A survey by KPMG in the US shows that companies expect ESG strategies to impact business and financial outcomes positively. However, only a quarter of the executives or 25%, are confident in meeting sustainability regulatory requirements.
KPMG conducted a study involving over 200 business leaders responsible for their companies’ ESG strategy across industries with over $1 billion in revenue for the KPMG US ESG Survey.
While 67% of those surveyed said they would be required to report on ESG in three or four jurisdictions, 92% of those surveyed worked for companies with North American headquarters.
Key findings:
43% of respondents reported that their companies’ business and environmental goals are now more closely aligned than they were five years ago. The survey found that business leaders see an increasing connection between their sustainability and corporate strategies. At 66%, this result is especially strong for larger businesses (10,000+ employees).
Business leaders identified access to new capital sources (35%), customer retention (34%), and M&A efficacy as the top areas in which ESG adds value to their companies. Of these, 41% reported that ESG engagement adds significant financial value.
The executives expect to generate value in the future as a result of their sustainability efforts in attracting new customers, with 40% expecting greater financial value in 2–5 years, talent recruitment and retention (37%), increased revenue from premium pricing (37%), and lower cost of capital (38%).
Many business leaders have reported refocusing on ESG activities as they anticipate generating value and opportunities from their sustainability strategies. In contrast to a KPMG survey conducted last year that found 59% of respondents planned to pause or reevaluate their ESG efforts due to economic uncertainty, the new survey discovered that 55% actually increased their ESG efforts despite a potential recession, while only about a quarter decreased them, the authors wrote.
The supply chain partners, rather than regulators, were the source of the most pressure on executives to increase transparency about their sustainability efforts and progress. According to 88% of respondents, these stakeholders are demanding “some” or “a great deal” more ESG reporting and transparency, compared to 80% for regulators. Customers (81%), employees (82%), and institutional investors are the other top sources of demand for greater ESG transparency.
Challenges:
Despite increasing pressure from a variety of stakeholders to increase transparency, only about half of respondents (53%) said they were at least somewhat confident in their ability to meet sustainability reporting requirements in the US Additionally, only a quarter said they were confident they could meet future ESG reporting requirements in the US, EU, and other regions, with two-thirds anticipating having to report in three to four jurisdictions.
Additionally, more than 40% of survey participants stated that the SEC’s process for finalizing its own climate-related reporting rules, initially introduced in March 2022, and with the final rules expected later this year, has slowed or stopped ESG reporting.
The completion of environmental reporting data on time for their 10K filings was cited as a primary or very significant challenge by 50% of the respondents. This was followed by the expense of resources and talent to manage reporting (46%) and investing in data collection, management, and reporting (46%). While measuring Scope-3 emissions did not make the top 5 challenge categories, 45% of respondents said that aligning their sustainability strategies with reporting requirements also posed a major or very significant challenge.
Quotes:
Rob Fisher, KPMG UUSESG Leader, said, “These results underscore that ESG provides businesses with a clear opportunity to differentiate themselves and gain a competitive edge. ESG’s wide-ranging impacts and levers make it an incredibly unique coordination challenge for leaders. The risk of falling behind can compound, turning today’s headache into a long-term struggle as competitors pull away. The upcoming reporting requirements should ignite urgency to align one’s reporting with strategy today.”
Maura Hodge, KPMG UUSESG Audit Leader, said, “For many companies, ESG reporting requirements are already here even as we await the SEC’s final rule. While convergence has begun, organizations will undoubtedly struggle to navigate the web of global requirements as we determine the interoperability of the standards. The very cautious confidence among companies on reporting underscores the urgency to align one’s reporting approach with business strategy today.”