CEOs accelerating focus on ESG

Since the beginning of the pandemic, one of the trends observed among global business leaders is the acceleration of their Environmental, Social and Governance (ESG) efforts. Results of the KPMG 2020 CEO Outlook revealed that besides talent risk, ESG tops the list of CEO concerns amid the COVID-19 crisis.

Leaders should now take the opportunity to redefine the future of work and leadership by taking concrete actions to establish and strengthen their ESG initiatives. They are now prioritizing efforts across the ESG agenda as a real business imperative, with societal actions along with their sustainability plans.

Leaning in to ESG

The pandemic has created what will be a career-defining economic challenge for most CEOs. Given the scale of that challenge, many were worried that chief executives would be forced to relegate the importance of ESG themes. However, our research shows that CEOs are still very much engaged with this issue.

Due to the immediate pressures brought by the pandemic, businesses are now intensifying ESG initiatives and placing are focusing more on the ‘social’ dimension. In a recent survey done by KPMG among hundreds of CEOs from many of the world’s largest companies, 79 percent have had to evaluate their purpose as a result of COVID-19 to better address the needs of their stakeholders.

While it was mentioned that CEOs are focusing more on the social aspect, that is not to say that CEOs are being deflected from the ‘e’ of ESG. Chief executives are more than aware that climate change poses a significant economic and humanitarian threat over the coming decades and that there is a need to rebuild organizations in a way that supports a new and sustainable economy. The seriousness with which they take the issue of climate change is reflected in the fact that many believe that managing climate-related risks is key to their own job security and long-term legacy. When we asked CEOs whether it was likely that managing climate-related risks will be a key factor in them keeping their job over the next five years, close to two-thirds (65 percent) felt it was indeed likely.

To move forward, CEOs are looking to double-down on the structural shifts that have emerged during the crisis – 71 percent say they want to lock in climate change gains that have been realized during the pandemic. Measuring and communicating the impact of environmental improvements, as well as social and governance performance, will be critical. Earlier this year at the World Economic Forum (WEF) in Davos, the WEF’s International Business Council published a paper with a proposed set of ESG metrics and reporting disclosures.1 Led by the WEF and developed by a task force composed of subject matter experts from Bank of America, KPMG and the other Big 4 accounting organizations, the paper identifies a set of ESG metrics that can bring consistency, comparability and transparency to reporting of non-financial information and ESG aspects of business performance, critical to demonstrating long-term value creation.

Business leaders and decision makers view the COVID-19 situation as both a humanitarian and economic crisis acting as a wake-up call that accelerates the need for a more sustainable approach to investment. In the long run, this pandemic could prove to be a major turning point for ESG investing.

Reflections for the new reality

Leaders need to ensure that we do not slip back from climate gains made as a result of the pandemic and, instead, build the foundations of a sustainable, green economy into the future. Companies can learn from how resilient (or not) their operating models proved to be during the crisis to understand what areas need strengthening to withstand environmental or climate challenges. With consumers increasingly focused on purpose-driven brands and sustainable products and services, companies are adapting their product and service portfolios in an effort to exceed those needs. At the same time, investors are increasingly focused on organizations’ ESG performance, with a particular emphasis on the ‘e’ of climate risk. The pandemic has been a major crisis with huge humanitarian implications, but it has also been a time where sustainable and socially responsible companies have come into their own. Organizations that are building robust ESG reporting programs – along with resilient and flexible supply chains and a talent strategy that focuses on the people and skills needed for a more agile and virtual future – will be well positioned.

As we move through the pandemic and towards the new reality, we see the ESG agenda becoming even more relevant, especially as it becomes more embedded into an organization’s culture, values and purpose.

1 Toward Common Metrics and Consistent Reporting of Sustainable Value Creation, Consultation Draft, WEF, January 2020.

Kristine I. Aguirre is an advisory partner of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected].