ESG activities correlate positively with stronger financial performance, according to a new study released by global management consultancy Bain & Company and sustainability ratings provider EcoVadis, with apparent benefits including faster revenue growth and stronger margins.
For the study, “Do ESG Efforts Create Value?,” the companies assessed the impact of ESG activities on 100,000 companies tracked by EcoVadis, examining how activities such as setting ESG targets, tracking results, embedding sustainability into management processes, procuring sustainably, and putting in place programs to reduce carbon and improve diversity, equity, and inclusion correlate with ESG outcomes and financial performance. 80% of companies studied were private companies.
The study found that there were no strong negative correlations between ESG activities and financial outcomes, while finding positive correlations in several areas.
Axel Seemann, Advisory Partner at Bain & Company, said:
“This new data shows that positive ESG outcomes are a trait of successful companies. This should encourage private companies and investors to confidently double down on ESG efforts. We only expect this correlation to strengthen as ESG data becomes richer and more nuanced.”
The report highlighted four specific connections found between business results and various ESG aspects, including diversity, equity and inclusion, with companies ranked in the top quartile of their industry for executive team gender diversity outperforming bottom quartile companies on revenues by 2 percentage points and on EBITDA margins by 3 percentage points; renewable energy, with companies in carbon-intensive industries reporting higher EBITDA margins; sustainable supply chains, with companies focused on ethics, environmental and labor practices in their supplier procurement enjoying 3 – to 4 percentage points higher margins, and; companies with ESG activities focused on the workplace having higher employee satisfaction, 3-year revenue growth up to 5 percentage points above those with less-satisfied employees, and margins up to 6 percentage points higher as well.
Sylvain Guyoton, Chief Ratings Officer at EcoVadis, said:
“These findings should motivate companies at all levels of ESG maturity to redouble their investment in accelerating their sustainability journey. For companies in nascent stages, this means developing sustainability management systems with policies, action plans and reporting. Companies at mature stages can pursue more advanced capabilities such as regenerative resource management and product circularity… Our research shows this hard work will be well worth it.”
Click here to access the study results.