ESG RADAR 2023

ESG REDEFINED:FROM COMPLIANCE
TO VALUE CREATION

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 1

Contents
Executive summary4

ESG is a moneymaker

6

Difficult path ahead

9

Spend money on ESG to make money

9

Overlooking the ‘S’ and ‘G’ in ESG hurts profits

11

Social pays off

14

ESG leadership must come from the top

15

Companies focus on the most obvious ESG efforts — but not always what’s best financially16

ESG underrepresented in the C-suite

18

Struggles with ‘S’ and ‘G’ impact

19

Supply chain hurdles on the horizon

20

ESG: The new backbone of business

21

Companies expect ESG to pay off in the future. But why wait?

23

1. Treat ESG as a value creator, instead of a cost center25

2. Customers are important but prioritize employees in ESG efforts

26

3. Embed ESG accountability in the leadership ranks to improve profits27

4. Transparency matters: Share ESG requirements and data throughout your supply chain

28

Appendix: Research approach

30

References

32

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 3

Executive summary

4 | ESG RADAR 2023

External Document © 2022 Infosys Limited

ESG goals are no longer nice to have: They arebusiness necessities. The value of ESG investment
assets is projected to reach $53 trillion by 2025,
one-third of global assets under management.1 To
tap into this growing pool of money, businesses
increasingly need to show investors that they have
low ESG risks. Concerns about greenwashing will alsopressure firms to prove their commitment to become
more responsible corporate citizens through internal
investments and metrics that back up their results.
However, companies often are uncertain about how
much to invest in ESG and where to focus their efforts.

Overlooking the ‘S’ and ‘G’ in ESG hurts
profits

These forces combine to encourage, or eveninsist, that companies act quickly to become more
responsible enterprises. If businesses don’t set ESG
priorities and act on them, they risk alienating theircustomers, investors, employees, or all of the above.
Companies also can’t afford to start initiatives thatmight drag down financial performance, particularly
as an economic downturn seems more likely. Bad
choices now can waste a company’s time and money,
and still leave them far from their ESG goals.

Companies focus on the most obvious
ESG efforts — but not always what’s
best financially

Pressure from the edges is pushing companies intoa mature middle, where traditional business interests
and ESG need to coincide and even amplify eachother. The Infosys Knowledge Institute’s ESG Radar
examines the changes companies are making — andmust make — to achieve their ESG goals, whether
that is to become a more responsible corporate
citizen or lower ESG risks.

ESG is a moneymaker
Our global survey of more than 2,500 businessexecutives and managers found that — contrary toclaims by some critics — spending on ESG correlateswith higher profits. Ninety percent say they had
moderate to significant returns, and none of thecompanies surveyed reported losses from their ESG
efforts. Even so, companies tend to focus more on
the brand benefits than on other financial outcomes
and are not investing enough on changes needed tomeet their ESG goals.

Companies focus their efforts mostly on the E, or
environmental, portion of ESG. This is no surprisesince many businesses have committed to carbon
neutrality, net zero, or at the very least, to substantiallyreduce their greenhouse gas emissions. These are
valuable initiatives, but our study found that a greater
focus on social and governance, such as having more
women on the board and restructuring leadership,correlates with better financial outcomes.

Firms have started to adjust their core business andencourage a greater focus on ESG throughout theworkforce. However, many of these commonsensechanges don’t seem to make a significant financial
impact. The companies with better profit growth
are the ones that place responsibility for ESG at thehighest levels and also diversify their board.

Recommendations: Companies expect
ESG to pay off in the future. But why
wait?
Businesses often think of ESG as a brand priority and along-term investment that will one day combine thebottom line and real-world impact. But companies
don’t need to wait: Short-term financial benefits areavailable now. The following actions can accelerate
more of ESG’s financial rewards.
1. Treat ESG as a value creator, instead of a costcenter.
2. Customers are important but prioritize employees
in ESG efforts.
3. Embed ESG accountability in the leadership ranks
to improve profits.
4. Transparency matters: Share ESG requirements anddata throughout your value chain.
To succeed and sustain, ESG initiatives must
eventually contribute to the bottom line. The rightstrategy now will allow businesses to reach that
financial tipping point sooner and with a greater
long-term payoff.

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 5

ESG is a moneymaker

6 | ESG RADAR 2023

External Document © 2022 Infosys Limited

The emphasis on various ESG priorities increased
dramatically during the pandemic as social issues
moved to the forefront and the world saw how
slowing economic activity reduced greenhousegas emissions.2 Simultaneously ESG investments
boomed — or at least held their own — as the global
economy struggled.

Figure 2. Beyond branding, ESG delivers
financially90%61%Now, the inevitable ESG blowback has arrived.
Prominent voices call ESG investing well-intentioned
but deeply flawed, and suggest that companies
should focus exclusively on the traditional bottom
line and deprioritize ESG, or at least some elementsof it.3 Despite this pushback, many customers andinvestors are still pressuring companies to embrace
ESG and integrate the principles into their enterprises.
Our study found that companies are motivated moreby how ESG initiatives affect their reputation, rather
than how these efforts will boost the bottom line
(Figure 1). Although the difference is narrow, it issurprising since financial benefits are the standard
driver of business decisions. Still, brand value certainlyoffers financial benefits to companies that are able
to cultivate and maintain a reputation for quality,
innovation, exclusivity, or even ethics. That might beenough for now since the current approach seems tobe effective, although not necessarily optimized.

