KPMG – ESG in a downturn

Business leaders have faced numerous challenges in recent years, including the pandemic, geopolitical conflicts, supply chain disruptions, talent shortages, and soaring inflation. Despite these challenges, many companies have increased their commitment to environmental, social, and governance (ESG) goals by working towards reducing their carbon footprints and improving diversity in hiring. However, with the global economy slowing down, some executives see ESG as an easy target for cost-cutting. A survey by KPMG found that 59% of US CEOs would consider reducing or pausing ESG programs to lower expenses. While it is understandable that CEOs are looking to preserve profits, this may not be the right time to lessen ESG efforts. Reducing ESG initiatives could result in a loss of momentum, hinder progress towards net zero goals, make it harder to meet new carbon reporting requirements by the Securities and Exchange Commission (SEC), disrupt supply chain relationships, and lead to lower ESG scores. Additionally, there could be missed opportunities, such as the incentives provided by the Inflation Reduction Act (IRA) for investments in renewable energy. This paper emphasizes the risks of cutting back on ESG now, highlights the benefits of maintaining ESG efforts, and proposes ways for companies to trim or postpone ESG costs. The combination of the IRA and the new SEC reporting requirements has already motivated many companies to accelerate their decarbonization efforts, achieve more energy savings, implement subsidized clean energy projects, and develop innovative supply chain solutions. Overall, the paper advocates for companies to continue prioritizing ESG initiatives despite the economic downturn, as the long-term benefits and opportunities outweigh short-term cost-cutting measures.