further efforts are needed to strengthen the UK Government’s battery strategy and ensure the industry can achieve its expectations.

The battery strategy released at the end of last year states that the UK will require approximately 6GWh of grid storage capacity by 2040 to satisfy the demand level. Grid-scale battery energy storage systems (BESS) are viewed by the Government to be a vital part of battery technology, and RenewableUK believes battery storage will play a critical role in the UK’s energy transition.

Barnaby Wharton, director of future electricity systems at RenewableUK, explained that batteries play a vital role in ensuring electricity supply continues to meet demand. Wharton admits that while battery projects have increased, the industry still has a way to 55GW of short-term flexibility the Government stated we require by 2035. Wharton believes the UK can accelerate this uptake by speeding up the consenting and connecting vital energy storage projects to the grid.

The latest report indicates that, by building more battery projects along with onshore wind and solar, the electricity system costs will be reduced by sharing land and grid connections, which will benefit billpayers. 

By strengthening the planning system and introducing financial support measures to encourage more battery projects to be based at sites where clean electricity is generated, we can lower the building and operational costs of batteries considerably.

Managing the benefits of implementing technology with environmental impacts can be challenging for business leaders. On one side, businesses prioritise investment in new technologies to strengthen operations and efficiency. On the other side, they are managing the environmental impacts of our rising dependence on technology. How can companies leverage technology to deliver the best results while managing their environmental impact?

Adding to this challenge, business leaders must manage the influence and impact of digital technologies on their employees. To tackle this and enable the delivery of an effective digital plan, many companies have highlighted the carbon reduction benefits of moving to digital. There are clear benefits to adopting digital solutions, but we must consider the broader environmental issues connected with the tech industry.

The technology industry is responsible for approximately 5% of all carbon emissions, which will likely continue rising. The digital market is reportedly growing by 11% each year, and we now have over 8 million data centres consuming increasing quantities of energy every year. The figures are concerning and expected to continue rising as demand for data continues. Technology can be an effective force for business development, but to ensure this is the case, business leaders must recognise the environmental and social implications of the digital movement. This recognition requires measuring upstream and downstream impacts to ensure the environmental impacts don’t move somewhere else in the value chain. 

Harnessing the power of technology to promote sustainability

Technology can be applied to support sustainability business plans, with data analytics and machine learning perfect examples. Technology can optimise operations and enhance processes, reducing waste and resource consumption. Businesses can apply real-time data to make smarter, more informed decisions about operations, energy usage and production. AI-powered predictive maintenance can improve equipment operation and reduce energy wastage and resource consumption. 

More importantly, technology can strengthen decision-making. New tech data platforms can provide critical insights into carbon impacts and risks to supply chains, but it goes beyond having the data. It’s about businesses applying it in the right way and recognising the potential effects of their plans.

Technology can empower us to increase awareness and educate others about sustainability. By utilising digital platforms, businesses can engage effectively with their customers and partners and build a commitment to environmental awareness.

By leveraging digital platforms, organisations can effectively engage with customers, partners, and communities, fostering a shared commitment to environmental consciousness. Another key example is how integrating renewable energy with smart grids and IoT devices can strengthen energy efficiency management and reduce emissions. 

The importance of leadership

Business leaders must recognise and examine the risks and opportunities associated with technology. While over 90% of UK businesses believe technology is critical to reaching sustainability goals, under 20% have integrated sustainability into their business plans.

Sustainability must be embedded within the broader business strategy, not as an added feature but as a core strategic element. This approach means building accountability and commitment to the highest levels of a business.

By building a culture of innovation that promotes sustainable solutions and introduces metrics to measure environmental impacts, businesses can apply technology to reduce their impact while accelerating growth and competitiveness.

Investing in sustainable technology

Investing in sustainable technology benefits the environment and businesses. Leaders should harness resources in research and development that prioritise sustainable innovation. The companies that take this approach will likely shape the future.

