Let's Make ESG real

Science and reason have prevailed. The climate change deniers have been routed. Social injustices are being unmasked. And governments, businesses, institutions, and individuals agree something must be done. In a world rife with disagreement and discord, it is a triumph of global consensus.

Yet ambition and action are two different things. Ambition is everywhere. Governments and businesses around the world have set aggressive NetZero goals (some have even enshrined them in law). They have vowed to fight social injustices. And they have set high expectations for governance – both within their own organizations and the ecosystems they influence.

Ambition is important. But what the world really needs is more action. Time is running out. We have less than a decade to reach the initial Paris Agreement goals of 50 percent emissions reduction by 2030. The fuse is much, much shorter on some of the social challenges facing many nations. There is no more time to waste in inaction. It is time to make ESG real.

But therein lies the problem. Around the world, leaders and decision-makers are struggling to translate their ambitions into practical and achievable action plans. They know the direction they want to go but they don’t know how to get there or how to measure their progress. There are too many standards and too few success stories. Confusion and uncertainty abound.

We at KPMG believe that – to make ESG real – what the world needs is more innovation, clearer regulation, and better governance. Innovation can give the world the tools to get there. Regulation helps to clarify the destination. Governance seeks to ensure everyone is delivering on their promises. Without innovation, regulation, and governance, the path to ESG outcomes will always be meandering and opaque.

Making ESG real will require more innovation – not just around moon-shot and breakthrough technologies, but also into the equally important incremental process and system innovations, building the groundswell of activity that leads to fundamental transformation. We need to think differently if we want to develop different solutions.

Making ESG real, therefore, will require governments and regulators to create clear and enabling regulations that encourage organizations and individuals to invest into solutions, and that provide clarity around the standards and expectations. Regulators should (RC) stop focusing on the past and start setting the guiderails for the future. Too often life is viewed in the rear-view mirror; now we need to look out front

Making ESG real will also require organizations to think much more holistically about governance – not just over their ESG initiatives and investments, but right across the organization and into the communities and ecosystems they serve. Without the right governance, progress on ESG can never be sustainable.

The good news is that we are seeing a quickening pace of progress across all three areas. New ideas and innovations are rapidly coming to market. The construction sector in Hong Kong (SAR), China offers a glimpse of how governments can encourage innovation in the built environment. The renewables sector is encouraging innovation in energy distribution and storage. Ecosystems of players are coming together to create new solutions to pervasive challenges like retrofitting old homes and buildings.

New regulatory initiatives aimed at providing certainty and closing loopholes are emerging. The EU’s Carbon Border Adjustment Mechanism, for example, shows how regulation can be used to not only ensure market fairness, but also to create certainty that drives action. Another great example of regulatory innovation around ESG can be found in the way the States of Victoria in Australia and California in the US are using regulation to reduce the risk and severity of wildfires.

There is also progress on the governance side. Norway’s municipal governments are showing how government outcomes can be tied to the UN’s SDG goals. The World Bank is helping markets enhance governance around asset recycling programs. Kenya’s PPP Directory is showing how governance can be used to drive social outcomes in developing markets.

This edition of Insight Magazine showcases these examples of innovation, regulation, and governance that are seeking to make a difference. We explore how governments and organizations are inspiring action across a range of objectives. We spotlight success stories and emerging ideas. And we ask leaders across the infrastructure sector how they are making their ESG objectives real.

The time for talk has passed. Now is the time for action. It’s time to make ESG real.