Lord Bilimoria: ESG is ‘not a tick-box exercise, companies must live their purpose’

EXCLUSIVE: The Confederation of British Industry’s (CBI) president Lord Bilimoria has welcomed the growing business interest in climate action, but warned that greenwashing “will not wash” as investors, consumers and employees become increasingly savvy on environmental issues.

Lord Bilimoria: ESG is ‘not a tick-box exercise, companies must live their purpose’

Lord Bilimoria has been the CBI's president for almost two years

Speaking to edie at the Forum for Global Challenges at the University of Birmingham last week, Lord Bilimoria reflected on how he has worked to make environmental sustainability a priority at the CBI since being appointed as President in summer 2020.

The Confederation has vocally supported the principle of a green recovery for the past two years and, in March 2021, it launched its ‘Seize the Moment’ strategy for transforming the UK economy through to 2030. Delivering a decarbonised economy is the strategy’s first key pillar, with this focus on laying strong foundations for net-zero linked in the framework to innovation and to levelling up.

Lord Bilimoria told edie that business support for the low-carbon transition has reached new heights, with most now recognising it as a core strategic priority rather than an add-on. He said: “The good news is that, at COP26, where I spent one-and-a-half of the two weeks, there was a real presence of businesses like never before – there was a real level of commitment from business like never before. 60% of FTSE100 companies have now committed to net-zero by 2050 [or sooner].

“On top of that, we surveyed, under our Goal 13 Platform that the CBI has with Deloitte, businesses before COP26. 79% of businesses think that climate change is a mega-trend, so we are all believers [in the science]. 89% of businesses have at least one climate-related target. What gets measured gets done. Businesses are setting their own targets, even without regulation. This is great news.

“We also have finance available like never before.

“The awareness is there, the commitment is there, the will is there.”

But, of course, the climate crisis continues to accelerate. A report from the UN-affiliated World Meteorological Organisation (WMO) this week warned that there is a 50:50 chance of global average temperatures exceeding 1.5C above pre-industrial levels for at least one of the next five years. The most recent report from the Intergovernmental Panel on Climate Change (IPCC), published last month, emphasised the importance of ensuring that global emissions peak as soon as possible before rapidly declining, to secure a “liveable” future for much of the population.

Now is clearly the time for businesses to go beyond top-level commitments and turn ambition into action. When asked how progress could be accelerated, Lord Bilimoria said:  “We’ve seen, very clearly – and I have seen personally – that what works is collaboration. In particular, collaboration between business, government and universities. I could give you example after example.”

Examples he gave included the HydroFlex retrofitted hydrogen train project, a collaboration between Porterbrook, the University of Birmingham, Siemens and the UK Government’s Innovate UK agency.

The Cobra Beer founder continued: “Collaboration is going to be absolutely key and I think the government is going to play a major role in it. And, I think the Government is very keen on it. The acronym which Kwasi Kwarteng has said he runs The Department for Business, Energy and Industrial Strategy (BEIS) by is ENZI – enterprise, net-zero and innovation. The Prime Minister himself has said the race to net-zero is not a zero-sum game.”

Walking the talk

Of course, some organisations will partner for the sake of having a partnership to brag about. Similarly, some businesses will set net-zero goals with unambitious timelines and ignore key parts of their emissions footprint.

When asked about the fact that some businesses are not taking a holistic and ambitious approach to environmental sustainability, recognising also the intersections with social sustainability and governance (ESG), Lord Bilimoria argued that such businesses are only harming their future prospects.

He said: “There is more and more pressure from all quarters – including investors and consumers themselves – around ESG. This is not just a box that has to be ticked – companies have to live it. Greenwashing does not wash. People want to see action and companies must actually walk the talk.

“For young people, diversity and inclusion matters along with climate and biodiversity, above all other issues, in every survey. They are looking for these things to be a priority when they join a company.

“Similarly, investors are now looking at ESG more and more. There is peer pressure, there is regulation. But there is also going to be much more coming down the road.”

On the ‘E’ in ESG, the UK Government recently introduced its first climate risk disclosure mandate, covering more than 1,300 large organisations. The introduction of a mandate on net-zero transition plans for large, high emitting firms will happen from next year.

More broadly, the UK is mulling regulatory requirements for ESG ratings systems to help prevent greenwashing. ESG investing’s credibility has been questioned in recent months after it emerged that some funds with good ratings were being used to support energy and military activities in Russia.

At a company level, Lord Bilimoria argued, most leadership teams will be motivated to change their ESG approach by pressures from the top-down and bottom-up. He said: “It’s the leadership that sets the agenda. If the board, the chair, the chief executive officer and the executive committee passionately believe in ESG – passionately believe in tackling climate change – then they will make it happen.

“But it is also their responsibility to make sure that every employee in the organisation understands their role… that understanding will also lead to individuals, in their own lives, believing and practicing. That is happening more and more; it’s not just companies making commitments, led by boards making commitments. It’s every individual in the companies understanding the transition and getting fully behind it.”

For Lord Bilimoria, the current political and financial climate is one in which business leaders must lean in to ESG like never before and work to empower employees rather than de-prioritising this.

He concluded: “The true test of leadership is not in good times, it’s in times of adversity.”

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