Figure 1. Financial benefits are not ESG toppriority
30

Financial benefits

34

Impact36

Reputation

ESG motivations proportion (100 points)
Source: Infosys Knowledge Institute

It’s clear that a focus on ESG goals can boost returns:
90% of our respondents — from eight regions anda dozen industries — say their ESG initiatives haveproduced either moderate or significant returns(Figure 2). The remainder, 10%, say their efforts brokeeven. None reported losses from their ESG work,
which suggests that companies have adopted acareful, targeted strategy that prioritizes short- andmedium-term efforts with the most certain returns.
External Document © 2022 Infosys Limited

29%

10%
0%
Negative
returns

No noticeable
returns

Moderate
Significant
positive returns positive returns

Financial returns for ESG initiatives
Source: Infosys Knowledge Institute

Most companies surveyed realized positive financial
returns from their ESG efforts within a few years(Figure 3). The largest group (41%) report ESG returns
in a two- to three-year window. Fewer than one-third
say that it took longer to break even on their ESG
investments.
These timelines generally match what companies
expect from technology investments that support
their sustainability efforts. The book “Practical
Sustainability: Circular Commerce, Smarter Spaces
and Happier Humans,” written by Infosys executives
Jeff Kavanaugh and Corey Glickman, concluded thatbusiness leaders expect to see 25% annualized ROI
in three to five years.4 The payback is even faster on
facility retrofits that are intended to optimize energy
usage. For those projects, returns are possible in one
to two years.
The ROI also depends on the internal calculations.
If a sustainability project is intended to reducegreenhouse gas emissions, the math will vary greatly
since different companies price carbon differently.
The complexity of the calculations is also a factor.
Straightforward projects — ones dealing with energy,
water, and buildings — offer easy-to-measure dataand cost savings. Other models are more complicatedwhen they deal with ESG efforts that stretch
throughout the value chain.

ESG RADAR 2023 | 7

Figure 3. ESG initiatives deliver ROI within
3 years
66%
46%

Most of our respondents are confident that their ESG
efforts have a long-term positive impact on people,
planet, and profit — author and entrepreneur John
Elkington’s classic triple bottom line.7 The greatest
confidence was in the governance initiatives (81%).
Environmental and social efforts were both about
70% (Figure 4).

Figure 4. Companies are confident in theimpact of ESG initiatives

25%

81%

16%
8%

4%
< 1 year

1-2 years

2-3 years

3-5 years

68%

71%

5-10 years

Timeline for financial ESG returns
Source: Infosys Knowledge Institute

These positive financial results will please the C-suiteand stockholders. However, the returns are also
likely to generate some skepticism about the goal of
ESG efforts. Articles from Bloomberg and Harvard
Business Review have been critical of ESG investing
as a trend that offers financial windfalls but skimps on
the impact.5,6SocialEnvironmental

Governance

Highly confident in ESG initiatives' impact
Source: Infosys Knowledge Institute“The nature and scale of the challenges that we face are notgoing to be solved if we simply trade off. For example, the triple
bottom line is about economic, social, and environmental value
added. Very often people do run an equation which results in
one of those forms of value being suppressed or actually going
into reverse. We’re basically saying unless and until we canintegrate all of this into real world solutions, this is not going
to work.”
John Elkington
Co-founder and chief pollinator, Volans

8 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Difficult path ahead
It’s getting harder for companies to stand out fromthe crowd when it comes to corporate responsibility.
Businesses that promote their ESG credentials put
more pressure on their peers to do the same, which
creates a feedback loop. ESG starts as a differentiator
for many firms and then turns into an expectation:
the ceiling becomes the floor.
Businesses need to find new ESG strategies todifferentiate themselves from their competitors, as
George Serafeim of Harvard and Ioannis Ioannou of
the London Business School determined when they
analyzed 4,000 companies globally. Their findings
were that ESG practices “converged” from 2012 to2019.8
Also, despite the financial windfall from the ESG
investing boom, there are also medium- to long-term
threats ahead — many of them internal.9 Companies
risk derailing their financial progress through overly
conservative budgeting, especially as they brace for
economic tough times ahead.

Spend money on ESG to
make money
Our analysis found that a 10 percentage point
increase in ESG spending correlates with a 1
percentage point increase in profit growth. In otherwords, a company that currently spends 5% of its
budget on ESG could expect a 1 percentage point
profit increase if it were to increase ESG spending to15 percent. The relationship between ESG spending
and the bottom line is a complex one with many
interconnected factors that can influence revenue
and profits: customer loyalty, employee engagement,
cost of capital, cost savings, reputation, and risk
reduction.
Despite the clear link with profit growth, requests forbudget increases are likely to be an obstacle in thecurrent economy. Consistently high rates of inflation(a projected 8.8% globally this year) have backed
many companies against a wall.10 A Gartner survey ofchief financial officers found that companies wererunning out of room to raise prices.11 Firms wereinstead counting on cost reductions and automation
to close a growing financial gap.

Figure 5. Financial concerns hinder companies from starting ESG initiatives
Budget required is too much

84%

Uncertain about investment required

83%

Uncertain if there is an ROI

71%

Uncertain about ROI timeline70%

Do not have the right technology

63%

Senior management does not support

55%

Lack of standardized reporting or
measurement systems

48%

Poor change management47%
Respondents listing item as a top deterrent

Source: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 9

When asked to identify barriers to starting new ESG
initiatives, money was the dominant theme. These
executives and managers say that their most pressing
concerns include the size of the budget required, thetimeline for a return on investment (ROI), and questions
about even whether there is an ROI (Figure 5).
There are similar concerns about how lack ofinvestment will affect companies’ progress toward
existing ESG goals. A larger budget for ESG initiatives
is the third-most-important change needed toachieve these goals, according to respondents(Figure 6). Recent research, however, indicates that
ESG won’t be spared from spending cuts. A KPMG
survey of CEOs found that 59% plan to “pause orreconsider” their ESG efforts in the next six months.12

Figure 6. Companies need structural changes
and more budget to achieve ESG goals
Organizational structure

