ESG

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To understand how the current business climate is shaping CEOs’ thinking, KPMG embarked on the 11th edition of its annual Global CEO Outlook, which features 1,350 CEOs from some of (RC) the world’s biggest economies and key industries, of which 400 respondents are from Asia Pacific. The survey is a wide-ranging study that seeks to cut to the core of CEO sentiment regarding the global economy, emerging technological innovations, talent management and the sustainability agenda.

This article looks at how CEOs in Asia Pacific are approaching their ESG agenda and the challenges they face in coping with increasing sustainability demands.

Over the last few years, Asia Pacific has steadily built itself a reputation as a leader in green finance, clean energy and ESG reporting.¹

Aligned with this reputational trend, confidence is rising among regional CEOs in their ability to achieve ESG and sustainability goals.

• 60 percent of leaders say they will reach net zero by 2030, and 75 percent report already having the capability and capacity to meet new ESG reporting standards.
• 62 percent have fully embedded sustainability into their business strategies, viewing it as critical to long-term success.
• 50 percent are focused on enhancing compliance and reporting standards to meet investor and regulatory demands.

Exhibit 1: Confidence in ESG and sustainability are trending upwards in Asia Pacific

Confidence in meeting net zero goals remains high, but regulatory concerns continue to cast a shadow. Geopolitical fragmentation is also complicating the road ahead for the sustainability agenda, especially as the ability to pursue a coordinated approach to sustainability is diminished, owing to trade tensions and changing national priorities.² This has also resulted in the slowing down of regulatory convergence in this area.

In Japan and China, only about half of CEOs say they’re confident in their ability to navigate regulatory and political differences across markets when it comes to ESG and sustainability. Contrast that with Australia and India, where confidence soars—96 percent and 94 percent of CEOs respectively believe they can steer through these challenges with ease.

These distinctions reflect the varying levels of maturity of each country’s ESG ecosystems as well as recent rollbacks in green commitments globally which could dent investor confidence in sustainability initiatives in the long term.³

a notable gap between investor demands and corporate capability as a Fifty-nine percent of Asia Pacific CEOs say their stakeholders’ sustainability expectations far outpace their organizations’ ability to adapt their strategies to meet them. As an example, recent research revealed major gaps between corporate ambitions and the reality on-the-ground, wherein major companies in Australia are failing to align their business goals with their climate targets.⁴

These facts could reflect the reality that only a fifth of companies are integrating commercial considerations when they make sustainability-focused capital decisions, leaving investors and shareholders in the dark as the potential benefits of ESG actions.

For Asia Pacific leaders, the greatest hurdle to achieving net zero or similar climate ambitions is the complexity of decarbonizing supply chains (21 percent in Asia Pacific, broadly in line with global average of 25 percent), closely followed by a lack of skills and expertise to successfully implement solutions.

Exhibit 2: Complex supply chains, skills shortage hinders net zero progress

Thus, CEOs are also working closely with regulators and policymakers to stay ahead of the region’s evolving regulatory landscape (46 percent). These partnerships are necessary to fully decarbonize global supply chains. Coupled with sustained, in-depth engagements with investors and shareholders, companies can position themselves for ESG success.

The technology’s rapid and accurate data capabilities have the potential to markedly improve sustainability-related data quality and reporting (77 percent), identify opportunities for resource efficiency (77 percent), and enhance climate risk modelling and scenario planning (74 percent).

Exhibit 3: AI is a lynchpin for ESG success