Guest Post: The Bonds Between E, S and G are Stronger and More Important Than Ever Before

By: John McCalla-Leacy, Head of Global ESG at KPMG

The world is in flux. The climate crisis is now daily news and we’re witnesses to the damage inaction can cause to our planet. For business leaders, there is a growing in-tray – of risks and daily challenges. Geopolitical and economic uncertainties are impacting the ability of businesses to function and focus on growth and companies response to the climate crisis has become a political hot-potato. With that in mind, it’s understandable that environmental, social and governance topics are at risk of slipping down the priority list in board rooms.

As KPMG’s Head of Global ESG, it’ll come as no surprise to you to hear me talk of the urgency of ESG. The reality – backed by a substantial body of evidence – is that it does matter and can’t be ignored. Political leaders will make bold commitments, and corporate spokespeople will match the rhetoric with stretching targets and figures that aim to go some way toward ‘dealing’ with ESG, but we all must accelerate the current pace of change, if we are to minimise the impact on the environment.

KPMG’s CEO Outlook is an annual snapshot of business sentiment. We spoke to more than 1,300 CEOs at some of the world’s biggest companies and across a multitude of sectors and countries. Among the topics – ESG. If we compare our 2023 findings with last year, there is some evidence that leaders are ‘softening’ their approach to ESG, but it’s heartening that, in an economically challenging and politically polarized environment, across most areas of environment, social and governance, CEOs remain steadfast in their commitment to drive positive change.

I’m based in the UK, where the Prime Minister has announced plans for a number of delays on environmental targets, including the planned phase out of diesel and unleaded cars, to ‘ease the burden’ on the public. Despite the potential shift in gear, leaders have continued to emphasize that the country will remain focused on meeting its global climate targets. This example shines a light on similar challenges facing business leaders – attempting to respond appropriately to different viewpoints while remaining true to the vision of genuinely tackling the climate crisis.

In our CEO Outlook survey, just over a third of senior executives revealed that the language they use internally and externally to refer to ESG has changed. While it’s down slightly from last year, it reveals the pressures leaders are facing to tackle a growing politicization of the topic. More positively, CEOs are recognizing that shifting political landscapes leave a gap that companies should be filling. 64 percent of leaders told us they understand CEOs have a role to play filling the void of societal changes that can be created during times of political unease – broadly in-line with last year’s findings.

I’ve spoken extensively about the unbreakable links between the E, S and G. Put simply, you can’t tackle issues like governance and societal inequalities without acknowledging challenges like the climate crisis and sustainability.

For CEOs, E, S, and G matters. We’re witnessing a wave of new regulation – across all countries and wider regions. Politicians, the public and investors are taking an increasingly critical view of the positive and negative impact companies can have on the world and they expect us to demonstrate transparency and genuine commitment to be the change makers.

Almost three quarters of CEOs in this year’s survey acknowledged that their current ESG progress isn’t strong enough to withstand the potential scrutiny of stakeholders or shareholders. Again, that figure is broadly in-line with 2022’s findings. To some, it might seem like a disappointing statistic. For me, it’s reassuring. CEOs know that they can do more and are prepared to state that their companies can and must act now. Business leaders should be challenging their own, investment decisions, business model and operations while listening to their customers and employees. Only then can they ensure that their organisation is fit to take advantage of the opportunities this net zero transition creates while remaining resilient to its challenges. I remain optimistic, that regardless of rhetoric, business leaders recognise their role in ensuring they deliver sustainable economic growth that benefits everyone and respects and nurtures our delicate planet. The time is now for us all to act.

John McCalla-Leacy is Head of Global ESG at KPMG International