September 14, 2023 – Business leaders report ESG engagement is delivering financial value across M&A, customer engagement, and investor relations and they expect that to increase in the next two to five years. However, leaders also report their companies are taking diverging approaches with some leading, most keeping pace, and others focusing solely on compliance, according to a new survey from KPMG LLP, the U.S. audit, tax and advisory firm.
Behind this effort to connect ESG to financial value, leaders report that they are feeling the most pressure to be transparent about their ESG strategies from their supply chain stakeholders in addition to mounting pressure from investors, customers and government regulators. And while more than half are at least somewhat confident in meeting U.S. reporting requirements, internal barriers to strategy execution remain.
“These results underscore that ESG provides businesses with a clear opportunity to differentiate themselves and gain a competitive edge,” said KPMG U.S. ESG Leader Rob Fisher. “We found businesses see many levers by which ESG can drive financial value, but that also drives complexity for organizing a cohesive, well-understood strategy that can overcome some very real challenges businesses are facing today.”
ESG Presents a Differentiating Opportunity as Companies Balance Competing Priorities
“While business leaders continue to report significant demands from customers, talent, regulators and investors to engage on ESG, engagement varies as businesses try to balance short- and long-term pressures and other competing priorities, creating a real opportunity for differentiation,” said Fisher.
The 2022 KPMG CEO Outlook found that despite 70% of U.S. CEOs indicating that ESG had made a positive impact on financial performance, 59% indicated they were pausing or reconsidering their organization’s ESG efforts in light of economic uncertainty. However, the KPMG study released today found that 55% of business leaders ultimately scaled up their ESG efforts within their organizations this year, despite economic uncertainty, while 26% scaled back.
This latest survey further underscored the importance of ESG to M&A efficacy with 41% believing it has significant financial value today. This echoes KPMG’s recent ESG Due Diligence Survey, which found that material findings from ESG due diligence led to deal cancellations and price reductions, with 59% of corporate investors indicating that a deal of theirs had been canceled due to a material ESG finding.
Self-Reinforcing Risks Demand a Clear Strategy
Many of the risks cited in this survey can become self-reinforcing posing a near-term risk with longer-term consequences. For example, the top barriers cited to achieving one’s ESG strategy include distraction due to other more pressing business matters (40%), failure to attract/retain top talent (40%) and a perception of falling behind competitors (39%).
“ESG’s wide-ranging impacts and levers make it an incredibly unique coordination challenge for leaders,” added Fisher. “The risk of falling behind can compound, turning today’s headache into a long-term struggle as competitors pull away. The upcoming reporting requirements should ignite urgency to align one’s reporting with strategy today.”
KPMG surveyed a sample of approximately 200 business leaders at companies with more than $1B in revenue. The sample included both public and private companies, the majority of which are headquartered in North America, and many of which will report on ESG factors in multiple jurisdictions. Companies ranged in size from approximately 500 to 10,000+ employees.
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