38%

Operating model

30%

Budget for ESG initiatives

28%

Business model

20%

More data on impactof ESG initiatives

19%

Marketplace changes

14%

Consumer behavior

10%

Develop partnerships
or consortiums

8%Company culture

6%

Technology innovations

6%

Standards from businessgroups, NGOs, or regulators

5%

Percentage of respondents ranking an item as a top 5
most significant change needed to achieve ESG goals
Source: Infosys Knowledge Institute10 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Overlooking the ‘S’ and ‘G’in ESG hurts profits

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 11

ESG features three important — and sometimes
overlapping — subjects. They are not always
prioritized equally.
The United Nation’s Paris Agreement and its
predecessors elevated the environment to the top ofmany corporate agendas. More than one-third of theworld’s largest publicly traded companies have netzero targets, and thousands more are taking steps toreduce their emissions.13,14
Our survey found that businesses now prioritize
environmental initiatives over “S” and “G” efforts —although only by a small amount (Figure 7). Social
was a slightly above average priority, potentiallya reflection of the greater emphasis on social
responsibility during the pandemic.15

Figure 7. Companies more often focus their
ESG efforts on the environment
36

Environmental

34

SocialCompanies are also more likely to trackenvironmental metrics, such as carbon footprint,
wastewater recycling, and water usage — althoughcybersecurity (governance and social) and training
by gender (social) were also frequently measured(Figure 8).16 Companies often find it easier to reacha consensus on the goals for environmental metrics,
particularly businesses that have committed to net
zero. In that case, the finish line is obvious. There isoften less agreement on setting optimal social andgovernance goals, even if some metrics are easy
to track.
There is no argument about the importance ofenvironmental efforts, particularly as we move toward
multiple climate change tipping points.17 Still, ourresearch found that there are costs to overlooking
the social and governance elements of ESG. A greater
focus on those two areas is correlated with better
financial outcomes, according to Infosys’s analysis.

30

Governance

ESG motivations proportion (100 points)
Source: Infosys Knowledge Institute“Diversity done right is not a routine compliance exercise thatdemands little more than ticking boxes. When you bring people
with different backgrounds and life experiences into yourdecision-making process, you get new and varied perspectives.
This helps you make smart choices, avoid costly missteps, andopen your enterprise to greater innovation.”
Mohit Joshi
President, Infosys

12 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Figure 8. Companies are more likely to track environmental metrics compared to ‘S’ and ‘G’
Wastewater recycling73%

Carbon footprint

70%

Training by gender

60%

Water use

60%

Cybersecurity incidents

59%

Percent of workforce trained on
cybersecurity policies

58%

Waste entering landfills

57%

Employee satisfaction

57%

Community investment

56%

Percent of workforce that is women

56%

Percent of accessibility compliant digital assets

54%

Annual confirmed corruption incidents

54%

Participation rate of employee
satisfaction surveys

53%

Percent of workforce trained onanti-corruption policies

53%

Employee resource group participation

52%

Employees trained or reskilled

51%

LGBTQIA+ inclusion

47%
ESG metrics tracked
Environmental

SocialGovernanceSource: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 13

Social pays off
Our analysis found that a pair of well-regardedsocial initiatives were correlated to better financial
performance. An increase in the number of women
on a company’s board and a greater employee
focus related to ESG efforts were linked to higher
profit growth.
Women are a minority on three-quarters of our
respondents’ boards, but those with a higher
proportion excelled financially. A 10 percentage point
increase in women on the board strongly correlateswith a 1 percentage point increase in profit growth.
Of those we surveyed, the average percentage ofwomen on the board of directors was 41% (Figure 9).
A more representative board is typically assumed tohave a greater diversity of ideas.

Figure 9. Women are underrepresented oncompany boards
Average proportion of men and women on the board
<1%
2%

34%
17%
6%
4%
7%
2%
Source: Infosys Knowledge Institute14 | ESG RADAR 2023

Percentage of respondents

21%

Our findings add another data point to what is alreadya mixed picture on this subject. A peer-reviewed 2017
meta-analysis by Katherine Klein, a management
professor at the University of Pennsylvania’s Wharton
School, found no correlation between women on
the board and financial outcomes.18 However, a 2021
academic study examined companies in the S&P
500’s information technology sector and found apositive correlation to price-to-earnings ratio, but notother financial metrics.19 And student research at the
University of Pennsylvania looked at women on theboards of Indian companies and found a positive
impact on return on invested capital.20
Among the companies surveyed by Infosys for ESG
Radar, the percentage of women on the boards washigher than what is found in other surveys. Recent
research from Moody’s Investors Service says theaverage for North American and European companies
is 29%, an increase from two years ago when it was
24%.21 This disparity suggests that these are more
ESG-focused companies in our sample, which could
have been a factor in our results.
Those numbers will inevitably increase in themedium-term. Various stakeholders are demanding amore balanced corporate board, whether its seeking
significant representation or ensuring that womenare not completely shut out. The European Union hasreached a provisional agreement to require women to
make up 40% of nonexecutive director positions andone-third of all board positions.22 And BlackRock andState Street shareholders have used their financial
might by voting against directors’ reelection when
the board is all male.23
Our analysis also indicates that companies report
greater profit increases when their ESG efforts are
motivated by how their employees view them, ascompared to reputation among customers and otherstakeholders. These benefits could be a result ofgreater success in recruitment and retention or better
engagement among employees.

External Document © 2022 Infosys Limited

ESG leadership must come from the top
Governance was rated as the lowest priority
among the companies we surveyed. One
telecommunications industry executive interviewed
for this report said: “Governance is an area that if
you do it well, no one notices. But if it goes wrong, it
poses the biggest reputational risk.”
Like social initiatives, governance also showed
great untapped financial benefits in our survey.
Companies perform better financially when they
have all the following: a chief diversity officer (CDO),
chief sustainability officer (CSO), ESG committee
on the board, and also when the CSO clears
capital expenditures. That correlates with about a2 percentage point increase in profit growth andrevenue growth. Anything short of that does not help
the bottom line.
This was one of the strongest correlations in our study
and one of the most significant financial impacts.
However, only about a quarter (27%) of the people
surveyed say their company has all four elements
in place.

