The current macroeconomic environment of high inflation and interest tightening has put an added burden on chief financial officers to refocus their firms’ financial priorities. Much of that endeavor includes seeking avenues for increased efficiencies. Another area of focus has been emphasis on meeting short-term financial objectives (earnings and revenue growth) to appease analysts and investors. However, CFOs should be careful not to lose sight of the importance of environmental, social, and governance (ESG) standards.
EY’s 2023 Global EY DNA of the CFO Report provided insight into CFOs’ current points of emphasis and implications for ESG priorities. The results could be revealing for exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG ).
While ESG investing remains a favorite stomping ground of critics, there’s no refuting that QQMG’s mix of ESG and mega-cap growth equity exposure is delivering for investors. The exchange traded fund’s 41.57% year-to-date gain indicates that much. Still, there’s work to be done in terms of renewing corporate commitment to ESG.
CFOs Can Lead the Charge
For some market participants and investors tapping assets such as QQMG, an evolving concern could be that as CFOs exercise more prudence over the near term, they’ll merely pay lip service to ESG. That could compound fears about greenwashing — an issue that QQMG’s methodology seeks to keep investors clear of.
“80% of investors surveyed said ‘too many companies fail to properly articulate the rationale for long-term investments in sustainability,” added EY. “This could undermine investors’ willingness to tolerate short-term performance trade-offs. The same research found that investors are supportive of necessary trade-offs: 78% think companies should make investments that address ESG issues, even if it reduces profits in the short term.”
It’s not that CFOs are abandoning environmental, social, and governance considerations. Various surveys, including the EY poll, suggest that ESG and sustainability commitments remain on financial bosses’ radars. However, these executives face a delicate balancing act. Their task is to ensure their firms meet or beat near-term forecasts while positioning corporate finances for long-term success. ESG fits more in the latter camp than the former.
While beating short-term forecasts is often rewarded, CFOs might want to heed an important finding in the EY study. Nearly 80% of the investors polled thought it was worth it for companies to make broader ESG investments, even if it meant some near-term financial crimping. That level of ESG commitment by investors could also be a long-term positive for assets such as QQMG.
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