Unlock your financial value with ESG
Despite economic uncertainty and regulatory fog, large companies are aggressively scaling up ESG efforts, survey finds. Here’s why.
Estimated read time: 3-4 minutes
Old conventional wisdom: Taking ESG seriously sets businesses apart from the competition. New conventional wisdom: Taking ESG seriously sets businesses above the competition.
That’s one key takeaway from the new KPMG U.S. ESG and Financial Value Survey, which included input from more than 200 leaders at large organizations—more than half of whom are actively ramping up their ESG efforts despite lingering economic concerns.
Still, effectively scaling ESG remains a work in progress. Companies face pressure from various stakeholders to enhance ESG transparency, yet challenges like resource constraints and time pressures hinder the implementation of robust ESG strategies. Complicating matters is an evolving regulatory environment that often feels like the goalposts are always moving.
What’s next for ESG? How will businesses need to evolve in the near- and long -term to maximize its impact inside and outside the organization? Here’s what business leaders told us.
The new table-stakes
Committing to ESG is how successful companies plan to operate. It’s not a trend or a public relations effort. It meets the expectations of today’s consumers that businesses will focus on the environment, social responsibility, and ethical governance in today’s interconnected world.
To meet these expectations, business leaders are investing: 55 percent of respondents indicate that their organizations are scaling up ESG efforts, while only 26 percent are scaling back. Two-thirds of leaders at larger firms (10,000 employees or more) say their business and environmental goals are more closely aligned than they were five years ago.
Driving this investment is the core belief, held by 43 percent of leaders at larger firms, that ESG improves financial performance.
Only 6 percent of leaders (and only 16 percent at smaller companies) believe that ESG is a balance sheet’s enemy.
Findings from the KPMG U.S. ESG and Financial Value Survey.
One leading indicator here is merger and acquisition efficacy, with 76 percent saying ESG is a net positive and 41 calling its financial value “major.” This is not surprising, perhaps, when you consider nearly 60 percent of corporate investors surveyed have had deals canceled due to an ESG-related material finding during diligence, and another 42 percent have experienced price reductions.
Other value drivers include access to new capital, tax benefits, and customer loyalty and retention. Longer term, leaders see ESG improving corporate resilience and attracting new customers with premium pricing.
How plans become actions
To realize value from ESG efforts, internal alignment is a crucial first step. Equally important is execution and measurement. All require enterprise-wide engagement to maximize the potential. To that end, more than three-quarters of leaders prioritize communicating ESG efforts internally to employees—and not just externally to customers, partners, and investors.
In addition, leaders are aggressively transforming their organizations through ESG-focused leadership roles, technologies, and product strategies. Notably:
- 57 percent are incorporating innovations and technologies to reduce environmental impact.
- 35 percent have purchased renewable energy or started providing more climate-friendly products or services.
- 33 percent have created senior positions to drive accountability around environmental goals.
What’s more, though ESG is often discussed as a compliance exercise, four in five respondents say they’re feeling at least some pressure from supply chain partners, employees, investors, customers, and regulators to be more transparent about their environmental and sustainability efforts.
You might be wondering: Can’t generative artificial intelligence(AI) lend a hand and deliver ESG goals faster? On this topic, the leaders we surveyed gave us a resounding “maybe.” Almost all plan to implement AI in some capacity for ESG, but most aren’t banking on impacts beyond reducing operational inefficiencies—at this point.
Hurdles yet to clear
Barriers? Yes, there are a few. The top five stumbling blocks, according to survey respondents:
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Increased or frequently changing regulations (37 percent).
In addition, nearly half of the leaders we surveyed have slowed or stopped ESG reporting as they await the U.S. Securities and Exchange Commission’s final rule on climate-related reporting, now expected in spring 2024.
More than half of respondents are at least somewhat confident in meeting these requirements once they’re issued. That said, these global entities are less confident about meeting the evolving U.S., EU, and international guidelines at the same time.
In addition, finishing reporting data in time for 10-k filings is a very significant or major hurdle, say half of leaders. And nearly an equal number are worried about the cost of resources and talent needed to manage reporting.
Our highlights here are just sampling, though. Learn much more about how business leaders are leveraging their ESG strategies to maximize value by downloading our full 24-page report.
U.S. ESG and Financial Value Survey
Business leaders are bullish on ESG strategies driving value, but execution challenges remain.
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