Over 90% of CEOs at large American companies believe that a recession will occur within the next 12 months, with a majority planning to rework investments with social goals or lay off employees to compensate, according to a Wednesday report by accounting firm KPMG.
While just 34% of CEOs believe that a recession would be “mild and short,” 80% believe that a recession would significantly harm their business’ growth over the next three years, according to KPMG’s survey of 1,325 CEOs at companies with more than $500 million in annual revenue, conducted from July 12 to Aug. 24. In response to mounting pressure from high inflation and declining GDP, 59% of CEOs said that they were reconsidering or pausing their environmental, social and corporate governance (ESG) goals, while 51% said they were considering layoffs.
Supporters of ESG investing, such as major investment firm Blackrock, believe that by tailoring their investment strategy to include considerations for social and environmental impact, companies are able to build more diverse portfolios that will perform better than traditional investment strategies. Detractors include 18 Republican state attorneys general, who allege that the strategy is not always in the financial interest of clients, and have claimed that managing retirement portfolios and pension funds using ESG strategies may violate state laws requiring investors to operate in the “sole financial interest” of their clients.
“It’s a classic moment of prioritizing short-term and long-term returns,” said Rob Fisher, U.S. ESG Leader at KPPG, according to the press release. “CEOs will decide whether they will prioritize next quarter’s results or recognize that in the future there is only going to be one kind of economy—a lowcarbon economy—and investments they make now will position them not only to compete, but also to thrive throughout this transition.”
The future of work is centered around a hybrid model.
“In the U.S., we certainly have a hybrid environment as our predominant model going forward for the future.” – @paulknopp
— KPMG U.S. News (@KPMGUS_News) October 4, 2022
ESG has grown increasingly popular in 2022, with 70% of CEOs believing that the strategy improved profitability, compared to 37% last year, according to KPMG. However, 28% of CEOs noted that if an ESG fund failed, stakeholder backlash may lead to increased lending costs and troubles raising capital, a particularly dangerous combination as interest rates rise.
Despite the high proportion of CEOs anticipating layoffs in the near future, 92% expect that they will grow their number of employees over the next three years, KPMG reported. CEOs, who recognize the importance of human capital, will be “generally cautious,” about layoffs, KPMG CEO Paul Knopp told Yahoo Finance.
While 95% of CEOs believe that they will be able to grow their companies over the next three years, KPMG claims that a significant amount of this growth will be “generated inorganically,” through mergers and acquisitions, as opposed to being generated through increased business activity. Mergers and acquisitions are expected to have a significant impact on growth according to 56% of CEOs.
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