How can business and society do the right thing on ESG and deliver on their promises?

Awareness is growing that we all need to care for our environment and the people who live in it. On issues from diversity to sustainability, we must make sure that the solutions of today don’t become the problems of tomorrow – and the mistakes of society’s past aren’t a part of the future.

There’s no time to wait. Climate change isn't coming; it’s here. Public anger is growing at social injustices and barriers to economic inclusion. Recent events from war to the energy crisis have put a spotlight on the need for a more just society. Urgency is building to act – now.

Though the path to solving these challenges isn’t always clear, one thing is certain: the only way we will overcome these obstacles is with business, government and the public working hand-in-hand. Expectations are growing for business to be part of the solution to society’s challenges. This is why organisations’ environmental, social, and governance (ESG) practices are more important than ever. In fact, a majority of the public expects CEOs to inform and shape conversations and policy debates.^[1] And our global research found most people believe business leaders should be accountable for ESG performance.

In this chapter, we’ll share some of the ways PwC is helping both our clients and society do the right thing on ESG, meeting changing expectations and delivering on their promises. To learn more about our work on inclusion & diversity and upskilling/social mobility, please see the People chapter. For more information on how we’re driving positive change across a range of issues from humanitarian crises to healthcare, please see the Impact chapter.

Let’s start with how we help companies do the right thing on ESG.

Reaching net zero carbon emissions is a paramount ESG challenge for companies as regulators, investors, staff, customers, and the public at large demand action. We are leaders in helping our clients get to grips with the profound transformation that net zero requires – and achieve it at speed. 

We advise our clients that climate and ESG more broadly can’t be tacked on as an extra project. ESG needs to sit at the heart of the business strategy. Capital markets increasingly expect companies to demonstrate their ESG strategy, including at IPO.

ESG must be embedded deep within a company’s structure. This year, we’ve offered advice on how ESG concerns can be built into enterprise architecture and executives’ pay. In addition, we advocate appointing an empowered Chief Sustainability Officer to help supercharge the sustainability transformation and help companies reduce their carbon footprint. Weaving ESG into the fabric of the company builds a strong foundation for deep ESG transformation. Read on for examples of our work this year helping clients transform to reach their ESG and climate objectives.

We’ve shared examples of how we’re helping clients reduce their impact on the climate. However, we’re also helping our clients tackle the other half of the equation: the climate’s impact on them. 

According to our annual Global CEO Survey, just 40% of CEOs have factored climate change into their strategic risk management. We’re helping our clients address this shortcoming by helping them recognise the real risks that climate change poses to their businesses. On Earth Day, our Global Chairman, Bob Moritz, published The True Test of Climate Resilience to help business leaders ask the right questions to identify their own risks. Led by our global climate leader Emma Cox, we’re helping clients to see clearly their climate risks. In fact, we believe every company should take the time to map its climate risks.

Take PwC as an example. We’re a professional services network, so it might seem like our business is unlikely to experience significant impacts from climate change. However, climate change is predicted to affect a number of our locations around the globe. This year, we have applied detailed climate data to assess physical risks to our member firm offices, and disclosed it as part of our compliance with the recommendations of the Task Force on Climate-related Financial Disclosures. We hope more organisations follow our example to educate stakeholders on the risks and responses required to adapt to climate change. You can explore some of that climate data via the interactive map below. The map shows how selected climate hazards are expected to evolve up to 2050 under a ‘no mitigation’ >4°C scenario for each PwC office location of more than 1,000 employees (as of June 2022).

It is important to emphasise that climate hazard data does not necessarily reflect the level of risk; it reflects only the severity level of a hazard for a particular location.  The data can then inform an assessment of the actual risk to the business, as well as potential responses. We are using this analysis to inform our risk assessments and business decisions. We recommend that other companies do the same.

To be a truly sustainable business, companies need to address both:

• Their impact on the climate (decarbonisation)
• The climate’s impact on them (climate risk)

From benchmarking and baselining to decarbonisation strategy, roadmaps, implementation and reporting, our solutions - coupled with diverse teams of experts - provide our clients with access to the latest thinking and approaches to support their decarbonisation and climate risk journeys.

• We help clients manage their impact on the climate through net zero transformation
  • We help clients accelerate their path to net zero, map their carbon footprints (Scope 1, Scope 2 and Scope 3) and create practical strategies to decarbonise including clear roadmaps and metrics.
  • We help clients apply nine key building blocks for net zero business transformation.
• We help clients manage climate risk and build resilience
  • We support clients to apply the methodology in the Task Force on Climate-related Financial Disclosures framework (TCFD) to analyse their climate risks and opportunities. Make no mistake - governments and regulators are increasingly focused on requiring standardised disclosures based on TCFD - a rigorous framework that requires transparency on climate-linked governance, strategy, risks, and metrics.
  • We use proven methods to help our clients model their risks and plan to mitigate them.
  • For managing risk across a portfolio, our Climate Excellence approach helps investors and companies identify, quantify and manage climate risk across a portfolio of assets.

