Sustainability and climate issues are moving back into focus for senior executives globally, with more than half of CEOs reporting that sustainability is a higher priority now than it was a year ago, and decarbonization found to be the top long-term strategic priority for CEOs, according to a new survey released by global professional services firm EY.
For the study, EY’s CEO Outlook Pulse Survey, EY surveyed 1,200 CEOs from large companies across 21 countries and five industries, as well as 300 institutional investors in 21 countries. The surveys were conducted by FT Longitude on behalf of EY.
According to the survey, 54% of CEOs reported that sustainability is being given a higher priority by them and their boards than it was 12 months ago, while 23% said that sustainability has been deprioritized at their companies, mostly due to challenging economic or financial circumstances.
By region, respondents in the Americas were the most likely to report that sustainability has become a higher priority, at 62%, and the least likely to report de-prioritization, at 16%, compared with 51% increasing prioritization and 27% decreasing in Europe, and 49% increasing and 25% decreasing in Asia-Pacific.
The survey also found that sustainability-related issues were more of a long-term focus are for CEOs, with only 16% including decarbonization of business models and achieving net zero as a top-3 strategic priority over the next 12 months, compared with 47% prioritizing investing in technology and AI to improve growth and productivity in the top spot. Over a 3-year horizon, however, decarbonization was the most-often cited strategic priority, at 43%.
The increasing prioritization – particularly over longer-term horizons – comes as CEOs reported feeling more confident in their business prospects, with 60% saying that they are more optimistic about their companies’ revenue growth, and 65% more optimistic about profitability, compared with 12 months ago. The findings align with those of a 2023 EY survey of senior corporate finance leaders, which found that while sustainability remained as a top investment priority, it was also the most likely area to experience near-term budget cuts in the current inflationary and geopolitically unstable environment in order to meet short-term earnings goals.
Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, says:
“A misalignment in priorities between short-term financial returns at the expense of achieving sustainability targets more swiftly may be shortsighted. Although it’s reassuring to see that CEOs remain positive about their business outlook with many remaining committed to accelerating or delivering on their decarbonization targets, the fact that nearly one in four CEOs are moving sustainability down their business agenda is disappointing for those who look to companies to set the tone of this topic.”
Interestingly, the views of the CEOs contrasted with those of the institutional investors, with only 28% of respondents to the investor survey reporting that sustainability is a higher priority that it was 12 months ago, while 35% said it is a lower priority. Similarly, 73% of CEOs agreed that activist investors are more concerned with near-term financial results than with performance against long-term sustainability metrics.
Despite the divergence on prioritization, the survey found several areas of broad agreement on sustainability issues between the executives and investors. For example, 73% of CEOs and 67% of investors agree that companies are “greenhushing” in response to fears of being accused of greenwashing, while 74% of CEOs and 67% of investors said that company balance sheets face risks from stranded assets caused by ESG factors, and 74% of CEOs and 73% of investors believe that consumer behaviors are still not aligned to sustainability goals.
Additionally, both CEOs (75%) and investors (70%) broadly agree that technology and AI hold the answers to many of the key sustainability challenges facing their companies.
Guerzoni added:
“Achieving sustainability targets can be challenging, particularly in a difficult, cost-focused market, but the thrust toward a sustainable future is not just a financial and business imperative but a shared commitment across the corporate world.”
Interestingly, the views of the CEOs contrasted with those of the institutional investors, with only 28% of respondents to the investor survey reporting that sustainability is a higher priority that it was 12 months ago, while 35% said it is a lower priority. Similarly, 73% of CEOs agreed that activist investors are more concerned with near-term financial results than with performance against long-term sustainability metrics.
Despite the divergence on prioritization, the survey found several areas of broad agreement on sustainability issues between the executives and investors. For example, 73% of CEOs and 67% of investors agree that companies are “greenhushing” in response to fears of being accused of greenwashing, while 74% of CEOs and 67% of investors said that company balance sheets face risks from stranded assets caused by ESG factors, and 74% of CEOs and 73% of investors believe that consumer behaviors are still not aligned to sustainability goals.
Additionally, both CEOs (75%) and investors (70%) broadly agree that technology and AI hold the answers to many of the key sustainability challenges facing their companies.
Guerzoni added:
“Achieving sustainability targets can be challenging, particularly in a difficult, cost-focused market, but the thrust toward a sustainable future is not just a financial and business imperative but a shared commitment across the corporate world.”
(ESG Today)
