Beyond benefiting the planet and the society, sustainability and environmental, social, and governance (ESG) measures correlate with financial performance and enhance companies' profits according to a new research.
The new study was conducted by Bain & Co and EcoVadis to assess how ESG activities impact an organization. It covered 100,000 companies tracked by EcoVadis, more than 95% of which are private.
The study revealed that there is a clear connection between sustainability and business results in the areas of sustainable supply chain, renewable energy, employee satisfaction, diversity and inclusivity.
The study found that when it comes to ESG issues, private equity executives are navigating a crosscurrent of pressures. Some limited partners and stakeholders are pushing to embed various aspects of sustainability into investment decisions and portfolio company management, while other stakeholders question its usefulness.
The research examined how various aspects of sustainability and ESG activities - things like setting ESG targets, tracking results, embedding sustainability into management processes, procuring sustainably, and putting in place programmes to reduce carbon and improve diversity, equity, and inclusion - correlate with both ESG outcomes and financial performance.
Not every analysis yielded a positive correlation, but the research did reveal that, in addition to benefiting the planet and the society, ESG activities have no strong negative correlations with financial outcomes; in fact, they are associated with encouraging revenue growth. The findings indicate that positive ESG outcomes are a trait of successful companies and that sustainability measures correlate with better financial performance.
Many factors influence a company’s financial results, and it’s not possible to say that these companies’ sustainability efforts led to their strong financial outcomes. While these early findings are encouraging, the ESG landscape remains nascent. As ESG data becomes richer and more nuanced, even stronger evidence of a relationship between ESG activities and financial results is likely to emerge.
Companies with strong ESG activities produce strong ESG outcomes. They improve carbon emissions, use renewable energy, and have more diverse leadership and talent. Working together like the gears of a pocket watch, these activities correlate with improvement in financial and operational results, including higher profitability and revenue growth, customer satisfaction and employee satisfaction.