In addition, we help companies access sustainable capital - be it private equity or other green financing options – and navigate a fast-evolving environment of green taxation.

To see how we’re addressing our own impact on the climate while mitigating our climate risk, see our 2022 Climate Disclosures Report.

We’re upskilling our audit teams in assessing climate risk in company financial statements

It's our responsibility as auditors to obtain reasonable assurance that financial statements as a whole are free from material misstatement. To do this, we need to identify and assess risks of material misstatement – which can include risks related to climate.

That’s why we’re accelerating our efforts to upskill our auditors to consider a company’s climate-related risks and assess whether these risks could give rise to material misstatement in financial disclosures. This is part of our wider effort to upskill people across the PwC network to build consideration of climate risk into their work. 

We’re helping to power the deep, systemic change required to make the world truly sustainable. Systemic change requires the public and private sectors to work in tandem to fuel the flywheel of progress. The goal is to create a virtuous circle, where efforts in one area enable progress in others and help speed the flywheel.

No single lever of change is enough on its own. For example, ESG investing can encourage positive outcomes, but it has limits. Our Global Investor Survey revealed that while investors can exert pressure on companies to hold them accountable for how well they manage ESG issues, they’re generally not willing to sacrifice investment returns for good ESG performance.

Much more progress is needed if the world is to become truly sustainable. Let’s look at our efforts this year to foster progress on each part of the flywheel.

Market-making drives progress by creating functioning markets where businesses can exercise their creative power to deliver a green transition at speed and scale. This means ensuring myriad elements such as financing, demand and infrastructure are in place. This year, we’ve helped to deliver critical infrastructure for the net zero transition.

To avoid the worst effects of climate change, we need to make green options feasible, affordable and appealing. This will require innovation on a heroic scale in areas ranging from green hydrogen to carbon capture. 

We’ve analysed where climate tech investment is currently going – and where it’s needed most

Our climate tech report found some good news: In 2021, global climate tech investment has skyrocketed to more than US$87 billion. However, the investment isn’t always going to the areas where it’s most needed. For example, mobility and transport are responsible for only 16% of carbon emissions but received 61% of investment. On the other hand, the built environment (houses, cities, etc.) generates 21% of emissions but receives only 4% of investment. Our work highlights how investment could potentially be rebalanced to provide better outcomes for both investors and the planet. 

To discover which sectors could be the climate tech winners of the future, watch this video featuring our Global Climate Leader, Emma Cox. 

We’re encouraging the use of sustainable aviation fuels

Sustainable aviation fuel (SAF) from renewable sources is recognised as one of the most viable ways to decarbonise aviation. However, it’s expensive. If demand for it goes up, this could encourage increased investment in supply which could eventually bring prices down. But while prices are high, demand stays low. Therefore, widespread adoption suffers from a ‘chicken-and-egg’ trap. In partnership with the World Economic Forum, PwC Netherlands developed accounting and reporting guidelines for the Sustainable Aviation Fuel certificate (SAFc), a market-based mechanism which makes it easier for businesses to support the SAF growth while taking ownership of their goals to reduce emissions.

In addition, we’re directly helping to increase demand for SAF. PwC Netherlands is the first of our firms to move to 100% SAF. PwC Netherlands will buy SAF for every mile flown by employees from 2022 onwards. PwC China is one of Cathay Pacific’s first customers to support the airline in increasing its use of SAF. Finally, PwC has joined the First Movers Coalition, an alliance designed to leverage the collective purchasing power of companies globally to send a demand signal to scale up emerging technologies - like SAF - that are essential to the net zero transition. 

An ESG reporting tool from PwC China wins PwC’s Global Innovation Challenge

PwC China won our annual Global Innovation Challenge (a PwC competition to recognise the best innovations across our global network) with an ESG reporting tool that combines data collection and management on one platform. It streamlines the processing and conversion of ESG data with analytics and visualisation capabilities to monitor ESG performance.

We’re innovating to drive behaviour change

Our community of solvers from PwC Netherlands, PwC France and PwC Canada developed an app called Environmental Footprint Insights that helps companies and people easily see, track and reduce their carbon footprint in real time. It helps people make informed decisions to shrink their emissions. This project was also one of the Global Innovation Challenge winners in 2021. 

Looking ahead, we’re collaborating with the World Economic Forum to drive action on climate change adaptation

While we strive to prevent the worst of global warming, we must also adapt to climate change. That’s why we’re collaborating with the World Economic Forum to develop a business agenda on climate change adaptation. We are supporting the Forum in convening a global community of public- and private-sector stakeholders to articulate and endorse concrete steps that businesses can take on climate change adaptation. As a network, we’re working towards publishing a white paper for COP27 that will build the business case for climate change adaptation and present a framework for business action with a call to action by leading corporates.

