Environmental, social, and corporate governance (ESG) regulations have increased, not only as a topic of conversation, but as a legitimate corporate strategy point for a significant number of organizations. And CFOs have begun to view ESG regulations as inevitable. While nearly all tax leaders have started preparing for these regulations, the “resilient middle market” is also implementing ESG-inspired changes at an increasing rate.
New data from BDO's 2023 BDO CFO Outlook Survey, which surveyed 625 CFOs with revenues ranging from $50 million to over $3 billion, found 41% of these CFOs will continue to increase efforts toward ESG. A majority (80%) of those CFOs said they will continue their ESG efforts regardless of how the global economy may impact their business. BDO's survey was conducted in October 2022.
A Focus on Compliance
As financial leaders have a number of potential hurdles in 2023, most (52%) say ESG efforts are solely compliance-induced. While a third (33%) say ESG is either imperative or ingrained within their companies already, surveyors estimate that number will continue to increase as regulations begin to roll out.
“We’re witnessing the evolution of ESG from compliance to business strategy,” said Christopher Tower, ESG strategy and services leader at BDO. “There’s a limited window of time for companies to transition from business as usual to striking a long-term view that incorporates sustainability and resilience. Larger companies are leading the way and the middle market has begun to take notice.”
Retail, Healthcare Lead ESG Efforts
According to surveyors, challenges to health equity caused by the pandemic caused the healthcare industry to raise its ESG efforts and awareness. Nearly half (47%) of healthcare CFOs are actively pursuing ESG strategies. That number is second to the highly competitive, customer-centric industry of retail, where more than half (52%) of CFOs showcase some level of ESG interest.
Surveyors also found technology, an industry that has experienced waves of layoffs recently, was in the middle of the pack regarding CFO engagement. Despite many tech companies priding themselves in ESG adherence, only 41% of tech CFOs expressed interest in ESG-related commitments.
There’s a limited window of time for companies to transition from business as usual to striking a long-term view that incorporates sustainability and resilience. — Christopher Tower, BDO
Where ESG Adherence Pays Dividends
ESG adherence is beginning to reap short-term positive results for the leaders who have implemented them, according to BDO findings. On top of 49% reporting their efforts resulted in improved ESG ratings, another 47% saw positive impacts on recruiting and retention, a highly competitive and heavily strategized area for CFOs in 2023, regardless of industry.
According to surveyors, 2022 indicated a correlation between company performance and ESG adherence. Results found CFOs of “thriving” companies are over three times more likely to have ESG ingrained in their goals, direction, and overall business model.
“To build a resilient workforce, executives must learn from their people,” said Cathy Moy, chief people officer at BDO. “From workforce flexibility to social justice and beyond, we must keep conversations alive that inform everything from company culture to an organization’s larger sense of purpose.”