Transforming organizations into Green Swans

In a world increasingly shaped by environmental and social challenges, businesses face a crucial choice: embrace sustainability or risk falling behind. The conversation around Environmental, Social, and Governance (ESG) transformation is intensifying, with stakeholders—regulators, investors, employees, and consumers—demanding greater accountability and action. While the reasons for adopting ESG practices are clear, the path to implementation is often complex and unclear.

This challenge took center stage at our Transforming Organizations into Green Swans event on December 3, 2024. A diverse panel of KPMG professionals, experts in their fields, explored strategies for successful ESG integration. Jerwin Tholen, Partner Sustainability, discussed the broader impact of ESG transformation, while Guido Klüth, Professor and NLP Master Trainer, focused on management controls for ESG reporting. Albert Plugge, Professor of ESG Transformation and Digital Innovation, highlighted the role of ecosystems as change agents, Muel Kaptein, Professor of Business Ethics and Integrity, underscored the importance of soft controls in driving culture, and Sander Klous, Professor of AI and Audit, shared insights on how technology can enable ESG-compliant ecosystems.

Jerwin Tholen, Partner Sustainability, emphasized the dual mandate of ESG transformation: meeting regulatory demands while creating long-term value. He highlighted how frameworks like the Corporate Sustainability Reporting Directive (CSRD) aim to enhance transparency but stressed that ESG should be viewed as more than just a compliance requirement. Instead, it offers organizations a strategic opportunity to build resilience, drive innovation, and secure a competitive edge.

ESG transformation is not just about meeting regulations; it also provides a chance to strengthen an organization's position in the market. By embedding ESG into core business practices, organizations can unlock new opportunities, attract investors, and create long-term value that aligns with societal expectations. ESG, therefore, inspires organizations to master three transformations in parallel. A business transformation, a reporting transformation and a data & technology transformation. This approach, Tholen concluded, impacts the entire organization and leads to corporate resilience, helping organizations thrive amidst environmental and social challenges.

Guido Klüth, Professor and NLP Master Trainer, discussed the critical role of management controls in ESG reporting. He emphasized that meaningful ESG progress requires not only strong governance, but also clear management controls to ensure the consistency and accuracy of ESG data. Without such controls, organizations risk generating unreliable reports, which can damage trust and undermine the ESG transformation process.

Focusing on the alignment of financial and sustainability metrics, Klüth pointed out that while frameworks like CSRD and ESRS demand transparency, ESG indicators often lack the rigor found in financial metrics. He explained that organizations must balance financial materiality—how ESG impacts profits—with impact materiality—how ESG affects society and the environment. Achieving this balance requires collaboration between sustainability and finance teams to develop strategies for integrating ESG metrics into the organizational framework.

Technology also plays a vital role in simplifying ESG reporting. Tools like AI and federated learning streamline data collection and compliance, enabling organizations to scale efforts across complex networks. However, Klüth emphasized that technological tools alone are not enough. Cultural alignment and strategic focus are also essential. ESG must be prioritized across management systems, with reliable mechanisms in place for accurate and actionable reporting. By aligning culture, strategy, and systems, organizations can not only meet regulatory demands but also position themselves as leaders in sustainable transformation, creating value for both society and stakeholders.

Albert Plugge, Professor of ESG Transformation and Digital Innovation, emphasized the critical role of ecosystem thinking in ESG transformation. He explained that the journey toward sustainability starts with awareness of regulatory demands and market pressures. However, the real power of transformation, Plugge stressed, comes from collective efforts within ecosystems, where companies collaborate to tackle shared sustainability challenges.

Business transformation unfolds in phases. Initially, companies become aware of ESG’s importance, leading to small-scale initiatives. As they integrate ESG into products and services, they gain a competitive edge. Plugge highlighted that true change happens when companies engage in pre-competitive collaboration—sharing resources, data, and insights to address common challenges. Leaders must model ethical behavior, promote open communication, and reward actions that reflect ESG values.

Ecosystem thinking also means institutionalizing ESG practices, embedding them into strategy, culture, and operations. By addressing behavioral challenges with accountability, training, and incentives, companies strengthen their internal practices and align with ESG goals, positioning themselves as resilient, forward-thinking players in a rapidly evolving landscape.

Muel Kaptein, Professor of Business Ethics and Integrity, highlighted the critical role of soft controls in aligning employee behavior with ESG goals. He introduced KPMG’s soft-controls model, which addresses the cultural gaps that often hinder ESG transformation. Even when organizations have strong intentions, they can face challenges in aligning employee actions with ESG objectives due to unclear guidance, low engagement, and a lack of accountability.

To bridge these gaps, Kaptein outlined the application of eight soft controls in the KPMG model. These include providing clear ESG expectations, promoting leadership role modeling, and creating an environment where employees feel comfortable discussing ESG dilemmas. Commitment and support for employees striving to meet ESG objectives are also key elements in this approach.

KPMG’s research into the Dutch workforce revealed that many employees feel disconnected from ESG initiatives. Only 39% reported that ESG goals were clearly defined, and just 36% felt engaged in these efforts. Transparency and enforcement were even more lacking, with only 24% perceiving transparency and only 14% believing their ESG contributions were linked to rewards or evaluations.

For organizations to embed ESG into their culture, soft controls must be effectively integrated. This involves promoting transparency, involving employees in decision-making, and offering support for ethical behavior. Prevention measures, such as clear communication and role modeling, provide the foundation, while detection mechanisms like transparency and open reporting ensure continued progress. Enforcement, linking ESG efforts to rewards, strengthens accountability.

By addressing these cultural gaps, organizations can better align employee behavior with ESG ambitions, shifting from a compliance mindset to driving meaningful, sustainable change.

Sander Klous, Professor of AI and Audit, closed the event by discussing how technology can enable the creation of ESG-compliant ecosystems. Klous highlighted that AI and other technological innovations are pivotal in streamlining ESG reporting and helping organizations manage complex, decentralized data networks. These technologies, Klous noted, enable companies to maintain compliance while collaborating across sectors without compromising privacy.

Klous also underscored that technology alone is not enough. He emphasized that successful ESG transformation requires more than just technical solutions—it requires a shift in culture, strategy, and governance. Klous explained that by embracing technological tools like federated learning and dataspace platforms, organizations can share ESG data securely and efficiently, fostering transparency and enabling collaboration at scale.

Ultimately, Klous argued that ESG-compliant ecosystems cannot function without cultural alignment and strategic focus. These efforts, supported by technology, must be backed by a commitment to long-term value creation and sustainable practices.

The event concluded with a collective call to action. Becoming a Green Swan—a resilient, forward-thinking organization that thrives by integrating sustainability into its core—is a challenging yet rewarding endeavor. The path to becoming a Green Swan requires more than just meeting regulatory requirements. It calls for a strategic, cultural, and technological transformation that embeds ESG principles into every facet of an organization’s operations.

Through collaboration, data-sharing models, and a focus on ethical leadership, businesses can move beyond compliance to drive meaningful, long-term sustainability. By embracing this transformation, organizations can not only enhance their resilience but also contribute to a better, more sustainable world.