The world of business is increasingly recognizing the importance of Environmental, Social, and Governance (ESG) factors, as evidenced by a recent survey conducted by EY. The survey, titled “2023 Global DNA of the CFO,” reveals that ESG has become the top long-term investment priority for Chief Financial Officers (CFOs). However, in a paradoxical twist, ESG is also the area most likely to experience near-term budget cuts as companies strive to boost short-term results.

The survey, which involved 1,000 CFOs and senior finance leaders across 21 countries and 13 industry segments, found that 43% of respondents identified ESG as their top long-term investment priority for the next three years. This was followed by technology and digital innovation, and supply chain resilience.

However, the survey also revealed that 50% of finance leaders are meeting short-term earnings targets by cutting funding in areas identified as long-term priorities, with ESG at the top of the list. Specifically, 37% of respondents are planning a near-term cut or pause in spending in ESG.

This tension between short-term financial performance and long-term sustainability investments is a significant challenge for businesses. As the survey reports, “significant differences of opinion within our leadership team on how to balance short-term financial performance with long-term investments into sustainability priorities” was identified as the number one challenge by 32% of respondents.

Myles Corson, EY Global and EY Americas Strategy and Markets Leader, Financial Accounting Advisory Services (FAAS), suggests that “CFOs should articulate a strategy for long-term value while setting achievable targets and implementing effective performance management.”

This news is both encouraging and concerning. On one hand, it is positive that ESG factors are being recognized as a top priority, reflecting the growing awareness of the importance of sustainable business practices. On the other hand, the fact that ESG is also the area most vulnerable to budget cuts indicates a potential disconnect between companies’ long-term strategic goals and their short-term financial objectives.

The wider use of ESG ratings in business could help to bridge this gap. ESG ratings provide a measure of a company’s sustainability performance, which can be used to inform investment decisions and strategic planning. By integrating ESG ratings into their decision-making processes, companies can better align their short-term actions with their long-term sustainability goals.

However, the future of ESG will depend on how businesses manage this tension between short-term financial performance and long-term sustainability. If companies continue to prioritize short-term gains over long-term sustainability, the progress towards a more sustainable business model could be slowed. Conversely, if companies can successfully integrate ESG considerations into their short-term decision-making processes, this could drive a significant shift towards more sustainable business practices.

You can read the full report here.