Companies increasingly expect their ESG strategies to contribute to positively to business and financial outcomes, in areas ranging from M&A and new product opportunities to talent and customer retention, although many executives are concerned about keeping up with complex and changing sustainability regulatory requirements, with only around a quarter reporting confidence in meeting ESG reporting requirements across several jurisdictions, according to a new survey released by professional services firm KPMG.
For the study, the “KPMG U.S. ESG Survey,” KPMG surveyed more than 200 business leaders with responsibility for aspects of their companies’ ESG strategy, at companies with more than $1 billion in revenue across multiple industries.
While 92% of those surveyed were at companies headquartered in North America, 67% said that they will be required to report on ESG in 3 or 4 jurisdictions.
The survey indicated that business leaders see an increasing connection between their sustainability and corporate strategies, with 43% of respondents reporting that their companies’ business and environmental goals are now more closely aligned than they were 5 years ago. This result is particularly strong among larger companies (10,000+ employees), at 66%.
The business leaders identified M&A efficacy as the top area in which ESG is adding value to their businesses, with 41% reporting that ESG engagement adds major financial value, with other top areas including access to new capital sources at 35% and customer retention at 34%.
Going forward, the executives identified a broad range of areas expected to generate from value creation resulting from their sustainability efforts, with some of the biggest gains anticipated in areas including attracting new customers, with 40% anticipating greater financial value in 2-5 years, talent recruitment and retention (37%), increased revenue from premium pricing (37%), and lower cost of capital (38%).
As the business leaders anticipate generating value and opportunities from their sustainability strategies, many have reported refocusing on ESG activities. While a KPMG survey last year indicated that 59% were planning on pausing or reconsidering their ESG efforts in light of economic uncertainty, the new survey found that 55% actually scaled up their ESG efforts despite potential recession, while only around a quarter scaled back.
Rob Fisher, KPMG U.S. ESG Leader, said:
“These results underscore that ESG provides businesses with a clear opportunity to differentiate themselves and gain a competitive edge. We found businesses see many levers by which ESG can drive financial value, but that also drives complexity for organizing a cohesive, well-understood strategy that can overcome some very real challenges businesses are facing today.”
While the executives reported growing pressure to increase transparency on their sustainability progress and efforts, the greatest source of this pressure did not come from regulators, but instead from supply chain partners, with 88% of respondents saying that these stakeholders are demanding ‘some’ or ‘a great deal’ of increased ESG reporting and transparency (vs 80% for regulators). Other top sources of demand for more ESG transparency are coming from employees (82%), institutional investors (81%) and customers (81%).
While pressure builds from multiple stakeholders to improve transparency, however, only around half of respondents (53%) reported being at least somewhat confident in their ability to meet sustainability reporting requirements in the U.S., and only a quarter feel confident that they can meet future ESG reporting requirements in the U.S., EU and other areas, with two-thirds expecting to be required to report in 3 to 4 jurisdictions.
Additionally, while the SEC has extended its process in finalizing its own climate-related reporting rules, initially introduced in March 2022, and with the final rules expected later this year, more than 40% of survey respondents said that have slowed or entirely halted ESG reporting.
Maura Hodge, KPMG U.S. ESG 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.”
Major challenges reported by the respondents to meeting ESG reporting requirements included finishing environmental reporting data on time for their 10K filings, with 50% citing this as a “major” or “very significant” challenge, followed by the cost of resources and talent to manage reporting (46%) and investing in data collection, management and reporting (46%). Additionally, 45% reported that aligning their sustainability strategies with reporting requirements also posed a major or very significant challenge, while measuring Scope 3 emissions did not crack the top 5 challenges categories.
“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.”
Click here to access the KPMG U.S. ESG Survey.