What CEOs are responding to ESG, digitalisation and supply chain issues

The pandemic, climate change and geopolitical events are driving manufacturing industry executives worldwide to focus more than ever on a dual transformation: smart digitalisation and Environment, Society and Governance (ESG) goals, according to KPMG’s research.The findings are based on KPMG International’s “Global Manufacturing Propects 2022″ global survey among 150 CEOs of manufacturing companies in 11 countries in Europe, North America and the Asia-Pacific region. Three quarters of them come from companies with annual revenues of 1 billion dollars or more.

The CEOs of manufacturing companies have learned two important lessons from the pandemic: the vital importance of a resilient supply chain and the need to invest in new technologies to enhance resilience, both avoiding disruptions for businesses and leveraging them. As long as manufacturing companies take action to ensure a healthy supply chain, this can empower companies to withstand financial shocks in the future and improve their competitiveness.

“The need for resilience forces companies to be more flexible and make better and faster decisions. Digitalisation plays a vital role in this direction,” said Grant McDonald, Global Sector Leader, Aerospace and Defense at KPMG International.

“Undoubtedly, a healthy and resilient supply chain contributes, among other things, to a healthy environment of a manufacturing company as it shields it against difficult economic conditions.It is also a fact that the successful implementation of the digital transformation, which concerns not only the adoption and application of new technologies, but also the successful change in the corporate culture, combined with the inclusion in the strategy and the gradual implementation of a full agenda on ESG issues, ensure a sustainable future for manufacturing companies.At the same time, it is obvious that the interest of everyone, consumers, authorities, employees, shareholders and investors, is increasingly turning to manufacturing companies, which are in line with digital technologies and sustainability criteria, which are expected to create value and contribute to profitability in the long term.”, commented Alexandros Veldekis, General Manager, Audit Services, KPMG in Greece.

Among the main findings of the survey, supply chain risk is considered the most important risk to the development of the business. More than two-thirds (68%) of CEOs report that they aim to ensure the resilience of their supply chain in the event of a major global disruption at some point in the future.

Also, the main way to reduce supply chain pressure is for the company to control the supply chain more deeply in order to anticipate changes before their impact becomes significant.

Moreover, the main operational priority for achieving the growth targets over the next three years is to invest in the digitalisation and interconnectivity of all operational sectors.

Additionally, the pandemic has led CEOs to ask deeper questions: 77% say they feel a stronger emotional connection to their company since the start of the pandemic. In addition, 67% of CEOs say the overall purpose of their business is to provide long-term value to shareholders, almost five times higher than those who focus on financial returns.

Furthermore,  ESG targets, however, are not primarily seen as a development tool by the CEOs surveyed. A notable minority (31%) report that adherence to ESG improves economic performance, but 54% say it has a neutral effect. Primarily, 92% believe that communicating a sense of purpose will have the greatest impact on customer relationships.

Finally, on the issues of environment, society and governance, CEOs are focusing more on the second factor when it comes to the pandemic. However, they do not ignore environmental targets: 71% see “global challenges” such as income equality and climate change as the biggest threats to long-term growth.

To sum up, the combination of the pandemic and climate change is accelerating digital transformation as companies look for tools to limit new risks and maximize new opportunities. Research shows that CEOs have not yet had the time to fully assess the relationship between digital transformation and ESG.

“Manufacturing companies will now have to focus on a dual transformation: smart digitalisation and ambitious targets in relation to ESG. If implemented effectively, these two transformations are likely to reinforce each other to create a more competitive business and a more sustainable planet,” said Stéphane Souchet, Global Head of Industrial Manufacturing at KPMG International.