Our survey data analysis also found that the C-suiteand the top executive ranks were the most neglectedareas for ESG (Figure 10). Just 19% of respondents
say their company ties executive compensation to
ESG goals. That was the least common organizationalchange we measured in the survey. The second least
common was the 30% who say their firms place
responsibility for ESG in the C-suite.

Figure 10. Organizational changes toenable ESG are focused everywhere but in
the C-suite
Board oversight of
ESG strategy

53%

Create ESG teams
enterprisewide

53%

ESG-focused
employee training

49%

Create ESG leaders or
champions network

45%

Set ESG targets forsome business units

41%

Set ESG targets forall business units

37%

Financial incentives for
employees or teams
to achieve ESG targets

34%

Place responsibility for
ESG in the C-suiteTie executive
compensation to
ESG metrics

30%
19%

Percentage of respondents whose company has madethese organizational changes to achieve ESG goals
Source: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 15

Companies focus on the mostobvious ESG efforts — but notalways what’s best financially

16 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Companies are taking ESG seriously by significantly
changing their core business and attempting tocreate a culture of corporate responsibility (Figure 11).
This burnishes their brand image, but a focus on
these changes doesn’t increase profit or revenue
growth. The changes that actually enhance thebottom line are those linked to C-suite accountability
and the diversity of the board, according toour analysis.

The four top changes companies made to meettheir ESG goals were all related to products andservices. More than half (56%) say their company haschanged its product design to extend lifespan orincrease circularity. That was the only change that amajority say they made. The other top actions wereintroducing new products with a greater positive ESG
impact (49%), changing product sourcing to reduce
societal impact (44%), and phasing out products orservices that have a negative ESG impact (42%).

Figure 11. Companies focus on product changes to help them reach ESG goals
Change product design to extend
lifespan and increase circularity

56%

Introduce new products withgreater positive ESG impact

49%

Change product sourcing to
reduce societal impact
Phase out products or services thathave negative ESG impact

42%

Select partners and vendors basedon ESG impact

40%

Acquire companies that innovatein ESG areas

40%

44%

Close or divest business operations that
do not comply with ESG guidelines

36%

Change how products generate
revenue or profits

36%

Change product sourcing to reduce
environmental impact

23%

Offer skills training to local communities

23%

Percentage of respondents whose company has made these changes to achieve ESG goals
Source: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 17

ESG underrepresented in the C-suite
Firms don’t plan to boost their ESG capabilities at thetop, despite the importance of leadership. This could
limit the financial benefits of their ESG initiatives.
A little more than half the companies we surveyedhave ESG roles in the C-suite: a small majority has
a CDO (59%) and an ESG committee on the board(57%). A narrow minority has a CSO (48%) (Figure 12).

It seems obvious that a strong ESG commitment incompany leadership will result in greater real-world
impact. Our analysis points to that commitment
also being one of the important keys to making ESG
initiatives contribute to the bottom line, rather thanjust being an element of corporate compliance withminimal investment.

Figure 12. ESG executive roles are common
but not universal“In the past, it would have been really hard to besustainable and financially viable,” an executive with amultinational financial institution told Infosys. “Now,
it’s more cost effective to have a social enterprise
where you are doing good and managing yourbusiness well. The financial benefits are key to ESG
and have often been overlooked.”

59%

57%
48%
32%
25%

Chief diversity
officer

ESG committee
on the board

Now

Plans to add in the future

29%

Chief sustainability
officer

An unwillingness to add more ESG roles andresponsibility to the leadership structure could haveserious consequences if our findings persist into the
future. The gap between the ESG haves and havenots could expand — leaving some companies
further behind and in danger of never catching up.

Figure 13. Companies plan to increase CSO
budgetary authority
68%
55%

Source: Infosys Knowledge Institute

These numbers seem unlikely to change significantly.
Among those who don’t have these organizational
elements in place, majorities say they have no plansto change their leadership structure. About two-thirds
say their company does not intend to create a board
ESG committee. A large majority (71%) do not plan tohire a CSO. And three-quarters do not intend to add a
CDO to their C-suite.
The boldest change is likely to come from thecompanies that already have a CSO. Few of those
executives (32%) clear their company’s capital
expenditures. About one-third plan to give their CSO
that responsibility in the future, which would elevatethe percentage to more than half of respondents
surveyed (Figure 13).

18 | ESG RADAR 2023

45%
32%

CSO clears capital
expenditures now
Yes

CSO clears capital
expenditures in the futureNo

Source: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

Struggles with ‘S’ and ‘G’ impact
Most businesses are not launching enough initiatives
focused on governance, and as such, are missingout on both the short-term and long-term benefits
that can flow from those. Firms have the greatest
confidence that their work on governance has along-term, real-world effect on people, planet, andprofit. However, there are fundamental absences intheir knowledge of important governance metrics,
such as gender, executive, and minority wage gaps
(Figure 14).
A small majority (57%) say they know their wage
gaps. These gaps are important elements in the social
portion of ESG and pose risks to reputation and theability to attract talent. Executives need to understandthe size of these gaps, dynamics that create them,and actions they might need to take.