Large tech businesses are creating clear examples of how sustainable investments can generate environmental and business benefits. Transparency concerning our impact on the environment and sustainability plans is critical for companies. This means delivering clear goals and constantly reporting on progress. It’s not necessarily about showing perfection but proving an organisation is committed to improvement. Being transparent makes business leaders accountable and can inspire other organisations to follow a similar path.

As we look to the future, it’s clear that technology will continue to play a crucial role in business operations and sustainability efforts. The challenge for business leaders is to use their power responsibly.

Business leaders must recognise the environmental impact of digital technologies while leveraging new solutions to drive sustainability. They must invest in innovative technologies that reduce carbon impacts and enhance the goals of a circular economy. Companies must take the lead, embedding sustainability into every part of their corporate strategy.

By harnessing sustainable technology and recognising our impact on the environment, business leaders can build a future of success and environmental progress. 

With rising pressure from customers, employees and stakeholders to tackle environmental issues, is having a dedicated sustainability officer now mandatory for organisations?

The urgency associated with climate change impacts businesses as they come under mounting pressure to incorporate sustainability into their corporate agenda. This has created a rising demand for Chief Sustainability Officers (CSOs), with more hires in the last year than in the previous five years combined, according to PwC.

Despite a rise in CSO roles, they’re not considered mainstream hires. Over 50% of Fortune Global 500 companies have yet to place a CSO in their organisation. This is partly due to a lack of knowledge of what the role entails and a broad recognition that business leaders should collectively own ESG. Being a relatively new role, finding the right individuals with the skills and experience to implement real changes is also quite challenging.

Other industry leaders emphasise that with the right resources and authority, a CSO can enhance the sustainability progress of a business. Studies suggest that companies with a CSO will achieve their net zero goals three years quicker than those who decide not to hire a CSO. As sustainability rulings become more complicated with new regulations and reporting requirements emerging, now must be the time for businesses to seriously consider hiring a CSO.

One role for Sustainability or take collective action?

For some industry leaders, it’s clear that there is an expectation for companies to show green credentials and it’s essential for businesses to support both sustainable performance and financial success. However, some leaders believe that the responsibility and accountability for strengthening ESG lies with every executive and shouldn’t come down to one individual. Some leaders believe that the significant and rapidly evolving nature of sustainability means it can be an overwhelming responsibility for one executive leader.

Sustainability span across many business areas, and requires specialist knowledge and skills in each field. As such, leaders within the C-Suite should be responsible for managing and shaping the best sustainability practices within each area.

ESG should be operating across an entire organisation, with opportunities and challenges tackled by each team individually. This will enable ESG to be embedded into the overall strategy and daily activities. Achieving this begins with taking collective ownership of ESG within the C-Suite.

In contrast to these opinions, other leaders believe that sustainability is too vital to be split across multiple roles or various leaders. To deliver real progress, sustainability requires a singular voice that isn’t influenced by other priorities. This isn’t to say that other executives are not promoting or supporting sustainability plans, but it gives an individual dedicated to this area.

If an organisation is looking to hire a sustainability leader, they must ensure and be willing to give them the authority to implement change. Without the ability to drive changes, an organisation will not look like they’re taking their climate commitments seriously. It’s critical to recognise the role and expectations, including clear sustainability deliverables.

Hiring a CSO isn’t about delivering a quick win or used for strengthening a brand reputation. It’s an opportunity to show your commitment to sustainability, by enabling a CSO to have the power to deliver to change.

The recent CxO Sustainability Report by Deloitte explored the thoughts of over 2000 business leaders and their strategies associated with sustainability and climate change. The results showed that executives recognise the benefits and opportunities of taking action and emphasise how critical sustainability is for the business agenda.

While there are some concerns that sustainability activities in businesses may be declining, the Deloitte report suggests a significant increase in investment in sustainability plans and that climate action is becoming a core part of overall business strategies. 

According to the report, climate change continues to be one of the top 3 priorities for executives, exceeding political uncertainty, supply chain issues and talent competition. 

