KPMG has recently posted its 2022 CEO Outlook. With inflation raging and a possible recession looming, KPMG found that CEOs were “ready and prepared to weather current geopolitical and economic challenges while still anticipating long-term global growth.” According to the survey, confidence in economic growth over the next three years has risen to 71%. Of particular interest were the survey results related to ESG. According to KPMG, “ESG has gone from a nice-to-have to integral to long-term financial success.” But will a potential recession curtail their enthusiasm?
KPMG surveyed 1,325 global CEOs across 11 markets between July 12 and August 24, 2022. All respondents had annual revenue over $500M and a third of the companies surveyed had annual revenue over $10B.
The survey showed that CEOs appreciated the positive effects of ESG initiatives, particularly “ESG’s impact on improving financial performance, driving growth and meeting stakeholder expectations.” According to KPMG, 45% of CEOs agreed that ESG programs improved financial performance, up from 37% last year. In response to the question of the “greatest impact” of “corporate purpose” over the next 3 years, 73% of CEOs first identified “driving financial performance.” In addition, KPMG said CEOs “increasingly understand that businesses embracing ESG are best able to secure talent, strengthen employee value proposition, attract loyal customers and raise capital.” According to the survey, 69% of CEOs reported a significant increase in stakeholder demand for ESG reporting and transparency, 72% believed scrutiny of ESG by stakeholders would continue to accelerate, and 17% reported an increase in “stakeholder skepticism around greenwashing.” (For the contrary view of CFOs, see this PubCo post.)
KPMG found that 62% of CEOs said that they planned to invest at least 6% of revenue in programs that enable their organizations to become more sustainable. Among key drivers of ESG strategies, CEOs identified “proactivity on social issues (34 percent), more transparency (26 percent), IDE strategy (21 percent) and net-zero strategy (19 percent).” In terms of the adverse impact of potential failure to meet ESG expectations, CEOs identified difficulty in financing (25%), recruiting challenges (22%), loss of competitive edge (21%), threat to continued tenure (17%), disengaged employees (10%) and loss of customers (5%).
The survey showed that the top five challenges identified by CEOs to delivering ESG strategy over the next three years were the effect of other pressing business/economic matters that would cause the company to shift its focus away from ESG (17%), increased or frequently changing regulations (16%), lack of budget to invest in ESG transformation (15%), absence of necessary technology to effectively measure and track ESG initiatives (14%) and identifying and measuring agreed metrics (14%).
All that being said, while CEOs recognize the importance of ESG programs, will financial pressure arising out of potential future adverse economic conditions have an impact? According to KPMG’s Global Head of Corporate Affairs, as “CEOs take steps to insulate their businesses from an upcoming recession, ESG efforts are coming under increasing financial pressure.” In the face of a potential recession, KPMG found indications pointing “to ESG progress suffering as a result, following the trend of CEOs reassessing initiatives in many areas of the business (e.g. transformation and staffing). As economic uncertainty continues, 50 percent are pausing or reconsidering their existing or planned ESG efforts over the next 6 months, and 34 percent have already done so.”