Figure 14. Leaders are not fully aware ofminority, gender, and executive wage gaps

57%

43%

Awareness of company wage gaps
Yes

No

Source: Infosys Knowledge Institute

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 19

Supply chain hurdles on the horizon
A company’s ESG evolution must start with its own
employees, but it can’t stop there. Increasingly,
businesses want the supply chain to follow their lead:
40% say they select partners or vendors based on
ESG impact. A growing number of companies are
expected to account for their scope 3 greenhousegas emissions and the social conditions of theirpartners’ employees throughout the supply chain andvalue chain. In addition, only 1% say there is no effort
to align supply chain partners with the business’s
ESG goals.
However, finding these kinds of partners is often astruggle (Figure 15). Half the respondents say it isdifficult to find supply chain partners with good ESG
credentials, although when they do find one, thesepartners are likely (60%) to be cost effective. When
combining both factors, only 22% say these types ofpartners are both easy to find and cost effective. This
creates a tension between short-term finances andlong-term goals.

Figure 15. Difficulty of finding partners withstrong ESG credentials is higher hurdle than
cost
28%
22%

27%

Without those basic elements in place, companies
will struggle to fully achieve their ESG ambitions.
Other research has also found that companies have a
hard time understanding how to bring together their
supply chain and internal ESG goals. An EY surveyof executives found that companies have prioritizedsupply chain visibility, but only 37% are making
progress on that front.24

Figure 16. Companies are not sharing
ESG data within their supply chains often
enoughShare ESG expectations
or requirements
for suppliers

67%

Receive ESG datafrom those in the
supply chain

65%

Share our ESG datawith customers

58%

Renegotiate contracts
based on ESG datafrom those in the
supply chain

37%

Percentage of respondents whose company has takenthese actions to align supply chain with company ESG goals
Source: Infosys Knowledge Institute

10%

11%
1%

Not difficult
to identify
Cost-effective

Somewhat difficult
to identify

Very difficult
to identify

Not cost-effective

Source: Infosys Knowledge InstituteDespite these stated commitments, it’s clear thatmany businesses have not fully embedded their
ESG values into their supply chains (Figure 16). Only
two-thirds of respondents say their company sets ESG
expectations or requirements with their partners. Anda little more than half (58%) share ESG data with thosein the supply chain.

20 | ESG RADAR 2023

“Data-driven insights of yourend-to-end operations neededto achieve your sustainability
goals, and the associatedmetrics developed at thecorporate level, are essential
to make financial sense of yoursustainability decisions.”
Corey Glickman
Vice president, sustainability and design, Infosys

External Document © 2022 Infosys Limited

ESG: The new backbone of business

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 21

The survey results show a pragmatic and shortterm approach to ESG. Many have now plucked the
low-hanging fruit and have benefited financiallyfrom doing so. For many, reputation is the easiest
initiative to launch and can show results quickly.
Well-timed and well-coordinated marketing plans— when combined with clearly defined ESG efforts— can produce immediate benefits. This approachrequires less investment and doesn’t necessarily
demand massive changes to the organizational andbusiness models.

To adapt to this new environment, companies needto rethink where ESG fits within the enterprise.
Business consultants and thinkers have sounded thealarm for years about technology and employee silosand how they hamper the ability to compete andevolve. What companies need now is an integrated
approach to ESG, which at present often sits on the
periphery of the organization. For long-term success,executives won’t need to ask questions about ESG —they won’t even be separate initiatives. They will beembedded in the company.

This strategy has served companies well — for now.
Their ESG initiatives have mostly been profitable. Still,this approach is likely to be valuable only in the shortterm. The long-term expectation is that ESG efforts— particularly on the environmental side — will
become more ambitious. These initiatives will need togenerate significantly more revenue and profits andalso improve the quality of life — both for employees
and customers as well as the planet itself, whether it’s
greenhouse gas concentrations in the atmosphereor the health and welfare of workers. In that future,companies that don’t have a strong ESG focus will
struggle to stay afloat.

This kind of radical reinvention requires significant
change management — and not just in the core
workforce. This commitment to ESG must flowfrom and be led by the most senior executives in
the company. They are the ones who understandhow to deliver value and wield enough authority toempower change.
“S” and “G” are often hard to measure, and there is agreat deal of uncertainty about how to link thoseinitiatives to revenue or profits. An ESG-focused
executive with little authority over core operations
will struggle to succeed. Similarly, an executive
who is integrated in operations but doesn’t haveenough authority will likely fail. Only those with acomprehensive vision of the enterprise will be able toclearly see the path forward.

“Going forward, sustainability is the way to do business.
Organizations have to reorient their business models so that
ESG is completely integrated within. That is the only way tomaximize stakeholder returns.”
Nilanjan Roy
Chief financial officer, Infosys

22 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Companies expect ESG to pay
off in the future. But why wait?

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 23

Companies pursue ESG initiatives for many reasons:to keep pace with new, sustainable competitors; tolower the cost of capital; or because it’s central to thecompany’s identity. No matter the motivations, ESG
efforts are expected to add to the bottom line: shortterm, long-term, or both.
Financial returns are a lower motivation now, but they
will be much more important in the future, say the
executives and managers we surveyed (Figure 17).
This will be increasingly relevant as enterprises movefurther into areas where the financial benefits areless certain.

Figure 17. Financial benefits will
increasingly motivate companies’ long-term
ESG efforts
46%

40%

Businesses still have many changes they can makethat not only have immediate, real-world impact,
but can also offer short-term financial benefits. Thesechanges are incremental rather than a big bangapproach that reinvents the business model. This
both makes short-term sense and paves the runway
for long-term success, which will require more
dramatic changes. Action today can accelerate moreof ESG’s rewards.
1. Treat ESG as a value creator, instead of a costcenter.
2. Customers are important but prioritize
employees in ESG efforts.
3. Embed ESG accountability in the leadership
ranks to improve profits.
4. Transparency matters: Share ESG requirements
and data throughout your value chain.

