CEO Survey reveals: Yes to sustainability, but how?

Climate change is the fifth most cited threat at 85%. Accordingly, the CEOs rate the urgency of doing business in a sustainable manner as high, with some possible approaches including a net-zero promise, CO2 neutrality or reporting according to ESG criteria (Environmental, Social, Governance).

No longer a choice but a duty

Climate change ranks fifth in the threat barometer, with 85% of the CEOs in our survey mentioning it. They rate the urgency of doing business sustainably – for example, with a net zero promise or through carbon neutrality – as equally high. Swiss and international regulations impose sustainability requirements with varying degrees of severity on most companies – especially in the financial sector and in energy-intensive industries such as steel, cement and manufacturing. Sustainability is no longer just a marketing theme, but a matter of mandatory compliance. The intensity of the regulations will only increase in the next few years.

External pressure is increasing

97% of the participants in our survey state that meeting customer expectations or recruiting and retaining employees would slightly to very strongly influence their commitment to a climate-neutral and/or net zero obligation. 90% name the achievement of government targets as an important influencing factor. At 77%, investors are also seen as influencing companies’ own climate protection commitments. The external pressure on companies to take concrete measures and to disclose them transparently is increasing overall. This is reflected in the increasing number of cases in which a shareholder association recommends to the general meeting that the board of directors should be denied a formal discharge of liability because of a lack of transparent ESG reporting – and it is also reflected in the voting results that follow these recommendations.

It’s hard to leave one’s comfort zone

The CEOs’ attitude to implementing decarbonisation strategies can be summarised as one of hesitancy. 45% of the participants in our survey haven’t yet committed to carbon neutrality and 55% haven’t yet set a net zero target. 65% of the CEOs we surveyed aren’t confident that they’ll be able to achieve carbon neutrality or net zero. There are several reasons for their hesitancy.

First, the time frame for the climate targets will exceed their own tenures. A net zero commitment, for example, is targeted for 15 to 20 years, while the average tenure of a Swiss CEO is only 6.9 years. Secondly, the solutions that are available today will not suffice, and more research and innovation will be needed. What we have is still in the development phase and is often academically driven. It’s therefore neither scaled nor industrialised – and it’s often expensive. A CEO needs a lot of courage to implement measures that have so much uncertainty about them. Thirdly, many companies are heavily dependent on fossil energies or fuels in their core businesses – for example for plastics. If one of them wants to commit to net zero, it will have to revolutionise its entire business. So far, it’s been hard to persuade customers and investors to support this kind of decision. And, finally, many Swiss CEOs don’t like to see themselves as pioneers when the task is one that affects the whole world. They still believe that they are just small Swiss players and can’t be expected to generate the necessary momentum when others have much greater responsibility.

'In 2021, during the second year of the pandemic, the awareness of climate change has increased. Driving ESG into the heart of business is proved today to be a long-term competitive advantage for companies.'

Christophe Bourgoin,Partner, Investor Reporting and Sustainability Leader, PwC Switzerland

The cost perspective

65% of the Swiss CEOs in our survey believe they can’t afford carbon neutrality or a net zero commitment financially. This statement reflects a pronounced focus on costs and could be reformulated as follows: sustainability puts pressure on companies’ profit margins. In Switzerland, CO2 does not have an economic price and is therefore insufficiently reflected in return-on-investment calculations. The abbreviation CO2 is already causing alarm among consumers. Petrol is getting more expensive, flying is getting more expensive, and deliveries are getting more expensive! Interestingly, there was no similar outcry when fuel climbed to an all-time high over a few months, perhaps because delivery volumes were slow to follow and the Swiss franc to US dollar exchange rate rose at the same time.

The CEOs in our survey seem to have difficulty dealing with the opportunities created by decarbonisation and the question as to how it could increase their revenues, improve efficiency and save costs. Most of the CEOs are highly optimistic about global economic growth and their own revenue growth. However, their fear of losing competitiveness or customers if they invest in reducing their greenhouse gas emissions evidently prevails over their desire to gain competitive advantages and new markets through sustainable behaviour. This attitude may be due to the tendency for Swiss economic players to have strong global networks and to be dependent on foreign trade.

ESG targets and reporting are underweighted

88% of the CEOs in our survey believe that their companies do not emit significant amounts of greenhouse gases. Only 44% include quantitative targets for reducing greenhouse gas emissions in their long-term corporate strategies. There are two reasons for this assessment.

First, climate protection measures don’t develop in a linear way but in leaps: they show no effect for several years and then suddenly show a very strong effect. Companies can therefore disclose the development of their sustainability measures but must be vague about their effectiveness because the frame of observation often falls too short. Targets that are formulated for 15 to 20 years are inconsistent with the short cycles against which a company’s performance is measured – and with the performance period against which the CEO is judged.

Secondly, some companies lack a stable information base with which to provide meaningful reporting and reliable carbon emissions data. These companies simply have no idea where to start with their decarbonisation measures. You can’t set a target if you don’t have a baseline to start from. So it’s not surprising that CEOs often prefer to formulate sustainability as a qualitative goal. Such a goal provides a verbal description of the company’s contribution to avoiding climate change but is neither quantifiable (and therefore directly measurable) nor binding.

'Many Swiss CEOs are hesitating to define and implement net zero targets. The time frame for the targets will exceed their own tenures. The solutions that are available today will not suffice, and more research and innovation will be needed. In other words, they want more certainty before they will take urgent decisions.'

Stephan Hirschi, Director and Sustainability Leader, PwC Switzerland

Concerns about measuring GHG emissions

91% of the CEOs in our survey state that their companies are currently unable to measure their greenhouse gas (GHG) emissions. One reason for this response is the way in which companies must calculate their GHG emissions in accordance with the GHG Protocol. While Scopes (i.e. emission categories) 1 and 2 show what a company itself emits, Scope 3 includes upstream and downstream emissions from activities that do not directly belong to the company. Scope 3 emissions make up the largest (and hardest-to-quantify) part of a holistically considered value creation.

Companies must account for their Scopes 1 and 2 emissions when reporting in accordance with the GHG Protocol. Although accounting for Scope 3 emissions is not yet as advanced, it will also become mandatory for many companies. A large proportion of managers probably do not know how to measure their companies’ carbon footprints effectively. Disclosing Scope 3 emissions is highly demanding. If a company has not yet implemented systems to measure its GHG emissions, it may be due to these uncertainties.

Developing standardised approaches

81% of the CEOs in our survey state that their industries don’t yet have a standardised approach to decarbonisation. Cross-sectoral approaches to decarbonisation are just starting to be established, and uniform standards and frameworks are currently being developed. For these standards and frameworks to be effective, companies need to work with the upstream (suppliers) and downstream (consumers) links in their value chains, communicate interdependencies and jointly define targets. This dialogue is happening, but its progress is slow.

Swiss edition: 25th Annual Global CEO Survey

Cyberrisks, sustainability, strategy and supply chain – are some of the issues keeping Swiss decision-makers on their toes. Read more about the pulse of the Swiss C-Level here.

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