ESG topped the list of long-term investment priorities for CFOs in a new survey released by global professional services firm EY, while paradoxically also identified as the most likely area to experience near-term budget cuts, as firms look to boost short-term results.

For the study, EY’s 2023 Global DNA of the CFO survey, EY commissioned a survey conducted by FT-Longitude of 1,000 CFOs and senior finance leaders across 21 countries and 13 industry segments, from companies with revenues greater than $1 billion.

Asked to identify their top 3 long-term investment priorities in the next three years, ESG emerged as the top choice, selected by 43% of respondents, followed by technology and digital innovation, and supply chain resilience. “Sustainability” was also reported as a top 3 priority for the transformation of organizations’ finance function over the next 3 years, with “technology transformation” and “advanced data analytics” in the top 2 spots.

The report also revealed, however, that 50% of the finance leaders said that they are meeting short-term earnings targets by cutting funding in areas identified as long-term priorities, with ESG at the top of the list, with 37% planning a near-term cut or pause in spending in ESG, followed by technology and digital innovation, and talent and culture at 34% each.

The need to create long-term value while facing pressure to cut priority investment areas was one of the paradoxes facing CFOs identified in the report, and a key tension area reported by the finance leaders. Two thirds of respondents said that there were disagreements within their leadership teams over the balance between short- and long-term priorities.

This tension appears most significant for ESG, with the number one challenge – identified by 32% of respondents – reported in this area being “significant differences of opinion within our leadership team on how to balance short-term financial performance with long-term investments into sustainability priorities.”

According to EY, the impact of the short- and long-term priority imbalance fits with the results of another recent study, the EY 2022 Global Corporate Reporting and Institutional Investor Survey, I which 80% of investors reported that “too many companies fail to properly articulate the rationale for long-term investments in sustainability.”

The new EY survey highlighted the results of a “bolder cohort” of finance leaders within the survey respondents, who reported that they were pursuing efforts to significantly evolve how the finance function operates in their organizations, and were embracing digitization and culture change, as well as the development of the next generation of finance leaders. Within this cohort, 51% reported prioritizing long-term ESG investment, compared to 42% of other respondents, and nearly half (46%) said that they “strongly agree” that ESG and sustainability has increased attention on managing for the long-term. This same group, however, were also even more likely to report a near-term investment cut or pause in climate change and ESG, at 44%.

Myles Corson, EY Global and EY Americas Strategy and Markets Leader, Financial Accounting Advisory Services (FAAS), said:

“CFOs should articulate a strategy for long-term value while setting achievable targets and implementing effective performance management. Transforming the finance function will likely require a cultural shift, fostering new mindsets and behaviors within the team.”

Click here to access the study.