Collaboration needed to meet ESG targets says KPMG

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Key Findings – ESG Revolution Survey, 2022

  • Only 39 percent of leaders believe that they will have implemented the operational changes required to meet their ESG targets by 2030
  • 94 percent of CFO leaders believe Social Responsibility will be an important priority for their organisation in 2030
  • 43 percent of leaders said complying with regulatory change will be one of the top three challenges when it comes to ESG

Collaboration between industries, all levels of government and communities is critical if Australian organisations are going to meet ESG targets, according to KPMG Australia’s new report and survey “30 Voices on 2030: The ESG Revolution“. Whilst some initial ESG targets have already been met, more complex challenges lie ahead including Scope 3 emissions, circularity, and ethical sourcing.”

The report aims to understand how, over the next eight years, key sectors of corporate Australia are planning to become purpose-led, sustainable organisations with ESG embedded into strategy and business functions. It presents interviews with 30 leaders combined with a survey of a further 245 executives highlighting the need to turn commitment into action.

Regulation is seen as important to align whole-of-economy standards – yet there are many examples already where regulation is inconsistent across different jurisdictions, both locally and internationally. This will make it harder for organisations to invest with confidence.

“Leaders agreed that the ESG challenge is already accepted and is a priority for business. Many have set goals. But as we look towards 2030 there is a lot of work to be done to put programs in place to achieve these targets. They literally need to turn these commitments into meaningful action – and quickly,” said Trent Duvall, National Industry Leader Corporates, KPMG Australia. “Some companies have started action planning and implementation, but all concede that they have a long way to go. By 2030, the job of achieving their ESG goals will be far from over.”

Mr Duvall emphasised that corporate Australia has accepted the need for clear goals and transparent action on key ESG elements especially net zero, ethical sourcing, diversity and inclusion, and zero landfill. He said many have already set these goals and released one or several sustainability reports and that was positive however the complexity of the challenge is well recognised.

“Many ESG issues are complex, especially when considering the need to include both upstream and downstream supply chain partners. For many organisations these issues are outside of their direct control,” he said. “For some ESG issues, the solution pathways don’t yet exist and therefore there is a great need to undertake ongoing research and innovation.”

Robert Poole, National ESG Leader – Corporates KPMG Australia said, “Key leaders in corporate Australia are already planning the implementation of ESG practices into their business from now until 2030. They understand action is needed and most are already moving beyond aspiration to commitment. The 30 voices reflect the fact that fulfilling an organisation’s ESG goals requires supply chain transparency, innovative partnerships, maintaining social licence, circular integration and integrated data and systems.”

Mr Poole said there was considerable upside for coporates in setting and delivering on ESG objectives: “Organisations that deliver real ESG outcomes and do this in the most trusted, measured and cost-effective way will create a competitive advantage. ESG KPI’s must be embedded as lead indicators in all divisions of the organisation and integrated into functions such as finance, operations, procurement, people and customer.”

ESG journey to 2030 Key Findings

  1. By 2030 all clients will still be on a journey to maturity, with many well on their way to achieving their decarbonisation targets. However, under half of respondents said that they would be setting up for operational change.
  2. Larger businesses will be significantly more mature with embedding ESG into their businesses than the small to mid-size businesses.
  3. Companies will be better at adapting to and managing the risks that extreme weather events pose to their business operations, infrastructure and people. 38 percent of respondents believe that in 2030 physical climate risk and the resilience of their value chains will be a priority. This increases to 60 percent amongst businesses over $500m+.

2. Accountability, responsibility and regulation

  1. Directors will be personally accountable for their Company’s decisions around environmental and social action.
  2. The CFO is leading performance monitoring and ensuring it is integrated into governance. 100 percent of all CFO respondents said governance would be more important in 2030 with environmental (88 percent) and social (94 percent) following close behind.
  3.  In 2030 almost half of the respondents we spoke to believe that a driver of change will be the need to accommodate shareholder, board and investor views.
  4. Governments across Australia will be expected to align ESG regulations and standards, reduce the cost of compliance and provide the right settings for investment in infrastructure and materials.

3. Supply chain and operations

  1. In 2030, supply chains will be fully transparent to customers in real time and at every step, 59 percent of respondents said they will be focused on their customer experience along the value chain.
  2. Cross-sector and whole-of-supply-chain partnerships are the only way to solve complex problems.
  3. Companies that have operations and/or supply chains that harm people or damage the environment will risk their brand reputation and social license to operate
  4. Companies will have gone beyond vertical integration and have invested in circular integration.
  5. Sensors, digitisation and automation will make it easier to collect and analyse the data the business needs to keep costs down and innovate.
  6. In 2030, farmers and agricultural enterprises have fully grasped the opportunity to provide ecosystem services.

4. The ESG Workforce

  1. A company’s workforce will influence policy and practice just as much as customer and investors. ESG will be critical to recruitment and retention of talent.
  2. Meeting diversity and inclusion targets continues to be a challenge for businesses with the focus on actual inclusion and equal voice, not just metrics. 60 percent of respondents from large businesses said this would be a priority in 2030.