KPMG Survey Shows Most CEOs to Put ESG on Pause
A recession that’s “not mild and short” makes other things a bigger priority.
As CEOs in the US prepare for a recession that a majority believe will not be mild and short, the newly-released 2022 KPMG CEO Outlook found that in an uncertain economic environment, they are adjusting their business strategies around ESG.
They are committed to investing in transformational opportunities that will position their organizations for future growth, it found. But in the case of ESG goals, while they said they are “important,” 59% said they plan to pause or reconsider their organization’s ESG efforts in the next six months as they adjust their strategy to prepare for a recession.
This pause comes as ESG undergoes more scrutiny from various stakeholders for such reasons as frustration with the lack of standards, overhyped claims and political pushback from certain states. Still, though, the overarching business case for ESG remains positive; the same KPMG study also found that 70% of the global CEOs said their company’s ESG programs improved their financial performance — up from 37% last year. Also, these CEOs identified access to capital as the top risk pertaining to failing to meet stakeholder expectations around ESG.
Louisiana Pulls $794M from BlackRock Over ESG Policy
But a backlash is also clearly forming. Several states have put in place restrictions on their pension plans’ use of ESG to evaluate investments. And in Louisiana, the state plans to pull $794 million out of BlackRock’s funds, state Treasurer John Schroder said on Wednesday, citing the asset management giant’s push to embrace ESG investment strategies.
“This divestment is necessary to protect Louisiana from mandates BlackRock has called for that would cripple our critical energy sector,” Schroder said in a statement.
ESG a ‘Broken Idea,’ The Economist Says
Apartment industry consultant Dom Beveridge, writing for the apartment management blog, “20 for 20,” pointed to The Economist’s recent content, “ESG Investing: A Broken Idea,” which provided comment from Tariq Fancy, the former chief investment officer for sustainable investing at BlackRock, the world’s largest asset management company.
Fancy called into question the ultimate benefits of ESG initiatives, Beveridge said, claiming that “the profession is little more than ‘marketing hype, or spin and disingenuous promises from the investment community.’ He pointed out that investments were rendered acceptable according to the ESG narrative that could be established rather than hard facts about their benefit.”
The Economist also “called into question the legitimacy of current ESG measures” for several reasons, Beveridge said. “One, there are far too many of them.”
A study of six ESG rating agencies found that they used 709 metrics across 64 categories, only ten of which were common to all six agencies.
“If firms can balance poor “environmental” scores with higher “social” ones—which are heavily dependent on the prevailing political climate—it is hard to see how the scores encourage real accountability,” Beveridge said.
He said The Economist’s “strong recommendation is to scrap most of what investors currently think of as ESG and replace it with just ‘E,’ which should stand for ‘emissions’ rather than ‘environmental.’
“If companies were to hold themselves to the standard of trying to reduce emissions, stakeholders would at least have a chance to establish whether the companies were achieving their goals. There would also be a clear and broad benefit: reducing the contributions to climate change,” according to Beveridge.
Seeking a Standardized Approach
Lisa Stanley, CEO of OSCRE International, tells GlobeSt.com that in the quest to achieve zero-carbon emissions, “there is a critical need to develop a standardized approach to environmental data that can streamline data collection, analysis and reporting.
“To that end, OSCRE International recently announced the launch of the OSCRE Environmental Data Standards Project, an initiative to improve the collection, analysis and reporting of data commercial real estate stakeholders use to assess the industry’s environmental impact.”
To kick-off the project, investors, property and facilities managers, owners and occupiers, as well as external business partners, met in New York last month, she said.
“It’s important that we get diverse perspectives from change leaders willing to collaborate to develop solutions that are relevant for as many industry stakeholders as possible,” Stanley said.
Proper Metrics for Measuring the ‘G’
Susana Sierra, CEO of BH Compliance, which monitors compliance programs for multinational companies, tells GlobeSt.com that companies are facing challenges measuring long-term environmental, social, and governance (ESG) risks, especially when it comes to measuring Governance, the G.
“Delivering G strategies is not easy while also navigating increasing regulations from various governmental agencies like the Securities and Exchange Commission,” Sierra said.
“Our company recently came up with a system of metrics to analyze governance and measure results. This system was the result of seeing our clients struggle with measuring governance as their stakeholders are increasingly demanding accountability. Our experience has taught us that a company becomes a risky bet for investors when governance is not kept in check.”
Meeting ‘S’ Goals
Mary Ellen Mika, director of sustainability at Steelcase, tells GlobeSt.com that despite uncertain economic conditions, Steelcase continues to set ambitious ESG targets.
It has committed to a 50% reduction in greenhouse gas emissions by 2030 for our own operations and committed to carbon neutrality as of August 2020.
Given that “decarbonizing complex supply chains” was a major barrier to meeting net zero ambitions, according to KPMG’s report, Mika said that Steelcase is working directly with suppliers to set science-based targets by 2025.
“We’re helping our suppliers through every step in the process, including having offered a six-part educational webinar series on greenhouse” gas accounting and reporting, science-based target setting and emissions reduction initiatives.
“To date, six suppliers have set targets verified by the Science Based Targets Initiative. Fourteen suppliers have stated their intention to set targets in the next two years.
“It’s important for CEOs not to forget the “S” in ESG. To meet our “social” goals, we are developing initiatives and measuring progress across all stakeholders.
