ESG: Moving Forward to a Better and Sustainable Future

Adopting Environmental, Social, and Governance (ESG) principles is a good business strategy that yields long-term reputation and financial benefits. It can create new revenue streams to address the increasing demand from consumers for more ethically sustainable products and services as well as attract socially responsible investors. It boosts a company’s reputation while attracting and retaining talent.

In the past, ESG initiatives have not been highly prioritized in a company’s business agenda, however, this has been evolving and there is a shift from organizations, leaders, and investors on their understanding and appreciation of the bottom-line effects of ESG initiatives in driving their growth, lessening systemic risks, and improving quality of service.¹

In KPMG's CEO Outlook 2022 Survey where 1,325 global CEOs provided insight into their 3-year outlook on the business and economic landscapes, it was found that CEOs are increasingly agreeing that ESG programs improve financial performance, sitting at 45 percent, increased from 37 percent from the prior year’s survey.

The key to a true and purposeful ESG strategy is transparency in reporting. The same survey indicated that 72 percent of CEOs believe that stakeholder scrutiny on ESG will continue to accelerate and the way to address this is through robust and transparent reporting. Transparent reports can strengthen corporate relationships with clients, regulators, investors and stakeholders. Building trust and reinforcing reputable methods in achieving progress can impact the overall financial performance of the business entity.

For organizations to become credible champions of ESG, setting up achievable SMART goals aligned with their resources and capacity is essential and should be tailor-made according to their mission and vision. Once an organization decides which ESG-related factors it will measure, consideration must be given to how it plans to go about doing so in a way that ensures accuracy, integrity and relevance in the context of one’s jurisdiction.

CEOs should explore different approaches and strategies to see what could work for the company. Increasingly, CEOs see reporting and transparency as important to their ESG goals — and this includes insight into their broader supply chain. This is because the environmental, sustainability and human rights practices of their partners and suppliers may impact their business and reputation.

Applying an ESG approach to the supply chain can be done by investing in real-time technology and increasing visibility across everyone involved in the business. ESG objectives must be deliberate and applied consistently across the whole organization, including procurement. One of the key attributes that differentiate mature firms is the availability and dependability of supplier data from both internal systems and external sources.

More suppliers, both large and small, are trying to comply with social and environmental norms as a result of the drive made in recent years by governments and multinational corporations to incorporate ESG into their procurement requirements. Supply chain management is no longer a back-office task. In today's world, the public, consumers, investors, and authorities expect businesses to give ESG greater value and significance.²

Also stated in KPMG’s CEO Outlook 2022 Survey, CEOs agree that programs centered around the environment, people (social), and governance improve financial performance. There are several reasons why ESG programs boost the financial side of businesses.

Sustainability as a leading priority influences the creation of resourceful ESG initiatives. Instead of focusing on short-term successes, the company should also take into account achieving long-term goals that benefit the whole community as well, without compromising resources reserved for future generations.

These plans and results can add to the company's credibility and strengthen loyalty from its trusted customers, without negatively impacting the rest of its beneficiaries. By investing in ESG plans, strong relationships with customers flourish in reaching profit and raising capital that fosters company longevity.

_{¹Eccles, R. G., & Klimenko, S. (2019). The investor revolution. Harvard Business Review. https://hbr.org/2019/05/the-investor-revolution}

²_{https://home.kpmg/ca/en/home/media/press-releases/2022/11/esg-becomes-a-critical-link-in-the-supply-chain.html}