No turning back: UK CEOs are approaching a purpose tipping point

The overall number of UK CEOs signing up to such personal accountability is low, especially on issues such as workplace inequality and climate change. But as influential stakeholders such as investors seek out such accountability, the trend is likely to gather pace.

Amanda Blanc, CEO of Aviva: says: “Investors expect this kind of accountability. They are asking how our remuneration is tied to ESG targets, the same as they have always asked how our remuneration is tied to profitability.”

Phillippa O’Connor, National Leader, Reward and Employment Practice at PwC UK, agrees this trend will develop quickly, and says larger organisations are already setting the pace.

“Until recently, executive bonuses and incentives tended to be linked solely to financial and strategic performance,” says O’Connor. “But among large and listed companies we’ve seen the connection to ESG targets becoming far more common.”

This is supported by the global survey data which shows large organisations leading the way.

This gives O’Connor confidence the trend will gather momentum as more business leaders follow the example of their peers at larger organisations.

“What we’re seeing now, and what will get these numbers moving very quickly upwards, is a wave of CEOs at smaller organisations taking note and following suit,” she says. “CEOs are putting their money where their mouth is on ESG.”

The journey to net zero

A critical component of any organisation’s purpose and ESG commitments will be the course it sets to net zero, and how it measures and reports its progress.

Keith Anderson, CEO of ScottishPower, says being able to clearly and credibly report on the progress being made is vital.

“We've been very focused on showing what we're doing, how we're doing it, and by when. We've had the Carbon Trust come in to do a massive review of everything we do, from the way we procure goods, to the way we travel, to the way we run our buildings. And we're now looking at measuring our performance in terms of how we decarbonise our supply chain.” 

That ability of businesses to effect change, not only within their own organisation but within their wider sphere of influence, can add significant momentum.

Amanda Blanc, CEO of Aviva, says: “At the beginning of last year we spoke to the top 30 carbon emitters in our equity portfolio and said to them ‘you have three years to sort yourself out and come up with a transition plan, otherwise we will be disinvesting.”

However, despite environmental and business imperatives, UK CEOs are split into three fairly even groups when it comes to net zero commitments.

It should be noted that not all commitments are created equally. Among UK CEOs who have made, or are working towards, a commitment on net zero, just over a third (37%) report their commitment is, or will be, aligned to the science-based target of reducing global warming by 1.5°C. While UK CEOs lead their global counterparts when it comes to having a net zero commitment, they lag behind in ensuring the commitments are independently assessed and validated (47% in the UK versus 66% globally, among those with a net zero commitment).

Zubin Randeria, ESG Lead at PwC UK, says: “We all need to work together to fill in any knowledge gaps and ensure all organisations can make credible net zero commitments that are meaningful and measurable. They need to be targets that account for the acceleration in climate tech and energy transition, and targets the CEO today can pass on to future CEOs, knowing it is ambitious but achievable.

“CEOs setting these targets may ultimately not be held accountable, but they have a responsibility to ensure their organisation can report on a clear set of milestones leading up to their net zero target. That’s why we all need to play a role in creating a business culture that encourages openness and collaboration, to ensure we can all see the progress and positive change we need, not just in 2030 or 2050, but every year until then."

Challenges to overcome

Standing between CEOs and their goals and opportunities remain some perennial obstacles, and questions about their own agility.

Concern about cyber risk remains high, no doubt heightened by the reliance on digital channels, accelerated by the pandemic. Nearly two thirds (64%) of CEOs who express significant concern believe cyber threats could harm their ability to sell products and services.

For UK CEOs, concerns about macroeconomic volatility impacting their ability to recruit and retain talent are felt more strongly than their global peers (56% in the UK, versus 45% globally among those expressing significant concern).

Mohammad Khan, General Insurance Leader at PwC UK, says: “Risk is everywhere and there is currently enhanced uncertainty, around cyber threats, and threats to our health and environment, as well as economic and workforce uncertainty. But just because risk surrounds us, it doesn’t have to limit us.”

“Successful CEOs are still growing and transforming their businesses, by ensuring they have in place the understanding, tools and skills to predict, prepare and respond to the growth opportunities that risks present. By mitigating risks where possible, and anticipating and embracing the remaining risks, CEOs can create lasting value for their organisations."

Dame Carolyn McCall, CEO of ITV, says access to tech talent, exacerbated by issues such as Brexit and an industry-wide skills shortage, is an issue her organisation has had to factor into its digital transformation strategy, mitigating issues through a combination of recruitment and partnership.

A need for focus and agility

The ability to act swiftly and decisively is more important than ever as CEOs seek to overcome risks, make ESG a strategic priority, deliver transformations and capitalise on opportunity. During a period of such constant change it is also critical to keep people engaged and maintaining a sharp, strategic focus.

We asked CEOs how quickly their organisations can approve and implement initiatives and the number of strategic objectives they commit to, as well as their ability to assess, recognise and make timely changes to projects or businesses and their approach to deals and investments.

The need to take bolder steps - and even some “leaps of faith” - is highlighted by Steve Gray, CEO of Nuffield Health, who believes there is a clear crossover with purpose-led organisations being more progressive and visionary and better-disposed to making significant changes.

“You’ve got two types of business leader out there,” he says. “Those who lead a business by looking at the future and those who lead a business by looking at the past. You’ve got progressive organisations, and you’ve got incremental organisations. Incremental organisations just keep doing what they’re doing, bound by in-year profitability and seeking incremental growth. And then you’ve got organisations that are really progressive, willing to take bolder steps and a leap of faith. They are usually purpose-led organisations, looking at how the world is changing, what they do and where they make their investments.”

Ken Walsh, Deals Partner at PwC, says: “In order to be as attractive as possible to investors, customers and employees, it’s vital that every part of any business is able to deliver long-term value consistent with the purpose, culture and strategy of the organisation. Short-term gains and quick wins will always attract some speculative investors, but more and more we are working with organisations to help them establish long-term, sustained outcomes. That means backing projects and investing in businesses that are consistent with where the organisation sees itself in the years to come, while divesting businesses, exiting markets, or shuttering projects that are inconsistent with that vision.”