3 February 2020 News
2019 was the year when climate change and sustainability moved from being a Corporate Social Responsibility (CSR) issue to being one of the most important boardroom challenges facing businesses, and Northern Ireland companies must address the climate and the broader sustainability agenda now in order to thrive into the future.
This is according to KPMG, which today launched KPMG Sustainable Futures, a new dedicated cross-functional division within KPMG Ireland to help clients navigate the climate change agenda, implement wider sustainability objectives and address Environmental, Social and Governance (ESG) regulations.
To coincide with the launch, KPMG released a new report outlining four clear business cases for companies to pursue a sustainable and climate-change focused agenda, along with clear evidence to support this change:
1. Long-term oriented companies are more successful
2. Climate change presents new consumer led revenue growth and cost reduction opportunities
3. A strong ESG agenda will release multiple new sources of finance
4. Companies with strong ESG principles attract and retain talent
Long-term oriented companies are more successful
A longer-term focus is needed to tackle climate change at a business level. According to KPMG’s analysis, companies that look ahead to five or more years on average experience higher revenue, earnings and market capitalisation growth than businesses that are solely focused on the short term. The analysis found that long-term oriented companies showed 130% revenue growth in the period 2003-2017, compared to 77% among short-term oriented companies.
Climate change presents new revenue growth and cost reduction opportunities
According to KPMG, the shift towards sustainable business practices offers new revenue opportunities due to demand for low emission and sustainable products and services from consumers. In Northern Ireland we can see evidence of this shift through a rise in the availability and uptake of green products and services. For example, in the renewable energy sector, the share of renewable electricity in 2019 here was almost 45%.
The report highlights that there is a premium for green, with increased margins from the sale of green, sustainable products. There is an enormous opportunity for businesses in Northern Ireland to establish their sustainable credentials and shift to low carbon business models in order to win new business from the global markets and differentiate in a crowded market. Companies are increasingly scrutinising the sustainability impact of their supply chains, with some companies expecting to deselect suppliers based on their environmental performance*.
A strong ESG agenda will release multiple new sources of finance
Where previously investing in green or ESG areas was seen as niche and too risky, it has now become mainstream and as such presents a huge opportunity for investors to diversify investments and support the transition. According to KPMG, much of the upcoming sustainable finance regulation from the EU is prompting investors to support the move to a low/no carbon economy and to climate proof their portfolios from likely impacts of climate change in the future. For example, in 2019, Green Bond issuance grew by over 50%, reaching a quarter of a trillion USD and is expected to reach $1 trillion USD in the early part of the decade. There was also a 15% growth rate of value of assets invested in funds with an ESG component globally in the first half of 2019.
Companies with strong ESG principles attract and retain talent
Climate change and sustainability have become key decision factors for graduates and experienced hires. The report points out that nearly half of employees would accept smaller salaries to work for companies that prioritise sustainability. Furthermore, when choosing a company to work for, over 70% of people surveyed are more likely to work for a company that has a strong green footprint.
Russell Smyth, Partner and Head of KPMG Sustainable Futures said:
“Irish companies are increasingly recognising that we’ve reached a tipping point on the climate change and sustainability agenda and that they have to develop strategies to address what is likely to be one of the great challenges of our times. The next decade will see the climate change agenda fundamentally alter many aspects of society, while pressure from regulators and stakeholders will change the commercial landscape for virtually all businesses across the island of Ireland.
“Investors, business owners and employees need to become fully informed and understand the potential impact of climate risk on their businesses. There will be winners and losers during this transition, and those that take action now will be best positioned to create positive opportunities from the climate transition.
“There are many positives that decarbonisation and sustainability can bring to businesses. From encouraging longer-term thinking, identifying market differentiation and revenue opportunities, through to attracting the right talent in an increasingly millennial-dominated workforce. The impact for individual businesses will be increasingly defined by the response they make over the formative years of this new decade.
“We’re delighted to launch KPMG Sustainable Futures today, which will help Northern Ireland companies navigate this new normal. The division brings together a broad range of disciplines into a single team, from sustainability professionals, decarbonisation strategists, green financiers, economists and low carbon engineers, allowing us to address the full spectrum of business needs.”
Speaking about KPMG’s investment in this new division, Managing Partner, Seamus Hand, said: “The launch of KPMG Sustainable Futures is part of our ongoing evolution of services to meet the changing needs of our clients. It is clear that sustainability will be one of the essential focus areas for most business sectors during 2020, and we look forward to partnering with our clients to help them set and meet their sustainability goals. In January, we announced plans to recruit 800 people across our business in 2020, and the establishment of KPMG Sustainable Futures is a really exciting and critical part of that strategy.”
Russell Smyth, Partner and Head of KPMG Sustainable Futures