Global leaders are prioritising and increasing sustainability-based investments, with 85% reporting a rise in investments. Senior executives expect climate change to impact their overall plans and operations over the next few years, with 70% expecting a considerable impact. Nealy 50 of respondents stated that they are adapting their business model to integrate climate change and sustainability as a pivotal part of their overall strategy.

Businesses recognise the potential for generative value in the movement towards a low-carbon economy. More business leaders are pointing to sustainability as a reason for new products and new business models, rather than a compliance-based necessity. 

Executives are seeing fewer trade-offs between business progress and climate action. Over 90% of leaders believe their organisation can continue to grow while reducing their emissions. A similar figure considers they can achieve economic growth while reaching our climate goals. 

According to the report, the most anticipated benefit of climate action business leaders expect to see is innovation around services and operations. Climate action is a driving force for innovation. Innovation and technology investment are integrated drivers of sustainability plans, enabling companies to present solutions highlighting the potential for new services that provide environmental and business benefits.

Nearly half of business leaders have implemented technological solutions to support their climate or environmental goals, with another 40% expecting to do this in the next few years. Over half of these figures are already implementing technology and believe they are using it to create more sustainable services.

Sustainability is a critical part of the business agenda, but the response toward climate action varies greatly. While leading companies and driving significant changes, many businesses have taken few, if any, decisive steps. This slow approach could leave many at a distinctive competitive disadvantage as we move towards a net-zero economy.

Despite the reported impact of climate change on business operations and strategy, many companies (about 27%, according to the report) have taken little or no decisive action. More than half of businesses surveyed focused on two or three critical measures. Many of these businesses can be placed in two categories – those focused on sustainability and others committed to becoming a sustainable business, tackling their environmental impact.

The report shows an overview of the current climate action taken with executives and the potential of those not taking decisive steps. Other organisations must consider what action they can take, the challenges and the lessons they can learn from leading businesses to create a broader and strategic plan to generate value.

The case for implementing sustainability in an organisation has become clear, and the pressure is mounting. Stakeholders and investors consistently demand added scrutiny to measure performance, but implementing a successful sustainability strategy can be challenging. 

As a result of this rising focus on sustainability, CSOs have become in high demand. Data from BoardEX suggests that over 27% of S&P 500 companies had a CSO in 2022, rising from 19% in 2017-2018. In 2021, more CSOs were hired than in the previous five years combined. A separate study found a 211% increase in client demand for sustainability hires between 2019 and 2022. 

The trend for sustainability professionals is likely to continue. Considering new directives and reporting regulations in Europe, industry experts expect a rising demand for CFO and finance services, executives with a direct influence and responsibility for sustainability and ESG plans.

Inevitably, the scale and extent of the role of a CSO is transforming. In previous years, CSOs typically operated separately from others, managing CSR measures but with less involvement with business leaders and the overall strategy. Today, the CSO represents a more strategic and high-priority position, someone likely to work closely with senior leadership, customers and investors, embedding sustainability into the overall corporate strategy.

While it’s positive to see sustainability move more into the spotlight, it creates additional challenges for leaders and hiring businesses. The CSO is a relatively new role, so there are fewer consistent factors and metrics to use as benchmarks. Some industry experts believe the role of the CSO is becoming ever more challenging.

Rising demands and emerging mandates for the CSO, along with multiple reporting lines make the duties of a CSO even more complicated. Studies suggest that only 30% of CSOs report directly to the CEO.

Today’s CSO will play a critical role. Rather than battling to be heard by executives and the leadership team, the CSOs now face the opposite challenge: managing the demands of multiple stakeholders. Traditionally, the sustainability team has been assessing and questioning the rest of an organisation. This has completely changed, and now the rest of the business is coming to CSOs for advice and support.

For the transition to be considered sustainable, executives must define the focus of their company as best as possible. They must be clear on which ESG targets to prioritise and ensure the reporting line for the CSO aligns with these goals to drive effective, sustainable action.