When the going gets tough, can Asia Pacific CEOs get ESG going?

When the going gets tough, can Asia Pacific CEOs get ESG going?

Four actions Asian Pacific CEOs can take to link climate strategy with investor priorities for value creation.



Julian Smith

Lit Ping Low
Asia Pacific ESG, Climate Change, Partner, PwC Hong Kong
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Julian Smith

Daisy Chee
Asia Pacific ESG, Climate Change, Associate Director, PwC Hong Kong
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PwC’s Global Investor Survey 2022 reveals that investors see sustainability as a priority for companies and call for greater financial discipline, action and transparency. However, our 2023 Global CEO Survey - Asia Pacific shows that CEOs are less concerned about climate risks and actions than investors would like.  

Investors see a greater climate change threat than CEOs

When we asked how exposed companies will be to financial losses due to climate change over the next 12 months and five years, fewer Asia Pacific CEOs see climate change as urgent to their business, compared to investors. The data shows that indeed, across the short and medium time horizons, significantly more investors (than CEOs) anticipate that climate change will impact companies’ financial performance.


Up to

1.8x

Likelihood that Asia Pacific investors expect greater climate change exposure than CEOs


It is possible that some disparities between CEO and investor outlooks on climate change reflect the relative urgency of other threats which CEOs face. Among the many other competing threats include inflation and macroeconomic volatility, which are taking precedence over climate responses. 

CEOs are concerned with many competing threats

The Key threats Asia Pacific CEOs face over the next 12 months, ranked by priority

CEO climate action trails investor expectations

The data also reveals that Asia Pacific CEO climate action trails investor expectations. Five measures which investors consider effective are also those that are adopted by CEOs, but the gap between expectations from investors and implementation by CEOs is wider in some areas: for example, developing a data-driven climate strategy, implementing initiatives to manage physical climate impacts and adopting an internal carbon price. 


CEO climate action trails investor expectation

CEOs are implementing measures which investors consider effective, however there is a gap between expectations and implementation for some action areas.

CEO climate action trails investor expectation



Sustainability reporting not measuring up

PwC’s research also reveals few investors have confidence in the sustainability reports and company disclosures. From the survey of investors investing in Asia Pacific, 87% think corporate reporting contains unsupported sustainability claims - contains at least some greenwashing - and seek greater transparency on the economic impact of companies’ sustainability agendas as well as the alignment of today’s ESG investment with the long-term viability of the company. 

Our survey indicates that 75% of investors trust information more if it is audited by an independent assurance provider with the same level of rigor as in financial statements, known as reasonable assurance. However, limited assurance only gives investors slightly higher levels of confidence than an internal review.



79%
Want to see the cost to meet the sustainability commitments the company has set
73%
Want to see the effect of sustainability risks and opportunities on the company's financial statement assumptions
72%
Want to see the relevance of sustainability factors to the company's business model
69%
Want to see the governance and oversight over sustainability risks and opportunities

Profitability key for investors; CEOs acknowledge future viability requires change

Profitability remains critical for investors investing in Asia Pacific, with nearly nine out of ten (85%) saying they would accept no more than a one percentage point reduction in overall returns for companies in their portfolios that take sustainability actions relevant to their business. Meanwhile, CEOs acknowledge that achieving profitability against the backdrop of the global economy is a challenge.

Our findings show that in 2023, 69% of Asia Pacific CEOs believe global economic growth will decline, compared to last year when 76% felt growth would improve. The data also reveals that 53% of CEOs in Asia Pacific believe their current business models will not survive within the next decade, whether due to changing consumer demands, regulatory development, labour shortages, technology or supply chain disruption. This is clear acknowledgement of the need to adjust. 


53%

of CEOs in Asia Pacific believe their current business models will not survive within the next decade




How CEOs can deliver on ESG in tough times

The gap between investors’ views of which climate actions are effective and CEOs’ assessment of progress on those actions suggests an opportunity for CEOs to revamp their approach to engaging investors on climate issues. Our survey results point to several actions that executive teams could consider doing differently. Four priorities stand out:

1. Put ESG and purpose at the heart of your business

Given how much is at stake, ESG can no longer be viewed as a nice-to-have. As profitability and purpose are now so interconnected, prioritising ESG at the heart of your business will improve your business strategy, performance management, marketing and investor relations. We can't let perfect get in the way of our progress. The foundations for progress are adopting ambitious but realistic targets, organising ESG data and taking tangible steps to fulfil your commitments.

2. Lay out a clear financial case for climate action

Back up your ESG purpose and strategy by understanding your financial exposure to climate risk and potential opportunity. It is critical to assess the financing impact of climate change on the profitability of industry and business extent. With profitability critical to investors, when making a case for climate action, CEOs would do well to ground their logic in the financial implications of both climate risks and climate opportunities. 

3. Maintain and demonstrate financial discipline

Stating that climate programmes are focused on value creation is just a starting point. Investors also expect executives to show positive financial results over time. To meet these stringent expectations, CEOs must have reliable and assured data to support them in assessing and enhancing climate change programmes and investments. CEOs will have to exercise discipline in managing and describing the financial impact of their companies’ climate programs over time.  

4. Improve the relevance and quality of sustainability reporting

The ability to address short and long-term climate change issues and actions, build stakeholder trust, and meet ever more stringent regulatory reporting demands, come together in the difficult but critical arena of measurement and disclosure. Clarity and credibility are essential. Disclosing more of the information that investors care about could improve the relevance of sustainability reports. Choosing to obtain a higher level of assurance can signal the importance of ESG information, help demonstrate greater trust and relevance to stakeholders and get ahead of evolving regulatory requirements, demonstrating a true commitment to and delivery of ESG.

Sustainability is key to linking climate action with value creation

PwC’s surveys suggest that CEOs can benefit by connecting their company’s climate strategy with what the investors care about most—profitability and innovation—and making the case for climate action regarding value creation. 

Sustainability is key, it is no longer a nice to have. CEOs must look at sustainability concurrent with other business priorities. At a time when competition for talent, customers and investors has rarely been more intense, sustainability can be a differentiating credential to help CEOs attract all three.

It is difficult to ignore the significance of sustainability performance in improving customer loyalty, regulatory compliance, access to talent and finance, curbing energy costs and shoring up supply chains. The progress CEOs make on sustainability now will determine how well your business can adapt to the recovery ahead.

Contact us

Ivy Kuo

PwC Asia Pacific Sustainability Leader, Partner, PwC China

Andrew Chan

Asia Pacific Sustainability, Strategy, Transformation, Clients & Markets, PwC Malaysia

Tel: +60 3-2173 0348

Lit Ping Low

Asia Pacific Sustainability, Climate Change, Partner, PwC Hong Kong

Tel: +852 2289 3680

Daisy Chee

Asia Pacific Sustainability, Climate Change Associate Director, PwC Hong Kong

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