When CEOs in India were asked to state the areas in which ‘environmental, social, and governance’ (ESG) strategy will have the greatest impact over the next three years in India, 26 per cent of the CEOs said it was in building customer relationships.
Chief executive officers (CEOs) in India as well as globally are increasingly agreeing that ESG programmes contribute towards improving customer loyalty in a significant manner. Customer loyalty plays an important role in any organisation’s success, and ‘environmental, social, and governance’ (ESG) factors play a significant role in building and maintaining this loyalty. Therefore, by incorporating ESG considerations into their business strategies organisations can not only increase their customer loyalty but also improve their brand image.
Why has ESG grabbed the spotlight these days? It is because investors screen companies based on the citeria of ‘environmental, social, and governance’. Businesses are waking up to the need for climate action. They are putting in place well-defined ESG goals revolving around water, climate change, ethical embracing of AI, employee well-being, diversity and inclusion. More and more CEOs are willing to do their bit to make operations more sustainable.
Investors today prefer to associate with companies that are environmentally conscious, concerned about nature and adhere to pollution standards and so on. They go for companies that are able to effectively manage their relationships with not just their employees, suppliers and customers, but also the communities in which they operate. When it comes to governance, investors tend to place more trust in transparent companies that employ accurate accounting methods and allow stockholders a say in important issues. Clearly, companies that are open about their pay structure, submit to regular audits and uphold shareholder rights score better than those that are not.
Organisations have come to realise that firms embracing ESG will be more successful in driving shareholder returns, forming new alliances and partnerships, strengthening employee value proposition, attracting new-gen talent, building a brand reputation and driving the financial performance of the business.
According to the KPMG CEO Outlook 2023 report, about 19 per cent CEOs in India said the impact of ESG will be most in shaping their capital allocation, partnerships, alliances and M&A strategy, while 18 per cent CEOs said it will be in building their brand reputation over the next three years.
A small percentage (16per cent) felt their ESG strategy will have maximum impact in attracting the next generation of talent, while nine per cent felt it would drive their financial performance. About nine per cent felt it would be most effective in driving total shareholder return and four per cent felt it would strengthen employee engagement and employee value proposition (EVP).
It is heartening to learn that CEOs in India and globally accept that ESG challenges are primary components of their business operations and long-term strategy. A significant 54 per cent CEOs in India and 69 per cent globally have completely embedded ESG into their business with an aim to create value.
Thirty-three per cent CEOs in India compared to 32 per cent globally are prepared to withstand the potential scrutiny from stakeholders /shareholders when it comes to ESG. About 42 per cent CEOs in India compared to 48 per cent CEOs globally agree that it is possible to simultaneously address all ESG priorities.
Why do CEOs find it difficult to meet ESG goals? Well, 33 per cent CEOs in India admit that they are unable to meet the ESG expectations of stakeholders due to the high costs and difficulty in raising finance. About 20 per cent CEOs in India cite recruitment challenges as the reason for inability to meet ESG goals, while 14 per cent admit that they fail because their competitors are gaining and edge. A small 12 per cent hold disengaged employees responsible for failure to fulful ESG goals.