We need government policies, standards, and regulations to incentivise actions aligned with net zero and to provide the clear market signals business requires to act and invest with confidence. 

We advocate for a robust policy environment that can accelerate the sustainable transition at pace and scale – including a meaningful carbon price

Our Global Chairman, Bob Moritz, joined the heads of other major organisations in signing a letter to the G7 called ‘Flipping the Switch’. The letter urges world leaders to take action to protect the planet – including by introducing a meaningful carbon price. To help advance policy development on carbon pricing, we worked with the World Economic Forum to investigate the feasibility of a global carbon price floor. We found that this initiative could pay for itself while driving a 12% reduction in carbon emissions. We’re partnering with the World Economic Forum to continue exploring the vital topic of carbon markets. Our findings will inform debate at global events such as the World Economic Forum’s Annual Meeting in Davos.

In 2022, we continued our years of advocacy for globally aligned sustainability reporting standards

Our leaders vigorously support the development of baseline global sustainability reporting standards. Reporting standards encourage and enable the right capital allocation and investor decisions to promote sustainable behaviour. Reporting, backed by independent assurance, creates transparency and accountability which in turn help to create change. 

Our Global Chairman, Bob Moritz, and our Global Reporting Leader, Nadja Picard, joined the chairs of two leading sustainability standard setters (the International Sustainability Standards Board and the Global Reporting Initiative) at Davos this year to discuss how the widespread adoption of high-quality, globally aligned standards can drive the change the world needs – and how to make these standards a reality.

We are supporting the development of frameworks that help to protect nature

Our research shows that more than half of the world’s GDP is moderately or highly dependent on nature. We’re helping to design the systems and frameworks that will deliver the trusted information needed to underpin a nature-positive transition – that is, building a society and economy that support the health of the natural world on which we all depend.

PwC Canada partner Dan O'Brien is a member of the Taskforce on Nature-related Financial Disclosures (TNFD). TNFD is developing a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. Its ultimate aim is to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive ones.

To maintain public and political will for the journey to sustainability, we must deliver a just transition, managing the social and human impact of emissions reductions with compassion for all people and nations. This includes managing the effects on people’s livelihoods as jobs in some high-emission sectors decline. To inform debate on a just transition, PwC UK’s Green Jobs Barometer tracks where green jobs are being created and other jobs lost as part of the UK’s green transition. Our work indicates where support and investment are needed to help achieve a fair transition that’s good for both the planet and people.

In addition, we’re part of multiple alliances and partnerships that seek to fuel our collective will to take assertive action on climate change. For more information, please see the Alliances section below. 

We’ve seen the importance of all parts of society coming together to create positive change. This year, we convened business leaders and participated in strategic alliances to advance progress on ESG issues. See our 2022 Climate Disclosures Report for more information on how we’re working with others to advocate for change and accelerate the global policy agenda.

Here’s just one example of our alliance partnerships this year. We’re proud to have joined the Lowering Emissions by Accelerating Forest finance (LEAF) Coalition, expected to become one of the largest ever public-private efforts to protect tropical forests by mobilising at least US$1billion in financing for protection initiatives.

In addition, we work with technology and business partners such as Oracle, Microsoft, SAP, Google and many others. By combining our capabilities, we can achieve even greater progress on ESG challenges. 

We’ve made ESG training available to our whole network while expanding our internal pool of ESG experts

We believe that ESG skills are increasingly like digital skills. Everyone needs to have a certain baseline level of competency. We’re proud that over 93,000 PwC people have undertaken ESG training through our global ESG Academy, supplemented by additional local learning in many territories. In addition, we’re building global ESG Centres of Excellence to help our people learn and support them in their work. For example, we’ve established a water specialist group in India, a hydrogen-focused group in Germany, as well as nature and biodiversity expertise across the world.

We’re on track to reach all of our commitments to achieve net zero emissions by 2030.

We've already reduced our Scope 1 and 2 emissions by 66% and our total emissions by 37%. Every one of our member firms across all 152 countries where we operate have been asked to produce local net zero action plans. This will help us achieve our network-wide, science-based commitment to reach net zero by 2030. Territory senior partners are evaluated on delivery of the net zero plans, ensuring accountability at the highest level. Implementation plans are now in place that cover 99% of our network's baseline emissions. From our next financial year, 100% of our member firms have plans to offset 100% of energy and mobility emissions (Scope 1, 2 and Scope 3 business travel).

Our ESG efforts don’t stop at climate. To see more ways that we are striving to make a positive impact across issues related to Governance, People, Planet, and Prosperity, please see our WEF Stakeholder Capitalism Metrics Report. For a survey of our humanitarian and pro-bono work, please see our Impact chapter.

If we are to make progress on climate change and all ESG challenges, every part of society must work together. We’re striving to help our clients do the right things on ESG while also helping society as a whole achieve the deep structural change needed to make real progress. 

_{^[1] 2022 Edelman Trust Barometer}