Mandatory sustainability reporting is rapidly becoming a global norm. KPMG’s 2024 Survey reveals that many companies are already aligning practices, conducting double materiality assessments, and voluntarily meeting disclosure requirements.
Carbon reduction disclosures have surged, and biodiversity reporting, while less widespread, is steadily increasing. They can be a great catalyst for showcasing the need for business transformation through strategic initiatives. Of course, it’s not a journey to tread alone—the more alliances formed, the more significant the impact!
Pyumi Sumanasekara, Partner in sustainability, ESG, Family Business, and Board Governance, Global Assurance at KPMG in Sri Lanka, discusses ESG’s growing influence on boardrooms and how KPMG is helping businesses foster meaningful change from within.
ESG has become a key focus in boardroom discussions globally. What factors drive its increasing importance in boardrooms across this region, and how is this trend shaping corporate strategies?
ESG risks impact business profitability and longevity through “outside-in” and “inside-out” risk factors. Looking at examples of such aspects,
- Climate events impact businesses with losses, such as supply chain disruptions and warehouse damages caused by floods and storms. Temperature changes, for example, impact produce quality and affect human health and employee productivity. Net zero targets and incremental energy costs require a strategic relook at the business model.
- “Inside-out” impacts are the business’s impact on the environment and social factors. These impacts can have a boomerang effect on the company, its credibility, and its reputation, which can have long-term consequences.
- Growing ESG Regulations, for those in exports, bring a risk of business redundancy and diminishing access to the market whilst opening immense upward potential for countries like ours to expand our customer base. Exporters to the EU are likely to see the early impacts, while others will experience the trickle-down effects as the regulations focus on entire supply chains.
- Reporting requirements such as IFRS S1 and S2 force businesses to examine the financial impact.
Boards are being held accountable! How a business links remuneration to ESG risk is one key indication of its maturity in terms of ESG and longevity. If boards ignore these evolving risks, it’s like navigating a ship with blinders on, gambling on an iceberg-free, smooth sail!
Why is it crucial to integrate ESG into the core operations of family businesses, which often have long-term legacies and community ties?
Given family businesses’ resilience and long-term focus, ESG is deeply rooted in them. Formalizing these values is essential to sustaining their long-term legacy and reinforcing community trust.
By embedding ESG into core operations, family businesses can drive sustainable growth, achieve UN Sustainable Development Goals, and strengthen their reputations. It is about aligning purpose with profit to create lasting value, enabling intergenerational success while positively impacting communities.
Another key sector is the SME sector, as they are more agile and based on sustainable practices. They also have the potential to grow as they are preferred suppliers or unicorns.
What unique advantages or challenges do family businesses face in adopting ESG principles?
The traditional nature and values of family-owned businesses keep them resilient in dynamic environments, and their connection to communities helps them navigate challenging times. We have seen communities loyal to family-owned businesses for generations as these businesses take care of their whole ecosystem. The cradle-to-grave concept adopted by these businesses highlights that nature and society, when integrated, assist enterprises in exponential growth. These businesses have penetrated global markets and built more sustainable practices through generations and are living examples of how sustainable practices–environment or socially focused–have resulted in a competitive advantage.
However, they may face challenges such as limited resources, resistance to change due to entrenched traditions, or a lack of formal ESG frameworks.
The key is leveraging their legacy and commitment to the purpose from where their businesses make the most impact.
Beyond regulatory compliance, how can embracing ESG initiatives create tangible benefits for businesses regarding reputation, financial performance, and resilience in this region?
Experts predict climate change would wipe out 4% of GDP while regulatory changes threaten market access. With generational shifts, consumers are increasingly aware, investors and financiers are more conscious, and natural resource scarcity is undeniable.
Understanding how this impacts the current business model can help businesses adapt for future resilience and relevance.
Strategic focus and business transformation are required to harness the opportunities and prevent business redundancy. While reinvesting and maintaining business as usual may sustain some industries in the short term, it can undermine financial performance and resilience in the medium to long term.
Additionally, ESG strengthens resilience against external shocks, such as climate risks or supply chain disruptions, fostering long-term stability. Notably, businesses prioritizing ESG demonstrate accountability and purpose, which builds stakeholder trust and loyalty.
What specific solutions or frameworks does KPMG offer to help businesses align ESG with their strategic decision-making and operations?
At KPMG, we understand that ESG is not a one-size-fits-all solution; our services are tailored frameworks to help businesses combine ESG with their strategies and operations. Our ESG approach stands on three pillars of client motivators, which are compliant, strategic, and transformative. We assist organizations in developing ESG strategies aligned with industry best practices from our global hubs and KPMG standards and reporting standards such as IFRS S1 and S2, GRI, SASB, and TCFD.
ESG strategy and transformation work includes maturity assessments, ESG roadmaps, ESG scenario analysis, supply chain sustainability, regulatory heat maps, ESG governance frameworks, climate resilience toolkits, scenario analysis, and human rights policy. Our assurance services include GRI, ESG, GHG assurances, financed emission assurance, human rights due diligence, and green bond assurances.
KPMG in Sri Lanka advices large corporations and family businesses, so how does the firm tailor its ESG approach to address the distinct needs and challenges of these diverse businesses?
Our diverse teams are dedicated globally to specialized ESG topics and hubs tailored to each industry, business, and focus area, of which we in Sri Lanka are also an integral part. We draw on and share the collective knowledge of these teams to customize approaches to meet the distinct needs of each business. Locally, our team comprises a diverse skillset with individuals dedicated to specialized focus areas such as ESG strategy, human rights, supply chain, climate risk, governance, and reporting. We also work globally, assisting global teams in delivery and thought leadership across the Middle East, South Asia and ASPAC. This combination of international expertise and local specialization allows us to put forward a thorough, tailored approach that effectively addresses businesses’ diverse challenges.