34%
27%

Financial benefits

27% 26%

ImpactReputation

Percentage of respondents ranking element as top motivator
Top motivators in 2030

Top motivators in 2050

Source: Infosys Knowledge Institute24 | ESG RADAR 2023

External Document © 2022 Infosys Limited

1. Treat ESG as a value creator, instead of a cost center
ESG is maturing quickly, which creates risks thatbusinesses might fall behind their competitors.
When this bundle of ideas and initiatives emerged,organizations had to determine what ESG meant for
their enterprises and how to address each element.
This early implementation often leads to check-box
exercises and the view that their ESG initiatives
were defensive — keep your customers
from fleeing to more sustainable
competitors and satisfy regulators.
Now, ESG is moving into
an offensive era — one
that goes beyond justcharging a premium for
more sustainable products.
Infosys’s research determinedthat companies received
greater financial benefits
as they spent more on ESG(a 1 percentage point boost
in profit growth in return for a
10 percentage point increase in
spending). Previous Infosys research has
also found positive connections between
ESG and financial performance. The 2022 Digital
Radar determined that companies that have a strong
ESG commitment also make more effective use of
their technology, which was a proxy for profitability.25
There is nothing novel about the idea that you haveto spend money to make money. However, many
companies are not applying that strategy to ESG as
they would to other parts of their business. Too many
companies instead treat ESG efforts as somethingthat is needed but not necessarily wanted.

External Document © 2022 Infosys Limited

One main concern is that a lack of financial
commitment will keep their companies fromreaching their ESG goals, our research has found.
The top deterrents — cited by at least seven out of
10 — were related to either spending or executive
concerns about short-term financial benefits. Thoseranked higher than other high-profile hurdles,
such as change management, anabsence of standardized reportingand measurement, and a lack of
the right technology.
This hesitancy about how
much to invest — and what
to expect from returns — ispresent despite companies
making money on theircurrent ESG initiatives. These
early forays into creating
more sustainable products aregood enough now but maybe
not for long.
The global economy is inching
toward a circular model that keeps
products and materials in the economy as longas possible.26 This shift requires significant investment
to create a system where money is made by keeping
goods out of the landfill rather than seeing discarded
products as another sales opportunity.
A lack of commitment and direction won’t necessarilystop companies from pursuing ESG initiatives oreven creating some level of impact. But that lack ofcommitment will reduce the scale of the impact on
the bottom line and on people.

ESG RADAR 2023 | 25

2. Customers are important but prioritize employees in
ESG efforts
Companies should look at ESG initiatives as a newfront in the war for talent as the traditional focus on
customers shifts to employees. The combinationof low unemployment rates and skills gaps mademany executives reevaluate which stakeholders toprioritize. Our research backs up the wisdom of thattrend. Analysis of reported financial data andcompany priorities determined thatbusinesses that concentrate their
ESG initiatives on employees —more often than on customers— have higher profit growth.
However, that data showedthat companies prioritize
customers and employees
almost equally, withcustomers only slightly
ahead (29% vs 28%).
Workers want their employers
to be more ESG-focused,
whether it’s addressing climatechange or increasing diversity. A
Deloitte survey of millennials and
Gen Z workers found that nearly half madechoices about jobs and companies based on issues
such as climate change, systemic racism, and wealthinequality.27 In a report from Adobe, nearly onethird of employees say they would only work for an
employer that prioritizes sustainability.28
A commitment to ESG can not only attract talent
but keep them engaged and increase retention. The
cost of voluntary turnover has been estimated at
25% to 200% of the cost of each employee’s salary.29
A recent academic study also looked at the impactof turnover on product failure rates at a Chinese
manufacturer.30 That research concluded that each

26 | ESG RADAR 2023

percentage point increase in weekly turnover rateincreased the product failure rate by 0.74% to 0.79%.
Christopher Marquis, professor of Sustainable Global
Enterprise and Management at Cornell University,
has researched the B Corp movement and found that
their status can boost the bottom line and reduce
costs.31 In a discussion on the Knowledge
Institute’s podcast, Marquis said thatthe strongest evidence is for costsavings that come through talentretention.
Marquis said that the headof a B Corp once explained
to him that “I never have tolook for people. I don’t haveto think about that because
everyone stays. And when I
grow, I’ve got a line of people
out the door waiting to comework for me.”
The point of attracting and keeping
the right talent is the effect that it
has on the business overall. The workforce
drives innovation, understands customer needs,
reflects a company’s core values, and executes theC-suite’s vision. And when sufficiently motivated, theworkforce can elevate every initiative.
One example of ESG-centric efforts is the use ofinclusive design.32 This approach can lead to thecreation of new, innovative products and thedevelopment of previously untapped markets.
Although focused on the needs of potential
customers, inclusive design is most likely to succeed
with a diverse workforce that can see opportunities inmarkets that had been ignored.

External Document © 2022 Infosys Limited

3. Embed ESG accountability in the leadership ranks to
improve profits
Executive compensation is one of the most common
ways to steer a company. The structure of salary
packages can incentivize profits, revenue, growth,or higher stock prices — and prioritize short-term
versus long-term goals. This strategy is wellunderstood and ubiquitous. However, it
is not yet commonly applied to ESG
initiatives or goals. Just 19% of our
respondents say their company
ties executive compensation to
ESG metrics.
The time for half-measures
is over. Formally embedding
ESG into the C-suiteand on the board is aneffective way to improvefinancial outcomes. The best
performers create ESG-centric
positions at the top of theleadership structure and also givesome of them budgetary authority.
Lesser changes are not correlated with
better financial performance, which suggests that
it is time to make bold organizational moves.
The current approach of assigning ESG andsustainability functions to legal or other departments
rather than the C-suite risks making ESG a complianceissue rather than a business opportunity. A 2020
survey by the Society for Corporate Governancefound that fewer than one-fifth of the companies

External Document © 2022 Infosys Limited

made their CEO responsible for sustainability
initiatives — a smaller percentage than those thatsaid they have no ESG or sustainability function.33
Instead of moving responsibility to those at thehighest levels, businesses mostly have spreadawareness of the importance of ESG
throughout the rest of the workforce.
About half created ESG teams at alllevels, offer ESG-focused training,and created ESG leaders or“champions” throughout theenterprise.
These broad changes aretime consuming and higheffort. But it’s unclear how
strong the impact will be
if top leadership is not juston board but also properly
incentivized to value ESG factors.
That’s not to say that executives
are not feeling an ESG squeeze. Morethan half of respondents say their company
has board oversight of ESG strategy, which bringspressure from above. Simultaneously, employees
and potential employees demand that companies
prioritize ESG issues, whether its social equity or
carbon emissions.
Even with these demands, the C-suite will continue toprioritize its own portfolios and follow the incentives.

