Executives are backing away from ESG as recession risks mount

CHIEF executive officers are putting a number of ESG goals on hold as they try to prepare their businesses for fallout from a possible recession, according to a study conducted by KPMG.

About half of CEOs surveyed “are pausing or reconsidering their existing or planned ESG efforts in the next six months,” KMPG said. Roughly a third “have already done so,” it added.

“As CEOs take steps to insulate their businesses from an upcoming recession, ESG efforts are coming under increasing financial pressure,” said Jane Lawrie, global head of corporate affairs at KPMG.

Most executives surveyed said they generally consider environmental, social and governance issues to be an integral part of their success. But with the challenges posed by a shrinking economy, businesses are now struggling to balance “mid-term environmental issues while hunkering down to protect short-term economic and social stability,” Lawrie said.

More than eight of 10 global CEOs anticipate a recession within the next 12 months, the KPMG survey found. Against that backdrop, spending resources on ESG goals that aren’t fully defined within regulatory frameworks are slipping down the list of priorities, the KPMG data indicate. What’s more, there are some signs of investor skepticism toward ESG.

The KPMG CEO Outlook is based on responses from 1,325 chief executives across sectors and countries, and was conducted between July 12 and Aug. 24. All those participating have annual revenue of at least $500 million — and a third have revenue exceeding $10 billion.

Separately, a recent survey by Capital.com, a London-based online broker with a large retail client base, showed that traders and investors aren’t prioritizing ESG. Of more than 1,800 customers asked, 52% of traders and investors said they never selected a stock or made a trade based on ESG factors. Almost half — or 46% — said they didn’t know how to do so, and 12% said ESG investments were too expensive.

The findings expose some of the key weaknesses that ESG has faced, as the investing form draws criticism from all sides. In the US, more than a dozen traditionally Republican states are trying to stop the finance industry from taking ESG factors into account as they try to protect industries such as oil and firearms. Several ESG insiders, meanwhile, have criticized the investing model for being riddled with inconsistencies and too focused on profits.

That said, a wave of new regulations is about to change the business and investing landscape in a way that will make it hard for CEOs to downplay ESG. In the EU, investors need to comply with the Sustainable Finance Disclosure Regulation, while corporations face stricter requirements in the form of the Corporate Sustainability Reporting Directive.

In the US, the Securities and Exchange Commission has proposed strict climate disclosure requirements, and globally, the International Sustainability Standards Board is setting guidelines that have the potential to affect companies across all jurisdictions.

KPMG noted that 72% of survey respondents said they “believe that stakeholder scrutiny of ESG issues,” such as gender equality and climate impacts, “will continue to accelerate.” There’s also pressure on companies to step up ESG reporting, the survey found. – BLOOMBERG