What does the middle market think about ESG? What are the drivers for those on the journey? And who is interested? We share some insights from Australia and the USA.
BDO in the USA recently published its annual CFO Outlook Survey report, capturing the views of 625 middle-market CFOs in the USA. The theme for the 2023 report is ‘The Resilient Middle Market’, offering “critical insights to support strategic decision-making and help your company thrive.”
Here we share some insights into the market’s intentions in ESG in the coming year from Australia and the USA, and we encourage you to download and read the full report.
ESG activity stems from compliance – but for how long?
Much of the middle market’s discussion around ESG and sustainability in Australia has been compliance-focused to date. Reluctance from making headway in the sustainability space has often stemmed from the lack of regulation for broad-based sustainability reporting, instead focused on meeting the individual requirements driven by the regulators. This is also a feature in the US, with 52% of respondents focused on ESG as a compliance measure and 33% taking a more proactive approach.
Regulatory pressures are expected to rise in Australia in the coming year, which could see a continued focus on meeting the mandated requirements. We expect this could help to flick the switch to drive more proactive sustainability initiatives as organisations accept the broader benefits of ESG.
Who’s interested in ESG?
Importantly, boards and executive leaders are interested in ESG. A recent survey of board members by BDO in the USA showed that ESG continues to hold an important space on the board agenda. However, board members differ in their expectations of who is responsible for driving ESG initiatives. More than half of the respondents acknowledged the need for a nomination and governance committee to oversee ESG. Ultimately, we know that sustainability is a whole-of-business issue to address and must align with the company’s strategy and values to ensure authenticity.
Attendance at BDO’s sustainability webinar series shows us that finance and risk professionals are increasingly interested in understanding sustainability, sustainability reporting, and the impending standards in development by the International Sustainability Standards Board.
ESG is also on the agenda in many industries. In Australia, we see significant interest from the retail and manufacturing industries. In the US, the retail sector appears most highly attuned to sustainability, closely followed by the healthcare and life sciences sectors.
The broad benefits of ESG
Beyond compliance, the benefits of ESG are many:
- Attraction and retention of talent – 47% of middle market CFOs recognise that ESG supports an organisation in its employer value proposition. Funding ESG initiatives and communicating their impacts and benefit helps existing and potential employees determine their employers of choice.
- Brand reputation – it would be short-sighted to consider sustainability as a mere promotional tool. The opportunity sustainability can provide to a brand’s reputation is so much more, and the risks of getting it wrong can be significant. Consumers, financiers, investors, and suppliers are just some of the stakeholder groups taking note of which brands are genuinely invested in sustainability, and which have room to learn.
- Improved ESG ratings – if third party certifications are important to your organisation, it should go without saying that increased genuine interest and investment in ESG can help to improve ESG ratings. Of course, claims made should be verifiable, and ratings provided by a reputable organisation to ensure avoidance of greenwashing.
In summary, there are three key recommendations from BDO in Australia’s sustainability team, which are echoed by this report.1. While regulation is coming, don’t wait for it to force your hand.
In many industries, the opportunity still exists for sustainability to be a competitive advantage for your organisation. But that window of opportunity is closing as regulation looms. Now is the time to understand the material risks you face to ensure your organisation is on the front foot. Consider conducting a materiality assessment to get a view of your situation and better understand the wants and needs of your stakeholders.
2. Invest in ESG initiatives.
Bolster the resilience of your organisation by investing in sustainability initiatives. By understanding your organisation's risks, you can prepare a sustainability strategy to ensure the business is robust and resilient.
3. Recognise the opportunities ESG can bring, and the risks of passing it by.
Alongside the risk of regulatory action, and the opportunity for a more resilient business, there are broader risks and opportunities for getting ESG ‘right’. Reputationally, there are several risks to consider, which ultimately boil down to your access to people, markets and capital.
BDO is here to help
No matter where you are on your sustainability journey, our national team of sustainability experts can help with:
- Sustainability strategy and consulting
- Sustainability or ESG reporting
- Carbon footprint calculations
- Carbon emission reduction strategies
- Climate services.
Please download the 2023 BDO CFO Outlook Survey to read more of the survey results.