The U.S. CEO Outlook: Why CEOs are leaning into their corporate purpose and values to drive action on ESG.

Second Issue

Introduction: Today, KPMG announced we are investing $1.5 billion over the next three years to drive our KPMG IMPACT ESG solution to help our clients create a more sustainable future while driving measurable growth today.

The collective investment will focus on delivering expertise to teams and clients through collaboration with New York University Stern Executive Education and in partnership with University of Cambridge , as well as our own commitment to bringing expertise to emerging markets. It also means enhancing our alliances with Google Cloud, Microsoft, Salesforce and ServiceNow to develop and bring to market innovative solutions that help businesses go from strategy to operations to reporting.

All this activity builds on a foundational effort to formalize our ESG commitments under one strategy aligned to the World Economic Forum (WEF) and International Business Council’s (IBC) Stakeholder Capitalism Metrics we helped develop, and closely tracks with essential United Nations Sustainable Development Goals.

Why are we doing all this? We believe ESG makes business better. Effective engagement creates value, mitigates risk, builds stakeholder trust, and delivers competitive advantage. While it is often framed around long-term societal challenges, proactively addressing ESG factors also brings benefits that can be realized today.

The KPMG 2021 U.S. CEO Outlook revealed that 61% of CEOs are leaning into their corporate purpose and values to drive action on their ESG initiatives. Further, 52% of U.S. CEOs are reporting significant demand for increased reporting and accountability led first and foremost by investors. CEOs realize that embedding purpose into everything they do can create long-term value for all stakeholders, and it’s changed how business leaders view ESG.

Ally Financial’s CEO Jeffrey Brown understands that it’s not an “either or” decision. In the U.S. CEO Outlook report, he shared: “We used to face this question around whether being a purpose-driven company is mutually exclusive with what our stockholders want. It’s not at all…being a purpose-driven organization is deeply aligned with shareholder value creation.”

Nearly two times more U.S. CEOs said their companies’ ESG programs improve financial performance than those that said they reduce it. Achieving this success takes vision.

Rob Fisher , KPMG IMPACT and ESG National Leader, explains that anticipating stakeholder expectations, identifying ESG issues to focus on, and assessing the gaps, risks and opportunities are the fundamentals of building a purposeful strategy. He also sees parallels between digital transformation and ESG, saying “I would like to think of ESG for the 2020s and beyond as what digital transformation was for the 2010s—a critical way for organizations to compete better and disrupt how they do it.”

What we’re seeing:

—??Demonstrating accountability. Reporting and accountability around ESG will become an even bigger focus of CEOs, as stakeholders expect to know where companies are on their ESG journeys. In this article, Maura Hodge , KPMG IMPACT Audit Leader, provides 5 steps on how companies can understand the different standards, metrics and ratings frameworks to help companies successfully track performance. Further, Maura and KPMG IMPACT Audit Partner Julie Santoro just released a report to help clients understand the impacts of climate change on financial disclosures. Take the time to hear them walk through key concepts here .

—??Tax Governance. A recent LinkedIn article from our Tax Vice Chair Greg Engel explains how ESG serves as a mechanism to mitigate tax risk. According to Greg, tax intersects with “all three ESG dimensions, as tax policies are often utilized as both a carrot and a stick to achieve desirable ESG outcomes.”

—??Tax and the M&A market. With nearly half of this year’s U.S. CEO Outlook respondents indicating they have a high appetite for M&A to achieve growth , tax implications related to ESG become an important part of M&A tax due diligence. My colleagues David Dietz and Eric Janowak share specific approaches to address differences based on industry and jurisdiction, and pose questions investors should consider in the M&A process.

—??Digital transformation serves as an accelerator of ESG initiatives. Seventy-four percent of U.S. CEOs in this year’s CEO Outlook said their organization’s digital and ESG strategic investments are inextricably linked. ?As Ray Scott, President and CEO of Lear Corp , mentioned in the U.S. CEO Outlook, “The investments we’re making are not designed only around digitalization and automation within our manufacturing plants ; they’re also intended to create a much more environmentally friendly production process.”

Actions KPMG is taking:

—??Walking the talk: We have a lot of activity we can’t wait to share across the four WEF-aligned pillars of People, Planet, Prosperity and Governance that are guiding our approach to advancing our ESG commitments, but for now a few highlights. As part of our own journey, we?are?committed?to?becoming a net-zero carbon organization by 2030,?while also?achieving a 50% reduction of direct and indirect GHG emissions over the same time.?We are doing some exciting things to further embed environmental sustainability within our firm such as establishing an internal price on carbon to factor into business and investment decisions, operating on 100% renewable energy since 2019, and transitioning to new power purchase agreements that will add more renewable energy to the grid.

To help grow a culture and workplace that promotes diversity, equity and inclusion (DEI) we launched Accelerate 2025 , our collective commitment to guide our DEI journey and keep us accountable against our goals. We’ve set a goal?that 50% of our partners and managing directors come from under-represented groups, including a doubling of Black representation, as well as a 50% increase of Black and Hispanic/Latinx representation in our workforce.?We are focused on acting with urgency against these commitments, recognizing change is long overdue, and the expectations of our people and clients have never been higher.

Final takeaway: It’s clear that U.S. CEOs aren’t aiming to just grow their businesses. They also want to build a better society. CEOs will continue to lean into their corporate purpose and values to drive action on their ESG initiatives. Accountability around such initiatives will become an even bigger focus of CEOs, as stakeholders expect to know where companies are on their ESG journeys.