CFOs increasingly prioritizing ESG issues along with addressing talent shortage

Environmental, social and governance (ESG) investment has quickly progressed from a mere compliance issue to a core value for many organizations.

“It was transformational when, two years ago, the Business Roundtable changed its statement on the purpose of a corporation from existing principally to serve shareholders to one that benefits all stakeholders, including consumers, employees and communities,” said Jim Burton, partner, ESG and sustainability, for GrantThornton. “Today, CFOs and other business leaders increasingly see ESG as a key value driver that’s central to their mission and success.”

This rapid adoption of ESG was a key finding in the company’s third-quarter CFO survey.

Fifty-seven percent of respondents report that prioritization of ESG has increased since the start of 2020, with 23 percent saying that it is much more important.

Seventeen percent see ESG as a fundamental driver of financial success, and an additional 69 percent say ESG is either a top consideration or equally as important as financial success.

Only 14 percent believe ESG is a minor consideration or that financial results are the only thing that matters.

When asked about the biggest challenges facing their business, respondents say concern about ESG reporting and disclosures jumped from 13 percent in the second quarter to 27 percent in the third — the largest increase in any category.

When asked about the desired end state of their ESG program, almost half aim to be consistent with peers and stakeholder expectations, while 42 percent aspire to be known as market leaders and innovators.

Perhaps most telling, nearly eight in 10 respondents report that their companies are integrating ESG expectations into both performance evaluations and compensation.

The biggest drivers of ESG are inside, not outside, the company. When CFOs were asked which stakeholders are pushing their organization to enhance the maturity of their ESG programs, employees (42 percent) were the most commonly cited group, followed by organizational leadership (39 percent).

When CFOs were asked to rank the top ESG issues for their organizations, employee retention and development (35 percent); diversity, equity and inclusion (30 percent); and employee health and safety (27 percent) took the top three spots.

Several other issues are top of mind for CFOs as they look ahead to 2022.

Workforce. Seven in 10 are concerned that talent shortages threaten their ability to meet short-term strategies — up from 64 percent in the second-quarter survey — and concern about controlling overall benefit costs has edged up to 70 percent from 68 percent.

Meanwhile, plans to return to a full-time in-office culture dropped to 28 percent from 33 percent, while the percentage of CFOs reporting plans for a hybrid employment model jumped to 59 percent from 50 percent. When asked about their top workforce priorities for the next 12 months, attracting and retaining talent (49 percent), managing a hybrid workforce (47 percent), maintaining or improving culture (45 percent) and addressing employee work/life balance concerns (44 percent) top the list.

Economic outlook. There’s an overwhelming margin (69 percent to 12 percent) between CFOs who are optimistic about the U.S. economy over the next six months and those who are not. When asked about potential impact on their business on a range of topics, they were most concerned about the continuing pandemic (52 percent), workforce shortages (51 percent) and supply chain disruptions (48 percent). On the positive side, 48 percent anticipate that the proposed infrastructure legislation could aid their business.

Inflation. CFOs are expecting expenses to continue to edge up in most categories. While the Federal Reserve continues to believe that current inflationary pressures will recede as pandemic anomalies are resolved, CFOs will be keeping a close eye on costs. Recruiting, compensation and benefits will continue to be concerns. Employers have had to boost wages, but that alone is not solving recruiting challenges

“While CFOs are fairly confident that the economic recovery from the COVID-19 pandemic will continue, conditions remain volatile and unpredictable,” the survey report concluded. “Organizations expect more disruption and are updating their plans to build resiliency, rethinking which investments can drive growth and keeping a close eye on cash flow and reserves.