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      In recent years the ESG landscape has rapidly evolved, and become increasingly complex.

      Firms have set ambitious and wide-reaching targets, with commitments to net zero, phase outs of high emitting sectors and headline grabbing numbers for sustainable finance and investments. More recently, the political climate in the US has been less focused on ESG, and in the EU we have seen a delay and reduction in reporting obligations.

      To plot the way forward, focusing on value creation opportunities and initiatives, necessitates a need for completely new lenses across how firms perform their end-to-end strategic execution and client engagement. To meet stated public targets requires deep technical understanding, a huge data collection exercise, and transparency over every operation.

      In the initial sustainability surge and race for talent, firms hired rapidly across the business and risk functions in order to jump start their programmes and supercharge capability to keep pace with peers and stakeholder expectations. Central ESG functions – acting as centres of excellence and SME hubs – were also stood up, some with C-suite level representation. However, as the dust has settled, a number of challenges have come to light with the current centralised model, which present opportunities for streamlining and cost reduction.

      Richard Andrews
      Richard Andrews

      Head of Environmental, Social and Governance (ESG)

      KPMG in the UK

      keith-thompson
      Keith Thompson

      Director - ESG

      KPMG in the UK

      We have observed:

      • Confusion and duplication in roles and responsibilities in setting strategy, defining sustainability policy and ownership of progress vs. commitments.

      • Sustainability specialists sitting in three different areas (business, Risk, central team) with overlapping coverage.

      • Absence of clarity in how best to drive collaborative performance metrics and remuneration for functions around sustainability.

      • Technical expertise sitting in siloes and not being used across the whole organisation.

      • Activity organically occurring in individual areas (e.g., data, models, client offers) rather than a considered decision as to where this would best sit leading to counter activities and duplications.

      • Wraparound change programmes stood up to manage the runaway train of sustainability-related activities.

      • The emergence of a further function (Finance) becoming a central part of sustainability initiatives and accountabilities.

      What does success look like?

      Any model must encompass various activity areas – target setting, transition planning, reporting, data sources and architecture, capability build and L&D, risk management and opportunity identification being foremost. This means connectivity with Risk, Finance and Commercial departments, which can be difficult when sustainability functions sit largely on the side and trying to lean in.

      A successful operating model will embed sustainability across the whole business and into business strategy. It will:

      • Set out clear accountabilities so that focus is on the key deliverables that are needed to meet the ESG strategy. This avoids the side projects and interest projects that often arise.

      • Incentivise the right behaviours – ensuring that renumeration at executive and managerial level is at best aligned, and at worst, not counter, to the ESG strategy.

      • Avoid duplication of effort and coverage, making ESG an efficient operation.

      • Build for the organisation, not individual functions – galvanising across the whole company, which reduces risk of adverse decisions made in silos, and reduce pet projects.

      • Retain deep technical expertise in carbon, and more recently nature metrics, to fully understand the impacts of emerging trends.

      • Ensure delivery of targets across every business function.

      How to achieve this?

      We are seeing a move towards decentralisation, that will only continue. However deciding what to decentralise, when and where is key to success. Although ‘one size’ does not fit all- the following is a good start in answering what good looks like.

      Table 1: Our observations and recommendations around ESG operating models.

      Central roles:

       

      Central ESG Team
       

      Observation: Sitting centrally, often hard to leverage and make impact.

      Recommendation: A reduced central function, with most experts moving across to other functions. Those retained are deep experts, not necessarily in finance, but in climate, nature and other emerging topics.

      • cross-business resource of deep technical expertise on climate
      • expertise on nature, gradually moving out to sit in BU’s horizon scanning and incubation of new issues – e.g.: just transition, health.

      Location: Putting the CoE into the central strategy function of the business is a good way to ensure co-ordination with the company objectives.

       

      ESG Controller
       

      Observation: A new role of ESG controller who looks across risk, finance and sustainability. 

      Recommendation: This role works well to reduce duplication across teams. It ensures joined up thinking and actions across an organisation. This is particularly helpful in supporting governance - ensuring the Board does not see papers written in siloes, and also in identifying opportunities for value creation.

       Location: This role can sit either in the Central ESG team or COO Office

       
      Finance
       

      Observation: - Reporting increasingly moving to Finance,

      Recommendation: Clarify responsibilities, with finance having responsibility for reporting and transition planning straddling the CoE and the finance teams.


      Risk
       

      Observation: Risk rapidly having to upskill in many different areas of sustainability, creating new specialised tools and capabilities to be fit for purpose

      Recommendation: To support risk oversight relocate some Sustainability colleagues into Risk 

       

      Legal
       

      Observation: Institutions seeking third party legal support on ESG disclosures and sustainable finance due to both tie and knowledge constraints

      Recommendation: Employ lawyer with a specialism in ESG within the legal team


      Data
       

      Observation: Data systems immature and not robust

      Recommendation: Central data transformation team to coordinate ESG data across all requirements.

       

      Business Units

       

      Observation: Confusion and duplication with central team activity.

      Recommendation: Clarify responsibilities- of setting and delivering on targets. Resource and upskill these teams to deliver by relocating Sustainability SMEs into sector focused business team. This enables them to provide client insights, support RMs and to drive financing opportunities.


      Regulation

       

      Observation: Duplication through central ESG regulatory team overseeing interoperability of global requirements both for the requirements (including disclosures) and timing.

      Recommendation: Local Heads of Sustainability accountable for relationship with local regulators.


      Corporate affairs
       

      Observation: Close co-ordination needed to ensure greenwashing is not occurring.

      Recommendations: Employ Sustainability communications experts- sitting in comms teams, and responsible for ensuring greenwashing is not occurring. 

      How can KPMG help?

      We can help you develop the correct model to streamline and focus how sustainability is delivered within your business, adding to business value and reducing costs of operation, whilst meeting obligations.

      • We have analysed different approaches taken across the banking sector.
      • We have seen what works and what doesn’t.
      • We have experience of solving for different organisations.
      • We have organisational design expertise combined with sustainability know-how.

      What we can do for you:

      Using our insight and experience we can support you on either solving for one particular work stream, such as data or reporting, or to develop an overarching target operating model. Our approach covers:

      • Creating a Sustainability RACI for the organisation – both current and future state. This should allow for immediate efficiency savings where duplication is identified and repositioning of roles where activities are identified as being performed outside of the designated function.

      • Reviewing what are the ultimate sustainability success factors, KPIs and incentives being used for the core four functions (CoE, Risk, Business Units, Finance) to understand whether these are harmonised to achieve organisation-wide goals.

      • Developing a roadmap for transitioning CoE roles into the business in the mid-to-long term, specifically which roles and when.

      • Engaging senior leadership to ensure support or buy-in of the operating model.

      Our Sustainability Insights

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