ESG as a Value Driver for Building Customer Relationships, Brand Reputation and M&A Strategy

In the pursuit of adhering to the critical 2°C threshold, Environmental, Social, and Governance (ESG) principles have evolved into a pivotal driver for value creation. Business leaders in India, recognising the indispensability of ESG, acknowledge its transformative impact on sustainable and financially resilient enterprises. The KPMG 2023 India CEO Outlook Report reveals compelling trends indicating a strategic upswing in ESG adoption among CEOs, particularly in areas crucial for long-term success.

ESG Strategies as Value Drivers

CEOs in India are strategically aligning their businesses with ESG principles, with a notable 54% affirming the full integration of ESG into their operations. The KPMG report identifies seven key areas where CEOs anticipate the greatest impact of ESG strategies. Notably, ESG emerges as a potent value driver in building customer relationships, enhancing brand reputation, and influencing M&A strategies.

Customer Relationships: A Cornerstone for Success

Building sustainable brands and fostering customer relationships stand out as the top priority, resonating with 26% of CEOs. Recognising customer loyalty as a linchpin for organisational success, CEOs are intentionally focusing on enhancing brand reputation through robust ESG performance. Leading brands across various sectors are strategically incorporating ESG considerations into their Customer Experience (CX) strategies, with the potential to unlock an estimated additional $200 billion in value.

ESG as a Catalyst for M&A Strategies

M&A strategy, identified by 19% of CEOs, constitutes the second significant area where ESG is expected to exert a substantial impact over the next three years. Despite economic uncertainties, there is a noticeable surge in CEOs' appetite for M&As, rising from 42% to 48%. However, with the M&A landscape becoming more challenging, companies are increasingly leveraging ESG as a paramount value-creation tool for existing assets.

Navigating the Financing and Stakeholder Landscape

As CEOs confront the escalating importance of ESG, concerns about financing and stakeholder expectations have risen to the forefront, acknowledged by 33% in 2023 compared to 28% in the previous year. This heightened focus on ESG is propelled by shareholders seeking associations with purpose-driven organisations. Remarkably, 33% of CEOs express readiness to withstand potential scrutiny from stakeholders and shareholders regarding ESG practices.

India Inc. Pioneering Environmental Initiatives

With climate change at the forefront of global challenges, Indian companies are prioritising environmental sustainability. The report highlights that 38% of CEOs in India are actively addressing environmental challenges to achieve net zero. Environmental/climate change has risen to the second spot as a risk to growth, indicating a proactive stance by Indian CEOs in combating climate-related risks.

Opportunities Amidst ESG Focus

Despite challenges, CEOs in India anticipate a significant return on their ESG investments within three to five years. The current wave of ESG focus presents a unique opportunity for Indian companies to shift towards creating shared value for all stakeholders. Vigilance on evolving ESG regulations ensures the preservation of brand reputation and customer relationships, and positions businesses to explore new growth opportunities in this ESG-centric paradigm.

 

ESG emerges as a catalyst for value creation, aligning with customer loyalty and influencing M&A decisions. As companies navigate an evolving landscape, ESG due diligence becomes integral, emphasising sustainability for resilient and attractive futures. With heightened scrutiny and stakeholder expectations, India Inc. pioneers opportunities, positioning ESG as a transformative force for shared value creation and enduring success in the corporate arena.