The center of gravity in ESG is shifting, which presents a fresh set of challenges—and opportunities—for corporate America's CEOs, as detailed in a new report by The Conference Board.

While major institutional investors were once the most consistently vocal stakeholders driving companies' ESG agendas, today, regulators and business partners are exerting increasing influence. At the same time, companies are facing opposition to their ESG agendas, with 61% of surveyed US firms saying "ESG backlash" will stay the same or increase in the next three years.

"As CEOs seek to integrate sustainability more deeply into their business strategy, they will face the challenge of not having their sustainability initiatives driven by generic regulatory requirements, but instead shaped by external factors such as customer demand, the state of sustainability in their industry, and the interplay of technology and sustainability," said Merel Spierings, Senior Researcher at The Conference Board and co-author of the report.

This evolving landscape calls for CEOs to take a proactive approach to ESG, including focusing on ESG-related business opportunities; assessing the ROI of sustainability investments; engaging the board as thought partners; collaborating effectively with business partners; and deciding whether to adopt a purpose statement.

The report was produced in collaboration with Ramboll and Weil, Gotshal & Manges LLP. It features insights from a Chatham House Rule convening with CEOs from the US and Europe on how to best integrate ESG into a company's business strategy and operations.

Insights and findings from the report include:

CEOs should maintain their focus on ESG-related business opportunities.

• Context: Companies are facing more pressure to address a growing set of ESG issues ("the what") from an expanding group of stakeholders ("the whom"). Competing and sometimes conflicting demands can make it more difficult for CEOs to keep their companies focused on the opportunities associated with the sustainability transformation of their businesses.

• Steps for CEOs: CEOs and their companies can capitalize on ESG-related business opportunities by integrating sustainability into their firms' business strategy and operations. They may want to consider focusing on the three areas where their businesses intersect with ESG:

  • The workplace, including through facilities, core operations, and capital investments.

  • The marketplace, including products and services they sell as well as those they purchase through supply chains.

  • The public space, including through government relations and corporate philanthropy.

"We currently are at the early stages of a sustainability transformation of business, which may eventually match the magnitude and impact of the digital transformation. At this point, B2B companies may be leading B2C companies in this transformation. Consumer demand, especially in the US, continues to be driven more by price and quality than sustainability. By contrast, business customers—often under regulatory pressure—are prioritizing sustainability," said Paul Washington, Executive Director of The Conference Board ESG Center and co-author of the report.

While companies are increasingly held accountable for delivering returns on their ESG initiatives, they lack a consistent methodology for measuring and reporting on the ROI of ESG.

• Context: Calculating the returns generated by sustainability initiatives may be more complex than that of many other initiatives. Among the reasons:
  • The challenge of what qualifies as a "sustainability initiative" vs. business-as-usual, especially as companies are increasingly integrating sustainability into their business.