Businesses and investors clash over sustainability efforts

25 November 2022 Consultancy.uk 3 min. read
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The gap between the expectations of business leaders and investors on ESG is growing, according to a new survey from EY. While investors are keen for firms to push ahead with purpose-driven activity, only half of businesses are prepared to do so, as they look to secure their profitability in a recession.

Earlier in 2022, a survey from Big Four firm KPMG polled 1,300 CEOs, to get their thoughts on a world currently ridden with geopolitical crises, huge inflation triggered by gas and oil companies, and a pandemic which is still not over. Unsurprisingly, KPMG’s survey found that 86% of business leaders were bracing for an imminent recession. But the way they were reportedly preparing for this caused concern in some quarters. Around 50% of CEOs were pausing or reconsidering their existing or planned ESG efforts over the next six months, while 34% have already done so.

As important as it seems to preserve profitability in the immediate future, and keep firms afloat in a recession by scaling back spending – failing to tackle climate change now, due to that, will have grave ramifications in the future. Making manoeuvres that appear to prioritise the future of a company over the future of the planet carries with it a major reputational risk in the long-term, then. A risk investors are unwilling to take. A poll from fellow Big Four incumbent PwC revealed that to that end, investors were unwilling to compromise on ESG – and were not afraid to intervene directly with companies they believe are underperforming on the matter – 48% saying they would now consider divesting from firms cutting ESG spending.

Businesses and investors clash over sustainability efforts

Now, a third poll from another Big Four firm, this time EY, has examined this growing rift between business leaders and investors. And it has found that neither camp seems to be in the mood for backing down. According to the study, 78% of investors want companies to focus on environmental, social, and governance activity, even if it hits short-term profits. Meanwhile, just 55% of businesses are willing to do so.

The survey canvassed the views of 1,040 chief financial officers (CFOs) and other senior finance leaders, and 320 institutional investors around the world. It also found that investors are looking apply greater scrutiny to firms which do allegedly value ESG policies. A 76% majority of investors said they believed businesses ‘cherry pick’ disclosure on sustainability activity, something that looks to place them on a course for conflict with businesses. A further 88% said that companies only disclose when they are forced to do so.

These fears look to have been confirmed by a new study from Accenture. The report suggests that while a growing number of the world’s largest businesses are keen to be seen as committed to net zero drives, nine-in-ten are struggling to live up to their own hype. As much as companies are claiming to be “on the road to net zero”, the majority look destined to miss their goals, even if they double their current pace of emissions reductions by the end of the decade. According to EY, avoiding this, and helping investors and businesses, hinges on revising how targets are monitored, and reaching an agreement on there first.

Dr Matthew Bell, EY Global Climate Change and Sustainability Services Leader, commented, “What this survey shows is that businesses and the investors they rely on still have very different goals and expectations in relation to sustainability. But this is much more than a difference in perspective: It’s a disconnect which poses a real threat to the smooth running of capital markets and ultimately the fight against climate change.”