How do CEOs view ESG? – Corporate governance

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KPMG recently released its CEO Outlook 2022. As inflation rages and a possible recession looms, KPMG found that CEOs were “ready and prepared to meet today’s geopolitical and economic challenges while anticipating long-term global growth.” According to the survey, confidence in economic growth over the next three years has risen to 71%. Of particular interest are the survey results related to ESG. According to KPMG, “ESG has gone from a nice thing to have to a long-term financial success.” But will a potential recession dampen their enthusiasm?

KPMG surveyed 1,325 global CEOs in 11 markets between July 12 and August 24, 2022. All respondents had annual revenue greater than $500 million and a third of companies surveyed had annual revenue greater than at $10 billion.

The survey showed that CEOs valued the positive effects of ESG initiatives, in particular “ESG’s impact on improving financial performance, driving growth and meeting stakeholder expectations”. According to KPMG, 45% of CEOs agreed that ESG programs improve financial performance, up from 37% last year. When asked about the “greatest impact” of “business purpose” over the next 3 years, 73% of CEOs identified “the driver of financial performance” first. Additionally, KPMG said that CEOs “increasingly understand that companies that embrace ESG are best able to secure talent, strengthen the employee value proposition, attract loyal customers and raise capital”. According to the survey, 69% of CEOs reported a significant increase in stakeholder demand for ESG reporting and transparency, 72% believed stakeholder scrutiny of ESG would continue to accelerate , and 17% reported an increase in “stakeholder skepticism about greenwashing.”

KPMG found that 62% of CEOs said they plan to invest at least 6% of their income in programs that help their organizations become more sustainable. Among the main drivers of ESG strategies, CEOs identified “proactivity on social issues (34%), more transparency (26%), FDI strategy (21%) and net-zero strategy (19%)” . In terms of the negative impact of a possible failure to meet ESG expectations, CEOs identified funding challenges (25%), recruitment issues (22%), loss of competitive advantage (21%), a threat to retention (17%), employee disengagement (10%) and loss of customers (5%).

The survey showed that the top five challenges identified by CEOs to implement an ESG strategy over the next three years were the effect of other pressing business/economic issues that would cause the company to shift away from ESG. ESG (17%), increased or frequently changing regulations (16%), lack of budget to invest in ESG transformation (15%), lack of the technology needed to effectively measure and track ESG initiatives ( 14%) and identification and measurement of agreed parameters (14%).

That being said, as CEOs recognize the importance of ESG programs, will financial pressures resulting from possible adverse economic conditions have an impact? According to KPMG’s global head of corporate affairs, as “CEOs take steps to protect their businesses from a coming recession, ESG efforts are coming under increasing financial pressure.” In the face of a potential downturn, KPMG found indications that “ESG progress is suffering, following the trend of CEOs reassessing initiatives in many areas of the business (e.g., transformation and staffing). As economic uncertainty persists, 50% are pausing or reconsidering their existing or planned ESG efforts over the next 6 months, and 34% have already done so.”

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