Accelerating ESG expectations
CEOs in India as well as globally view the importance of ESG initiatives on their businesses, especially when questioned about ESG’s impact on improving financial performance, driving growth and meeting stakeholder expectations. And this year’s survey shows a marked jump in demand from stakeholders, such as customers and investors, for increased transparency.
34 per cent CEOs in India agree that ESG programmes improve financial performance compared to 32 per cent in August 2021. When asked where CEOs in India see corporate purpose having the greatest impact over the next three years, building brand reputation sits in the top spot with 78 per cent. CEOs, both global and India, increasingly understand that businesses embracing ESG are best able to secure talent, strengthen employee value proposition, attract loyal customers and raise capital. ESG has gone from a nice-to-have to integral to long-term financial success.
- 77 per cent CEOs in India see stakeholder demand for increased reporting and transparency on ESG issues. This is up a significant extent (up from 42 per cent in August 2021)
- 62 per cent CEOs in India believe stakeholder scrutiny on ESG will continue to accelerate (up from 59 percent in August 2021)
- 55 per cent CEOs in India compared to 71 per cent CEOs globally believe the public is looking to businesses to fill the void on societal challenges, such as inclusion, diversity, equity, climate change or social justice.
The biggest challenges for CEOs in India are pressing global economic matters when it comes to delivering their ESG strategies. 15 per cent CEOs in India (up from 6 per cent in August 2021) say there is lack of an accepted global framework for measuring and disclosing ESG performance.
While regulation concerns remain high, this may highlight how governments and regulators need to work together to align around ESG requirements.
- Investments are forthcoming: 59 per cent CEOs in India say they will be looking to invest at least 6 per cent of revenue in programmes that enable their organisation to become more sustainable.
- Key drivers: CEOs in India find it difficult to pick just one key driver when it comes to accelerating their companies’ ESG strategies: proactivity on social issues (31 per cent), more transparency (28 per cent), inclusion, diversity, and equity (IDE) strategy (27 percent per cent) and net-zero strategy (14 per cent). This shows there is a growing consensus that they all matter.
- Articulating their story: The biggest challenge for CEOs in India in communicating their ESG performance to stakeholders, is the struggle to articulate a compelling ESG story, which half of them (50 per cent) say their organisations face (steady at 50 per cent from August 2021).
The downside of failing to meet ESG expectations for CEOs in India
Today, stakeholders are expecting relevant and accurate data and it is imperative for companies to treat ESG disclosures with the same attention and care as financial disclosures and ensure governance around data measurement, analysis and reporting. While leading Indian companies have actively started disclosing their ESG performance, they now need to direct their efforts towards overcoming challenges (as many of them point out in our survey), particularly articulating a compelling ESG story to stakeholders. Doing so will help them to effectively showcase their commitment towards the overall sustainability agenda.
A likely recession’s impact on ESG
As CEOs strive to maintain optimism and take steps to insulate their businesses from a likely upcoming recession, indicators point to ESG progress suffering slightly as a result, following a trend of both CEOs in India and globally reassessing initiatives in many areas of the business (e.g. transformation and staffing).
ESG has become an intrinsic business imperative. Delaying key ESG efforts could make businesses more reactive in the future rather than help them lead the way with greater transparency, resilience and sustainability.
Top five challenges for CEOs in India in delivering their ESG strategy over the next three years
The ESG shadow cast by the supply chains
It is critical for CEOs to understand how sustainable their entire business really is. CEOs in India increasingly see reporting and transparency as important to their ESG goals — and this includes insight into their broader supply chain. Our survey shows that nearly half the CEOs in India (48 per cent) and CEOs globally (47 per cent) plan to diversify their supply chains in the next six months in response to geopolitical challenges.
What’s more, the number one strategy CEOs in India as well as CEOs globally are considering to mitigate supply chain issues is to monitor deeper into their supply chain (i.e. at the third and fourth levels) to better anticipate problems. Why? Because the environmental, sustainability and human rights practices of their partners and suppliers may impact their business and reputation.
Among the many challenges, 27 per cent CEOs in India compared to 28 per cent globally see decarbonising the supply chain as a significant challenge for companies looking to achieve net zero. Supply chain leaders globally as well as in India are starting to double down on investing in technology — including real-time, end-to-end analytics — to improve visibility across the entire value chain. This will help them have a more accurate understanding of how products and materials flow through the network and where issues are in the supply chain, so they can move from mere strategic intent to real tangible outcomes.
Anish De, Global Head for Energy, Natural Resources and Chemicals (ENRC), KPMG says, “It is imperative that all corporates work on transforming their operations with sustainability as the focus. For this, apart from their own operations, addressing Scope 3 supply chain emissions has to be a key CEO responsibility and priority. CEOs globally and in India would be well positioned to influence their internal organisations and also supplier behaviour and operations through the right policies and incentives. Add the power of digital technology and companies can reimagine their supply chains radically for benefits to business and the planet.”
CEOs in India are also making the link to digital transformation: 57 per cent CEOs in India say their organisations’ digital and ESG strategic investments are inextricably linked.
With CEOs, both India and global, being increasingly accountable to their supply chains and reporting to broader stakeholders, their success is dependent on their digital systems. Where does the business source their raw materials? Do they know their suppliers’ human rights records? These questions mean there is an increasing need to focus more broadly on ESG — and into all the shadows cast by the organisation.
CEOs globally and in India would be well positioned to influence their internal organisations and also supplier behaviour and operations through the right policies and incentives. Add the power of digital technology and companies can reimagine their supply chains radically for benefits to business and the planet.
Diversity ramping up progress
Businesses in India are seeing a major focus put on the social aspect of ESG. While there’s broad alignment on IDE, there is growing concern around the pace of progress. 58 per cent CEOs in India believe that progress on IDE has moved too slowly in the business world. (up from 26 per cent in February 2022) and 71 per cent CEOs in India believe scrutiny of IDE performance will continue to increase over the next three years.
Awareness is key, and CEOs in India can play a powerful role in helping lead and drive the IDE agenda in the years ahead. Moving forward, it is important to normalise IDE within companies to avoid fatigue. Any plans need to be intentional and focused on what is possible within their market and business.
Diverse teams are also higher performing — but often only in environments of psychological safety. 62 per cent CEOs in India say they have a responsibility to drive greater social mobility in their organisations, which involves how you invite everyone into, and structure your organisation. It requires that businesses invest in their people in a new way.
Exploring opportunities for growth
- Recognise ESG’s impact on financial performance: ESG has become integral to long-term financial success. CEOs in India increasingly agree that ESG programmes improve financial performance, which includes being able to secure talent, strengthen employee value proposition, attract loyal customers and raise capital.
- Invest in real-time technologies: CEOs in India should monitor deeper into their supply chain (i.e. at the third and fourth levels). Supply chain leaders in India as well as globally are starting to double down on investing in technology — including real-time, end-to-end analytics — to identify where issues exist and improve visibility across the entire value chain.
- Take the lead on IDE: CEOs in India can play a powerful role in helping lead and drive the IDE agenda in the years ahead. It is important to normalise IDE within companies and create a culture of inclusion and diversity across the organisation to attract and retain new employees.
- Build strong connections among functions: Resilient organisations have well-connected internal teams, so for example, the finance function is aware of what the ESG teams are doing.