New research by consulting firm FTI Consulting finds that, despite increasing environmental, social and governance (ESG) and sustainability-related spending, two-thirds of companies remain unprepared and under-resourced to navigate scrutiny, potentially exposing them to additional risk.

The firm’s January 2022 FTI Consulting Resilience Barometer survey of senior executives from more than 3 300 large companies across Group of 20 (G20) countries, shows that 86% of respondents spent more on ESG and sustainability efforts in the past 12 months than in prior years.

However, 66% reported a lack of sufficient expertise to manage the increased scrutiny from a range of stakeholders, including regulators, customers, employees, local communities and shareholders.

These concerns, coupled with the fact that nearly one-third of respondents are experiencing or expect to face ESG-focused investigations in the next 12 months, create significant risk that companies must mitigate to promote sustainable growth, states FTI.

FTI global resilience lead Caroline Das-Monfrais says ESG is a strategic imperative that is linked to greater value creation and resilience for businesses. “As we see an ever-increasing shift in focus toward ESG and sustainability, G20 companies have rightly increased spending on their ESG programmes.”

However, she adds that it is unclear whether such investments have been effective, as business leaders are not confident of their expertise and continue to feel unprepared in the face of scrutiny and associated risks in this area.

Because ESG issues vary across the African continent and globally, Das-Monfrais says it is imperative that businesses ensure the integration of a successful ESG strategy and programme that is authentic, grounded in data and aligned with the company’s overarching strategy.

She says such a strategy also needs to account for the needs of key internal and external stakeholders to manage reputational risk and withstand increased scrutiny.

In this regard, 46% of respondents reported being under intense pressure to strengthen their brand and reputation over the next 12 months.

In response to the expectation to enhance ESG-related programmes and disclosure, business leaders recognise the need to engage their stakeholders in ongoing discussions about their ESG and sustainability approaches.

In this regard, the survey finds that 89% of respondents agreed that companies should be run for the interest of all stakeholders, not just shareholders.

With 36% concerned by the surge of energy prices and 49% by energy shortages, these will remain top of mind for industries.

To address this, FTI suggests companies amplify their focus on quantifying the risks and opportunities related to energy shortages, and anticipate conducting reviews of supply chains and suppliers, especially as ESG scrutiny over the supply chain mounts.

To prepare for future crises, 46% of respondents have, or plan to conduct, regular health checks on supply chains, says FTI South Africa business transformation senior MD Christo Roux.

While the focus on managing ESG-related risks is top of mind, there is also a commercial opportunity for businesses, notes FTI. In this regard, 88% of respondents said they are changing their approach to ESG from managing risk to identifying new business opportunities, demonstrating that proper investment to meet broad and emerging ESG needs can lead to sustainable growth.

FTI strategic communications senior MD Kerstin Duhme says G20 business leaders continue to be “laser-focused” on ESG issues and understand that commercial opportunity and societal responsibility are increasingly interrelated.

“A transition away from reactive firefighting toward embracing new possibilities is clearly under way.

“To make this transition successfully, leaders need to understand where strategic investments can make the most impact and create agile governance frameworks,” she says.