ESG tops operational priority list for Canadian CEOs, KPMG reports

Despite potential environmental, social and governance (ESG)-related headwinds globally, increasing extreme weather, emerging regulations, disruptive technology and changing consumer perspectives, have pushed sustainability to the top of many corporate agendas, finds KPMG's 2024 CEO Outlook.

A new report from KPMG in Canada reveals how advancing ESG and sustainability actions is not just about compliance; it’s about ensuring long-term resilience and value creation. Canadian CEOs are faced with numerous ESG risks and opportunities that require immediate attention to effectively navigate this complex and evolving sustainability landscape. According to the survey, 55 per cent of CEOs in Canada say it’s possible to address all ESG priorities concurrently.

"The demands on Canadian CEOs are substantial, with leaders under pressure to tackle issues such as climate risk, decarbonization and ethical supply chains. The operational, logistical, financial, and now legal complexities of sustainability call on the entire C-suite to work together to embed ESG across the organization.” says Doron Telem, Partner and National ESG Leader, KPMG in Canada.

• 29 per cent of Canadian CEOs cite ESG as the primary operational focus, more than twofold compared to their global peers (13 per cent)
• 78 per cent identified regulatory and reporting obligations as the primary reason for prioritizing ESG
• 53 per cent believe their sustainability claims can withstand scrutiny, up from 29 per cent a year ago
• 75 per cent expect it will take at least three years to see substantial returns on their ESG investments
• 63 per cent say they are still struggling to fully embed ESG into their business as a means of value creation

The dramatic rise in ESG's critical importance for CEOs in Canada can be attributed to several factors, notably, the heightened focus on regulatory and reporting considerations. The biggest development in legislation is the Bill C-59 provisions announced earlier this year, which aim to prevent greenwashing and protect consumers from misleading sustainability claims. This landmark legislation has added substantial weight to the sustainability agenda, compelling companies to ensure their environmental and social claims are verified to avoid significant financial and reputational risks.

Despite 53 per cent of CEOs believing their sustainability claims can withstand scrutiny (compared to 29 per cent in 2023), many companies may be questioning their ability to substantiate claims like carbon-neutral, environmentally friendly, or ethically sourced. More Canadian CEOs are engaging their Chief Sustainability Officers (CSOs) to embed ESG into core organizational strategies.

KPMG data reveals that 62 per cent of Canadian CSOs and other heads of sustainability say their organization has adopted a strategic approach to ESG, yet have flagged several barriers that hinder the effective execution of ESG initiatives:¹

More than half of CSOs highlighted identified nine out of the ten barriers listed (above) in the survey, reflecting that each issue is critical and interconnected. This systemic aspect of each barrier can make it challenging to prioritize and decide how companies should tackle each problem.

Mr. Telem notes, “Although regulatory pressures are pushing ESG to the forefront, corporations realize that resilience and risk management are in fact at the core. Management teams are coming together to analyze the ESG factors that need to be addressed in the short and long run. They are also refining the ROI calculations to take into account more data on risk impacts, innovative technologies and financing options.”

Addressing ESG challenges requires a robust strategy to allocate capital toward acquiring the right resources, expertise, data, and technology necessary for implementing long-term sustainable initiatives. To effectively implement an ESG strategy that truly does go beyond compliance, it’s essential that companies integrate sustainability objectives into their core operations and decision-making processes.

The 10th edition of the KPMG CEO Outlook, conducted with 1,325 CEOs between July 25 and August 29, 2024, provides unique insight into the mindset, strategies, and planning tactics of CEOs. All respondents oversee companies with more than US$500 million in annual revenue and a third of the companies surveyed have more than US$10 billion in annual revenue. The survey by KPMG International included CEOs from 11 key markets (Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, the U.K. and the U.S.) and 11 key industry sectors (asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology, and telecommunications). NOTE: Some figures may not add up to 100 per cent due to rounding.