ESG RADAR 2023 | 27

4. Transparency matters: Share ESG requirements anddata throughout your supply chain
Enterprises have strived to build a culture ofsustainability and to better serve customers who
insist that businesses act more ethically. It is necessary
to get your house in order but not sufficient toachieve ESG’s grandest promises. Companies must
look externally at how their business affects
people throughout the supply chain
and share that knowledge.
Greenhouse gas emissions,human rights abuses, andenvironmental degradation
are all risks for the climate,company reputation, andindividual lives. Thoserisks are often masked oreven invisible due to thecomplexity of supply chains,particularly in the lower tiers.34
Our research found that almost
all companies are interested inaligning their ESG goals with the supply
chain, but there has been limited action. At
least one-third of companies surveyed are not doing
the most basic work — sharing expectations andrequirements — to align the supply chain and their
ESG goals. Even fewer (37%) say they renegotiate
contracts based on ESG data from those in the supply
chain. This shows a need for more leadership in the
supply chain and incentives to share their ESG data,
whether it’s meeting new contract requirements or
making themselves more appealing to others in the
supply chain.
This basic disconnect suggests that companies havebroad goals but don’t know how to achieve them— or in some cases, don’t even know where to start.
The first steps in almost any process are collecting
and analyzing the available data. In this instance, data
is limited. About one-third of respondents say they
don’t receive ESG data from those in the supply chain.
And more than four in 10 (42%) do not share ESG
data with customers.

28 | ESG RADAR 2023

All our research and experience points toward aneed to accelerate data sharing in all areas of theenterprise and value chain. The days of passing thebuck are numbered, particularly when it comes toclimate change.
Stakeholders are pressuring companies
to disclose their scope 3 greenhousegas emissions, which include thesupply chain and customers.35
These account for an averageof 75% of a company’s total
emissions but are usually themost difficult to measure andcontrol.
The International
Sustainability Standards
Board intends to include
scope 3 emissions in the
new standards that it isdeveloping, although it might givecompanies more time to comply.36 The
organization’s current standards are alreadyused in 140 jurisdictions worldwide, so these changes
can have a global reach. The US Securities andExchange Commission is developing similar rules andhas strong support from investors that collectively
own or manage more than $50 trillion in assets.37
To fully achieve their ESG goals in all areas, companies
need help from outside experts. Our research foundthat firms that seek ESG assistance from nonprofits
have better financial outcomes. However, just 26% of
the respondents say their company consulted with
nonprofits on ESG issues (Figure 18).
The use of certain organizations can also lead tobetter financial performance: The companies that
pledge to CDP or the Global Reporting Initiative(GRI) are more likely to have increased profit growthcompared to their peers. Those that pledge to follow
the UN SDGs also report an increase in profit growth,
but the amount is about half that of CDP or GRI.

External Document © 2022 Infosys LimitedIn many cases, working with a nonprofit is asignal that a company is sincere about its desire
to take strong action and a willingness to be held
accountable. This poses risks that a business mightfall short in a more public way but a chance that
ESG efforts are more effective and more credible
to stakeholders.

Figure 18. Companies seek ESG help in many places
Business partners

74%

Reporting agencies

56%

Suppliers

50%

Consulting firms

44%
41%

Customers
Nonprofits

26%

Percentage of respondents whose company has requested ESG advice from these third parties
Source: Infosys Knowledge Institute“Transparency is key to ensuring meaningful insights
and measuring real progress on ESG efforts to build asustainable world.”
Aruna C. Newton
Vice president of ESG governance and reporting, Infosys

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 29

Appendix: Research approach
Infosys commissioned an independent third-party
survey of 2,565 executives and managers. In addition
to questions about ESG initiatives, we asked survey
respondents for financial details including revenue
range and yearly revenue and profit growth rates.
The survey was conducted from July to September
2022. It included respondents from companies
with more than $500 million in annual revenue
in the United States, United Kingdom, Australia,
New Zealand, France, Germany, the Nordics, India,
and China.

We identified and analyzed a large set of actions
that could affect profit and revenue change related
to companies’ approaches to ESG. We then set basecases and found — via linear regression — actions
that showed evidence of a statistically significant
correlation with profit or revenue growth.

