Companies and investors clash over sustainability efforts

The gap between business leaders’ and investors’ expectations of ESG is growing, according to a new EY survey. While investors are keen for companies to stick with purpose-driven activity, only half of companies are prepared to do so as they seek to secure their profitability in a downturn.

In early 2022, a survey by the Big Four firm KPMG polled 1,300 CEOs to find out their views on a world currently plagued by geopolitical crises, massive inflation driven by oil and gas companies, and a pandemic that has yet to come. finished. Unsurprisingly, the KPMG survey found that 86% of business leaders were preparing for an impending recession. But the way in which they were supposedly preparing for this caused concern in some quarters. About 50% of CEOs were pausing or rethinking their existing or planned ESG efforts over the next six months, while 34% have already done so.

As important as it may seem to preserve profitability for the foreseeable future and keep businesses afloat in a recession by reducing spending, not addressing climate change now, because of that, will have serious ramifications down the road. So, making moves that seem to prioritize the future of a company over the future of the planet carries great reputational risk in the long run. A risk that investors are not willing to take. A survey by PwC, also the head of the Big Four, revealed that, to that end, investors were unwilling to engage on ESG, and they weren’t afraid to engage directly with companies they believe are underperforming on the matter: 48% said they would now consider divesting from companies cutting ESG spending.

Companies and investors clash over sustainability efforts

Now a third survey by another Big Four firm, this time EY, has examined this widening gap between business leaders and investors. And he’s found that neither side seems in the mood to back down. According to the study, 78% of investors want companies to focus on environmental, social and governance activities, even if they are for short-term benefits. Meanwhile, only 55% of companies are willing to do so.

The survey collected the views of 1,040 chief financial officers (CFOs) and other senior financial leaders, and 320 institutional investors from around the world. It also found that investors are looking to apply greater scrutiny to companies that supposedly value ESG policies. A 76% majority of investors said they believed companies were “perfectly handpicked” on disclosure of sustainability activity, something that appears to set them on a conflict course with the companies. Another 88% said that companies only disclose when they are required to.

These fears appear to have been confirmed by a new Accenture study. The report suggests that while a growing number of the world’s largest companies are willing to be seen as committing to net-zero drives, nine in ten are struggling to live up to their own expectations. As much as companies claim to be “on the path to net zero,” most seem poised to miss their targets, even if they double their current pace of emissions reductions by the end of the decade. Avoiding this and helping investors and companies depends on reviewing how targets are monitored and reaching agreement first, according to EY.

Dr. Matthew Bell, EY Global Climate Change and Sustainability Services Leader, commented: “What this survey shows is that companies and the investors they trust still have very different objectives and expectations in relation to sustainability. But this is much more than a difference in perspective: it is a disconnect that represents a real threat to the proper functioning of capital markets and, ultimately, to the fight against climate change.

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