Deconstructing ESG

How Irish CEOs are embedding ESG in their business

CEOs' capacity to meet new ESG reporting standards

Global

ROI

Inflation and dampened consumer demand have shifted some focus to the near term. CEOs are grappling with the trade-offs inherent in driving earnings whilst creating longer term value.

35 percent of CEOs globally (33 per cent in both ROI and NI) say they have changed the language in which they use to refer to ESG internally and externally and are prioritising each element of the ‘E’, ‘S’ and ‘G’ in an effort to give clarity to priorities.

Meanwhile near-term volatility and risk has changed leadership perspectives. Worldwide, environmental/climate change has dropped to the bottom of the top five perceived threats to growth. Ahead of environmental threats are geopolitics and political uncertainty (top threat), followed by emerging technology and operational issues (joint second) and supply chain risks.

ESG strategy and reporting

In ROI the top five threats to growth are emerging technology, regulatory risk, reputational risk, talent risk and operational risk. In NI emerging technology leads the field followed by regulatory, environmental, interest rate and supply chain risk which ties with cyber risk in joint fifth position.

Despite a sometimes polarised discourse around the term ESG, CEOs continue to invest but are taking a more outcomes based approach to their business’ efforts whilst remaining pragmatic about the external environment. CEOs believe that they are still a few years away from seeing a return on their investment, with key benefits accruing to their customer relationships, brand reputation and M&A strategy.

Meanwhile, CEOs still see their ESG strategy as being essential to having a strong reputation for attracting both customers and employees. This is felt more strongly in Ireland than globally, with 43 percent in ROI and 33 percent in NI stating that the greatest impact of their ESG strategy is in attracting the next generation of talent, compared with only 14 percent globally.

The introduction of the new CSRD (Corporate Sustainability Reporting Directive) across the EU, as well as wider stakeholder pressure ensures ESG remains a key topics for CEOs. It’s clear other economic and geo-political challenges have risen to the top of the agenda over the past year.

Furthermore, CEOs are increasingly focused on the economic and commercial case for ESG – globally 50 percent of CEOs expect a 3-5 year payback on investment, reducing to 43 percent in ROI and only 23 percent in NI. In fact in NI a majority of CEOs (53 percent) believe the payback time frame extends to 5-7 years.

ESG embedded

Despite the noted variance in the timeframe for a return on investment, Russell Smyth, Head of Sustainable Futures at KPMG in Ireland, says, “ESG is now an embedded agenda within corporates, and the approach is beginning to mature, with businesses increasingly considering the opportunities it can bring, not just the costs, and the commercial returns it can generate”.

Meanwhile the majority of CEOs worldwide (64 percent) understand that as trust in governments decline, consumer and public expectations of them and business are high to help fill the void on societal challenges. This has declined from 71 percent in 2022. Meanwhile 69 percent have fully embedded ESG into their business as a means to value creation.

In Ireland, sentiment was softer, although over half in ROI (57 percent) and half in NI (50 percent) agree that the public is increasingly looking to their businesses to step in and fill the void. However, it’s worth noting that this too has declined in the past year from 68 percent in ROI to 57 percent and from 92 percent in NI to 50 percent.

This decline may suggest that challenging economic conditions and geopolitical tensions have moved the conversation on social justice down the priority list.

CEO prioritisation of specific aspects of ESG

	Environmental	Social	Governance	All equally
ROI	23%	17%	40%	20%
NI	20%	40%	33%	7%

Emer McGrath

Partner, Head of Audit

KPMG in Ireland

Mandatory reporting - capability challenges

Only 57 percent of CEOs in ROI and 43 percent in NI say they currently have the capability and capacity required to meet new ESG reporting standards. This is lower than the global average of 74 percent and should be a concern given the mandatory aspect of for example the new CSRD legislation for in scope businesses.

Emer McGrath, Head of Audit at KPMG in Ireland says: “It’s concerning to see that a substantial number of CEOs say they don’t have the capacity required to meet new ESG reporting standards. Non-financial reporting is increasingly a governance obligation and needs to be treated as such. It’s important that businesses take the first steps without delay and carry out a materiality analysis to identify the topics relevant to their business. This will help ensure that they can begin to report on their ESG obligations in a meaningful way.”

Finally, when it comes to businesses commitments to decarbonising their operations, the lack of appropriate technology solutions has been cited by CEOs as the most significant barrier to achieving net zero, with almost half (47 percent) citing it as such in both ROI and NI.

This is felt significantly more strongly than globally where only 18 percent of CEOs cited the lack of tech as the greatest barrier. Other significant concerns include a lack of skills and expertise to implement solutions, the complexity of decarbonising supply chains and a lack of internal governance and controls to operationalise their carbon journeys.