A large portion of Canadian business leaders are prioritizing environmental, social, and governance (ESG) principles, but most are doing so because of regulatory obligations, according to a new survey.
The
survey found that while 29 percent of Canadian CEOs said ESG was their primary operational focus—a number twice as high as the global average—78 per cent of Canadian CEOs said regulatory and reporting obligations was the primary reason for prioritizing ESG.
The survey was conducted by KPMG, which interviewed 1,325 CEOs between July 25 and Aug. 29.
Additionally, 75 percent of respondents said it would take at least three years to see substantial returns on ESG investments and 63 percent said they are struggling to fully implement ESG into their businesses “as a means of value creation.”
When asked about barriers to implementing ESG initiatives, 79 percent cited frequently changing regulations, 74 percent said ESG data collection and aggregation, 61 percent said difficulty in building a business case, 57 percent cited a lack of budget, and 55 percent said there was a lack of ESG technology or buy-in by senior leadership at their companies.
ESG is an investing principle that prioritizes environmental issues, social issues, and corporate governance. Environmental factors may refer to issues such as climate change, pollution, and energy efficiency, while social factors may include customers satisfaction or gender and diversity. Governance factors may refer to board composition, political contributions, or corporate culture.
ESG has become more widespread in recent years, with a
2023 Business Development Bank of Canada (BDC) study of major buying organizations finding 82 percent required their suppliers to disclose information on at least one ESG category.
Doron Telem, a partner and national ESG Leader at KPMG in Canada, said the survey results show that the demands on Canadian CEOs are “substantial” and they are under pressure to tackle issues such as climate change, decarbonization, and making supply chains ethical.
“The operational, logistical, financial, and now legal complexities of sustainability call on the entire C-suite to work together to embed ESG across the organization,” he said in a release on the survey findings.
Telem also said that while regulatory pressures are increasing focus on ESG, many corporations note that “resilience and risk management are in fact at the core.” He said management teams are analyzing ESG factors and refining their return on investment calculations to take into account more data on risk impacts, innovative technologies and financing options.
In the United States, Republican states and
federal politicians have in recent years strongly opposed the push for ESG compliance, saying it comes at the cost of energy security and works against national interest.
Pensions funds prioritizing ESG have also faced legal challenges from contributors, such as American Airlines pilots, who
say their retirement investments are being used for “political agendas” rather than for the primary benefit of the contributors.
Kentucky’s Democratic Gov. Andy Beshear has also joined the Republicans in opposing ESG. In signing into law a bill that requires public pensions funds in his state to consider financial risks and returns rather than ESG, Beshear
said last year that there has been a “destructive shift in investment methodology to use the savings of Americans as financial muscle to push ideological causes through the ESG movement.”
Democrat U.S. President Joe Biden last year vetoed a Republican proposal to prevent pension fund managers from prioritizing ESG.
Most Democratic-governed states and politicians say it’s important to prioritize ESG in investments. “Consideration of ESG factors alongside all other material factors does not ’sacrifice' pensioner retirements to further a political agenda; it simply acknowledges that environmental, social, and governance issues are material factors that can affect returns,” reads a letter by Democratic attorneys general addressed to congressional leaders in 2022.
