ESG, corporate purpose top CEOs' agenda: KPMG

Australian CEOs face calls for more ESG reporting and transparency, but admit they struggle to "articulate a compelling ESG story," according to research from KPMG.

The KPMG 2021 CEO Outlook, a study of 1,300 CEOs across 12 countries including Australia, finds that ESG and corporate purpose top the CEO agenda - 94% of Australian CEOs and 86% of their global counterparts said that following through with corporate purpose commitments will shape their capital allocation, while 98% of Australian leaders said that purpose drove financial performance.

Corporate purpose was also a key part of Australian businesses' appeal to their workforces, with 86% of Australian CEO saying that purpose was a key part of their 'employee value proposition' and central to building brand reputation and customer relationships.

However, 42% percent of global CEOs and 36% of Australian CEOs say they struggle to tell a compelling ESG narrative to their stakeholders. Seventy percent of Australian CEOs said they are being asked for increasing ESG reporting and transparency, driven by investors and regulators.

"ESG issues have risen sharply up the business priority list since the pandemic began, along with the importance of corporate purpose," said KPMG Australia CEO Andrew Yates. "Purpose is closely connected to a company's stated role in society and commits them to acting in a sustainable manner that creates long-term value for their stakeholders. Customers and employees want to know that the companies they buy from, or work for, have society's best interests at heart."

The majority of Australian CEOs see the rise of stakeholder capitalism, with 60% saying their main objective was "to embed their purpose into everything they do in order to create long-term value for all stakeholders. Second priority was to improve society and only third (16% Australian, 13% global) was to increase returns for shareholders.

Climate change is dominating Australian CEOS concerns, with 84% of Australian CEOs saying the November COP26 meeting "must inject necessary urgency into the climate debate, and 77% of leaders both here and overseas believing government stimulus was needed to turbo-charge business climate change investments."

In terms of material social issues, CEOs believe they will increasingly be held personally responsible for driving progress on social issues, while 66% of Australian CEOs (56% global) feared that with public, investor and government expectations on diversity, equity and inclusion rising so fast, they would struggle to meet those expectations.

The three top risks to growth over the next three years for Australian CEOs were cyber at 22%, regulatory at 20% and supply chain at 12%.

Nearly a third of Australian CEOs said they were looking to invest more than 10% and 84% of Australian CEOs said their companies' digital and ESG investment are inextricably linked.

Almost half of Australian CEOs believed "our ESG programs boost our financial performance", higher than the global average.

"In the post-pandemic era, successful CEOs will be those that can connect a trusted purpose with digital agility - and it is encouraging to see that 84% of Australian CEOs are on the right track, saying that their digital and ESG investment are inextricably linked," Yates said. "While the COVID-19 era has turbo-charged many companies' investment in digital, it is notable that 82% acknowledged that the current pace of digital transformation during the pandemic is not sustainable without first addressing burnout amongst their workforce. Staff welfare and mental health must be paramount."

Read more: ESGKPMG AustraliaAndrew Yates