Over the past 18 months, the world has accelerated and changed in unexpected ways. With COVID-19 magnifying the importance of a sustainable recovery and COP26 convening in a few weeks’ time companies are under more scrutiny than ever before to become forces for good in society.
The results of our latest KPMG 2021 CEO Outlook show that CEOs are feeling the pressure to deliver on increasingly ambitious environmental, social and governance (ESG) goals. They recognize that stakeholders — such as investors, regulators and customers — expect organizations to have a positive impact on a range of areas, from addressing social issues and diversity to helping protect the environment through sustainable business practices. And what’s more, nearly 6 out of 10 CEOs are seeing increased demands from stakeholders for more ESG reporting and transparency.
We’ve connected with CEOs throughout the past year with regular pulse surveys. We found that the pandemic has pushed corporate purpose up the C-suite’s list of priorities, with 64 percent of CEOs telling us they’re putting purpose at the heart of their plans. CEOs are also embracing the role they can play in balancing total shareholder return with making bold commitments on societal issues like climate change and inequality.
But being a purpose-led CEO also means following through and delivering on commitments with bold ESG programs. So, this raises a few questions: How can CEOs turn their purpose from a statement of intent to real actions? And how can they tell the story of how they’re building back better?
The S in ESG
Today, 8 out of 10 CEOs are saying that the pandemic has caused them to shift toward the ‘social’ component of their ESG program. But there’s a tension between the accountability CEOs feel they have for driving social progress and their ability to meet expectations in the critical area of diversity:
- 71 percent say CEOs will be increasingly held personally responsible for driving progress in addressing social issues
- 56 percent admit they’ll struggle to meet the rising public, investor and government expectations around inclusion, diversity and equity (IDE).
Driving progress on IDE requires that organizations listen to employees to understand what aspects of IDE are important to them and set clear and measurable targets to gauge progress.
The E of ESG
Many large organizations cut carbon emissions during the pandemic (thanks in part to reduced travel and increased remote working), and many leaders want to lock in these sustainability gains and have announced ambitious net-zero targets. With increased pressure for businesses to build back better, taking action to limit climate change and reduce carbon emissions in the race to net-zero has never been more important.
But at the same time, CEOs stress that progress on sustainability and climate change requires equally strong government commitments:
- 77 percent say government stimulus is required to turbo charge climate investments being made by the business community
- 75 percent say world leaders at COP26 must inject the necessary urgency into the climate-change agenda
Making progress on addressing sustainability issues like climate change and decarbonization, may require strong collaboration between business and government.
When aspiration meets reality
CEOs clearly have an aspiration to take the lead on ESG, but they’re struggling to prove value. In fact, only 37 percent of global CEOs believe their ESG programs improve financial performance — and close to a quarter say they reduce it.
What does this tell us? Perhaps some CEOs may perceive that their current ESG initiatives are more about compliance and risk management. So, more needs to be done before they’re convinced ESG programs are driving new growth.
How can they ensure their organization follows suit and turns aspiration into action?
- Build on promises made: Actions speak louder than words. Any company that pledged change will see the outside world quickly becoming impatient if there is a gap between what a company says and what it does. It’s important to make those connections.
- Think long term: If a business is looking for sustainable growth, it’s important to make decisions that benefit stakeholders over the long term while maintaining the business’s viability in the short term. But the right move isn’t always clear — or simple. It takes innovation, determination and collaboration.
- Set targets and measure progress: Identify, collect and share data so organizations can set meaningful targets and measure progress. A common set of measurements hold businesses accountable and create a level playing field to assess what actions or interventions are really making a difference. Focus on a handful of critical metrics and then build on them over time.
- Report the ESG story: 42 percent of CEOs say they’re struggling to tell a compelling ESG story to their stakeholders. The challenge for CEOs is to then articulate for stakeholders the steps they’re taking to address ESG concerns in their respective organizations.
If there is a positive to have emerged over the past 18 months, it is that the enormous challenge of ESG is firmly cemented as a priority C-suite issue.
Partner, Audit and Advisory
KPMG Crown Dependencies
KPMG Crown Dependencies