Industry

Energy, mining,or utilities
222

Financialservices
220

High tech
220

Insurance
220

Telecom
212

Logistics or
supply chain
211

30 | ESG RADAR 2023

Consumerpackaged
goods (CPG)
217

Life sciences
208

Automotive
207

Job function
Information
technology
Healthcare
213

Retail208

Manufacturing
207

597

Operations or
supply chain

358

Sustainability

356

Human resources

353

Sales ormarketing

322

Accounting
or finance

312

Research anddevelopment

267

External Document © 2022 Infosys Limited

Country

Nordics

5%

United Kingdom

17%

United States

France34%

Germany

11%

11%

China

4%

India

4%

Australia and
New Zealand

15%

Annual revenue

External Document © 2022 Infosys Limited

23%

25%

$500 million
to $999
million$1 billion
to $3 billion

30%
23%

$3 billion
to $5 billion>$5 billion

ESG RADAR 2023 | 31

References
1. ESG assets may hit $53 trillion by 2025, a third of global AUM, Adeline Diab and Gina Martin Adams, February 23, 2021, Bloomberg.
2. Emission reductions from pandemic had unexpected effects on atmosphere, November 9, 2021, Jet Propulsion Laboratory.
3. ESG should be boiled down to one simple measure: emissions, July 21, 2022, The Economist.
4. The practical guide to unlocking the $2.5 trillion business boom, 2022, Infosys Knowledge Institute.
5. The ESG mirage, Cam Simpson, Akshat Rathi, and Saijel Kishan, December 10, 2021, Bloomberg.
6. ESG investing isn’t designed to save the planet, Kenneth P. Pucker and Andrew King, August 1, 2022, Harvard Business Review.
7. John Elkington on the emergent future of sustainability, August 20, 2020, Infosys Knowledge Institute.
8. Social-impact efforts that create real value, George Serafeim, September-October 2020, Harvard Business Review.
9. The case for ESG investing as flows boom in 2022, April 14, 2022, Nasdaq.
10. Countering the cost-of-living crisis, October 2022, International Monetary Fund.
11. Gartner survey shows significant rise in number of CFOs planning cost cuts due to inflation, May 19, 2022, Gartner.
12. KPMG 2022 U.S. CEO Outlook, 2022, KPMG.
13. Net Zero Stocktake 2022, June 13, 2022, Net Zero Tracker.
14. Science Based Targets.
15. Corporate social responsibility: business responses to coronavirus (COVID-19) pandemic, Appel Mahmud, Donghong Ding, and Md.
Morshadul Hasan, January 22, 2021, SAGE Open.
16. Cybersecurity is an environmental, social and governance issue. Here’s why, Anna Sarnek and Cristina Dolan, March 1, 2022, World
Economic Forum.
17. Exceeding 1.5°C global warming could trigger multiple climate tipping points, David I. Armstrong McKay, Arie Staal, Jesse F. Abrams, etal., September 9, 2022, Science.
18. Does gender diversity on boards really boost company performance?, May 18, 2017, Katherine Klein, Knowledge at Wharton.
19. Does board gender diversity affect firm performance? Empirical evidence from Standard & Poor’s 500 information technology sector,
Liliana Nicoleta Simionescu, Ştefan Cristian Gherghina, Hiba Tawil, et al., July 1, 2021, Financial Innovation.
20. Do women on corporate boards impact financial performance? A study of Indian firms, Stephanie Wu, 2022, University of Pennsylvania.
21. More women in the boardroom could drive higher credit ratings and stock returns for firms — they still hold just 29% of seats, Yun Li,
March 11, 2022, CNBC.
22. EU breaks deadlock to improve representation of women on boards, Susannah Donaldson, July 5, 2022, Pinsent Mason.
23. The Big Three and board gender diversity: The effectiveness of shareholder voice, Todd A. Gormley, Vishal Gupta, and Sandra Mortal,
December 30, 2020, Harvard Law School Forum on Corporate Governance.
24. How sustainable supply chains are driving business transformation, Rae-Anne Alves and Glenn Steinberg, September 20, 2022, EY.
25. Digital Radar 2022, Jeff Kavanaugh, Chad Watt, and Nikki Seifert, 2022, Infosys Knowledge Institute.
26. What is a circular economy?, United States Environmental Protection Agency.
27. A call for accountability and action: A Deloitte Global 2021 millennial and Gen Z survey, 2021.
28. U.S. enterprise worker survey shows sustainability at work trends and forecast, August 30, 2022, Adobe.
29. Human Resources Management, 2011, University of Minnesota Libraries.
30. Employee turnover costs more than you think, Angie Basiouny, August 2, 2022, Knowledge at Wharton.
31. Christopher Marquis on B Corp movement, October 2, 2020, Infosys Knowledge Institute.
32. Inclusive design: Diverse voices lead to products that work for everyone, Kurt Schafer, Madeleine Roberts, and Jeff Mosier, September
27, 2022, Infosys Knowledge Institute.
33. ESG governance: Board and management roles & responsibilities, Jurgita Ashley and Randi Val Morrison, November 10, 2021, Harvard
Law School Forum on Corporate Governance.
34. A more sustainable supply chain, Verónica H. Villena and Dennis A. Gioia, March-April 2020, Harvard Business Review.
35. CDP technical note: Relevance of scope 3 categories by sector, April 11, 2022, CDP.
36. IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of
prototype disclosure requirements, November 3, 2021, IFRS.
37. Analysis shows that investors strongly support the SEC’s proposed climate disclosure rule, Steven M. Rothstein, October 11, 2022, Ceres.

32 | ESG RADAR 2023

External Document © 2022 Infosys Limited

Authors
Jeff Mosier | Infosys Knowledge Institute, Dallas

Jeff Kavanaugh | Infosys Knowledge Institute, Dallas

Analysis and Production
Isaac LaBauve | Infosys Knowledge Institute, Dallas
Dylan Cosper | Infosys Knowledge Institute, Dallas

External Document © 2022 Infosys Limited

ESG RADAR 2023 | 33

About Infosys Knowledge Institute
The Infosys Knowledge Institute helps industry leaders develop a deeper understanding of business and technology
trends through compelling thought leadership. Our researchers and subject matter experts provide a fact base that aids
decision making on critical business and technology issues.
To view our research, visit Infosys Knowledge Institute at infosys.com/IKI or email us at iki@infosys.com.

34 | ESG RADAR 2023

External Document © 2022 Infosys Limited

For more information, contact askus@infosys.com© 2022 Infosys Limited, Bengaluru, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys
acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither thisdocumentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without theprior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.

Infosys.com | NYSE : INFY

Stay Connected