CFOs have been publicly championing the benefits companies reap from sustainability initiatives for many years. But was their money always where their mouths were?
Judging by a new survey of 600 finance chiefs from BDO, not until now has a majority of CFOs focused on sustainability and other aspects of environmental, social, and governance (ESG) as key strategic activities.
BDO divided respondents’ companies into two categories. “ESG-mature” companies have integrated or are in the process of integrating sustainability principles into their core business strategy. “ESG-reactive” businesses primarily view ESG through a compliance lens or are just getting started on their programs.
In BDO’s 2023 poll of CFOs, two-thirds of survey participants were with ESG-reactive companies. Jump ahead to 2024, and the situation has advanced dramatically, with more than half (53%) of the respondents now identified as ESG-mature.
“As businesses progress in their ESG journey, the distinction between sustainability efforts and business strategy blurs,” wrote BDO in its survey report. “Sustainable practices become not just ancillary but central to driving business success and resilience.”
Along with that shift, companies’ top objectives for ESG programs have changed in the past year in each of the six industry sectors tracked by BDO.
In 2023, the major objectives were embedding sustainability into business strategy and managing ESG risks and compliance. In this year’s survey, the big goals are attracting and retaining talent and improving brand reputation, while compliance plummeted to the eighth most important objective.
The energy, healthcare, life sciences, and manufacturing sectors are all now significantly more ESG-mature than ESG-reactive.
The least mature of the sectors, by a significant margin, is retail, with only 38% of retail companies being ESG-mature. It suggests that “retail CFOs put sustainability on the back burner in 2023,” said BDO, adding that notably, 87% of the retailers surveyed reported that they either broke even or suffered financial losses for the year.
Talent retention and engagement
Despite the current low unemployment, talent management is a significant driver of ESG initiatives, the report notes.
After improving brand reputation, attracting and retaining talent and improving employee engagement are two of the top three objectives for ESG initiatives. Healthcare is the sector embracing that viewpoint the tightest.
“Many modern workers want their employers to take responsibility for their impact on society and the environment,” said Steve Matson, leader of BDO’s human capital consulting practice. “To win and keep talent, organizations should demonstrate genuine commitment to sustainable practices.”
But the mission of sustainability is not just to appease employees, or customers either, for that matter. The report notes the regulatory environment around sustainability is intensifying, thanks to initiatives including the European Union’s Corporate Sustainability Reporting directive, the SEC’s climate-related disclosure rule, and California’s requirements for corporate climate disclosures.
“CFOs are bracing for a year in which ESG risks are not just a boardroom buzzword, but a critical business reality,” BDO wrote.