For suppliers, we have consistently exceeded our annual goal of spending at least 10% with diverse suppliers. This year, we have spent more than $110 million with diverse-certified suppliers – surpassing our goal.”
Smart Homes Contribute to ESG Initiatives
Lucas Haldeman, Founder and CEO, SmartRent, tells GlobeSt.com that investments in smart home technology “clearly” serve a dual purpose by also contributing to ESG initiatives.
“While smart home hardware is largely designed to reduce energy use and a property’s environmental impact, it can be challenging to accurately measure the influence smart products have on energy consumption,” Haldeman said.
“ESG programs require not just smart hardware to optimize energy efficiency and water usage, but also the integration of that hardware and the software support to provide robust and actionable data.
“Connected devices like smart thermostats, outlets and lighting, as well as asset protection products such as leak detectors and moisture sensors, can already be managed under a singular dashboard.
“Product integrations are essential in creating a data funnel and single source of truth, empowering data-driven decisions. The next step for the industry is the development of ESG-specific reporting tools to track and manage the success of ESG programs at individual communities, and across regions and portfolios.”
Plan Only for ‘Mission Critical’ Items
Tony Liou, president, Partner Energy, tells GlobeSt.com, “ESG is such a broad topic, so it’s reasonable for companies to fine tune their ESG strategy when there is a recession and plan for items that are mission critical.
“Now is the time to re-evaluate strategies, such as for fund raising, and to find cost-effective ways to meet your goals. While broader ESG conversations may shift out of focus, property resilience and decarbonization goals are still front of mind for companies.
“It’s about what has the most direct impact on ROI and making properties more resilient to climate change is one of them. And while decarbonization is a more complicated task, companies are also getting better at finding more efficient methods for data collection, which is key to measuring and tracking those initiatives. Currently, it’s about fine-tuning the ESG strategy and addressing what stakeholders want.”
Some ‘Doubling Down’ on ESG Efforts
Nolan Previte, CEO and president of EBI Consulting, a Boston-based company that provides due diligence, environmental, architecture and engineering, and environmental, health and safety services, tells GlobeSt.com, that while “it’s understandable for companies to look at key strategies through the lens of a looming recession, ESG initiatives contribute directly to cost, energy, and waste-reduction measures that improve ROI for our clients.
“ESG initiatives run the gamut – whether improving workplace and infrastructure, ensuring baseline compliance, reducing risk and cost, protecting the environment, or seeking quality data to access outside investment and capital — and our job is to help key stakeholders focus ESG efforts to meet their company and financial goals.
“While some clients have slowed their ESG efforts given the current financial climate, others have doubled down on it. Given the varied client needs, we’re anticipating continued growth and interest in ESG services because of the short and long-term value they create.”
Pressing Pause ‘Not an Option’
Anna Murray, Global Head of ESG, BentallGreenOak, tells GlobeSt.com, “BentallGreenOak’s ESG initiatives are not add-ons to our core business, they are firmly embedded in everything we do and the value proposition that we deliver to our investors and clients.
“As a fiduciary and ESG leader for more than a decade, we understand that the sustainable investments we’ve made and continue to make are the competitive advantages that our stakeholders will reap in good and challenging economic times. Pressing pause on ESG is not an option.”
ESG ‘Engrained in CEO Mindset’
Reid Thomas, chief revenue officer and managing director of JTC Americas, who is responsible for overseeing the day-to-day operations of the Specialty Financial Administration business unit, tells GlobeSt.com, “This survey highlights the disconnect in how ESG is defined, understood, and being reported on.
“In our experience, most CEOs, in addition to focusing on their core business, are also able to focus on the development of company culture, including ESG concepts like fair pay, employee equity, employee well-being and so on. These concepts are engrained in the mindset of CEOs and not something that is affected by recessionary forces.”
ESG Advances ‘Cannot Be Put on Pause’
Murphy McCullough, President & CEO, Skanska USA Commercial Development, tells GlobeSt.com that Skanska recognizes that the CRE industry impacts the local environments in which we operate, “and that advances in sustainability, transparency, and a healthy work culture cannot be put on pause.”
Skanska is working on some of the most innovative and sustainable projects across the country such as 9000 Wilshire in Los Angeles; 1550 On The Green in Houston; The Eight in Bellevue; and 17xM in Washington, D.C.
“These industry-changing developments wouldn’t be possible if we didn’t invest in the teams and resources that are leading them,” he said.
ESG Needs ‘Good Stewards’
Richard Ross, CEO of Quinn Residences, tells GlobeSt.com that his company is “full steam ahead” in its efforts to meet ESG goals.
In August, it released its formalized ESG policy focusing on sustainability and internal diversity, equity and inclusion efforts.
“As a build-for-rent company with investors and residents relying on us to be good stewards, it is our responsibility to deliver and adhere to ESG policies,” Ross said.
“As people are honing in on more ethically and environmentally conscious practices and adopting a more holistic view of their investments and the places they call home, we are taking an active approach to sustainable and low-impact homebuilding and operation.
“By delivering a variety of initiatives through the residential development life cycle – from design, planning, and construction to operation and maintenance – we are constantly focused on the scope of these activities to enhance our impact, both in the short- and long-term.
“For example, we have formed a strategic partnership with Palmetto to install solar panels on every house in our 207-home community in Spartanburg, S.C., with plans to expand the solar initiative to all existing and future communities. The solar panels will offset 1,247 metric tons of carbon dioxide annually, making our homes even more desirable and environmentally responsible for today’s residents.”