COVID-19 could be catalyst for ESG adoption by tech companies, finds KPMG analysis

Published on 2020-05-20

Industry additionally calls for more regulation and sustainability standards

Technology companies are placing more importance on environmental, social and governance (ESG) practices, driven by the current COVID-19 pandemic situation, regulatory requirements and investors’ expectations, according to KPMG analysis.

The 2020 KPMG Technology Industry Innovation Surveywhich comprises responses from more than 800 global leaders in the industry from 12 countries, including 110 Chinese respondents, shows that while technology companies are aware of the importance of embedding ESG into their operations, more regulation and standards in the area of sustainability are required, as stated by 86% of technology leaders surveyed. However, only 26% of technology companies have so far significantly incorporated ESG into their strategic planning.

Meanwhile, 34% of respondents said that climate change is having a high impact on their company’s investments and funding. Stakeholders will go beyond looking at financial results to evaluate these companies COVID-19 reaction and performance in general through an ESG lens, KPMG expects.

Pat Woo, Partner, Head of Sustainable Finance, Hong Kong, KPMG China, says: “People are more reliant on technology now than ever. With technology becoming very much intertwined with our daily lives, tech companies have the social responsibility to think carefully about how their business practices are affecting society positively or negatively. We have reached a tipping point where ESG is concerned. Skin deep ESG reporting is no longer fit for purpose.  Investors, bankers and their customers are now demanding businesses to improve their ESG practices and will increasingly be asking for tech companies to be accountable for their business practices. It is essential that tech leaders take concrete steps to integrate ESG into their decision-making process and their business models.”

Beyond COVID-19, other catalysts, such as climate change and social inequality have long-lasting impact and illustrate a need for companies to embrace longer-term sustainable, robust ESG practices. There are several reasons why ESG is crucial for technology companies:

First, companies are being analysed and rated by a number of indices and research firms which provide ESG ratings and reports for investors to understand a company’s management of ESG issues. Investors will also examine the ESG rating of an acquisition target when evaluating a potential transaction.

Second, customers not only require technology companies to offer products/services at competitive prices and quality but are increasingly looking for them to improve their ESG performance. Anyone can now reveal stories via social media relating to ESG failures or undesirable business practices. These stories can circulate globally before companies can respond, causing severe reputational damage.

Third, corporations have the resources to accomplish exponentially more than individuals, and as a result bear the responsibility to be good corporate citizens. This is widely recognized by investors, customers, regulators, employees, and corporate leaders.

Finally, environmental and social changes continue to alter the business landscape. Hard-to-plan-for incidents such as COVID-19, climate change events, and cyber breaches are causing businesses high losses from suspension of operations or theft of customer or company data. Organizations that possess adaptive capacity in response to environmental and social risks will be better positioned to compete and thrive than peers that do not.

Anson Bailey, Partner, Head of Technology, Media and Telecoms, Hong Kong, KPMG China, commented: “As a growing number of technology and telecoms companies look at taking a more purpose-led and innovative approach, we see that businesses in general are becoming much more focused on driving sustainable practices at these times, integrating ESG initiatives into their overall digital transformation strategy and prioritising investment in technology improvements to reduce or monitor energy use, their carbon footprint or waste levels.”