How does ESG drive commercial value?
We are often asked what evidence exists to demonstrate the value strong ESG performance brings to a business.
A recent McKinsey study, ‘The triple play: Growth, profit, and sustainability’* is a good example, outlining an evidence based case for ESG driving shareholder returns, demonstrating the commercial value of pursuing financial performance in a way that effectively addresses environmental, social and governance factors.
“Companies that achieve better growth and profitability than their peers while improving sustainability and ESG outgrow their peers and exceed them in shareholder returns. These “triple outperformers” delivered 2 percentage points of annual Total Shareholder Return above companies that only outperformed on financial metrics, and 7 percentage points above the rest of the dataset.”
Understanding the business case
To help understand why, ask yourself if you would want you invest in or do business with an organisation that:
Was clearly future-proofing its business model to ensure it can continue to succeed in the context of changing physical conditions and shifting stakeholder mindsets.
Had an engaged, effective and efficient workforce and supplier base that came together as individuals to form high performing teams.
Had clear and comprehensive policies and practices in place to ensure it did what it said it would and did so in a responsible manner.
Had thorough risk management processes in place to identify, mitigate and manage the areas that posed risks to business success.
We’d take a guess that your answer is ‘yes’ and if it is, your thinking is aligned to that of investors and large corporates.
As beyond the distraction of acronyms and jargon, at its heart ESG is about running a business that demonstrates the four characteristics above.
*Full report: The triple play: Growth, profit, and sustainability, McKinsey August 9th 2023
