Most CEOs acknowledge the importance of integrating the ESG agenda as a dimension in strategic decision-making. The success of businesses can no longer be measured only in monetary value or financial performance. The business’s impact on the environment it operates in, the relationships it fosters with society and the way it operates have become factors important in determining the success of a company’s performance and is at sometimes unquantifiable. This is mainly driven by the fact that governments, financial institutions, associations, activists, consumers etc. have started to factor in the externalities of business operations on the environment and societies. Any negative externality caused poses itself as a business risk and opportunity for companies.

Managing these ESG risks and opportunities effectively can have a strong correlation with a long-term improvement in financial performance. CEOs have an opportunity to transform their company’s ESG strategy from a compliance exercise and turn it into a competitive advantage. The companies should think holistically and ensure that their capital allocation decisions reflect their ESG commitments. Although most companies acknowledge that there is an intent to incorporate ESG commitments, it’s time to move from this intent to reality.

The approach that organisations use to prioritize and operationalise different projects and allocate capital spend across their assets could make or break their competitive advantage over the next decade. For example, oil and gas majors recognise this as a challenge and are proceeding with caution on their capital allocation decisions, which often has got challenged for not being ambitious enough.

Although much of the focus today is on climate change and decarbonisation, companies need to think holistically about how to approach the ESG agenda. This will help to maximise the efforts in the transformation journey to becoming a more socially accepted, environmentally friendly and sustainable business while remaining committed to the investors.