More sustainable business is more profitable business, study finds
Research into how Environmental, Social and Governance (ESG) activities have impacted the financial performance of 100,000 businesses has been published this week, evidencing that more responsible business is usually more profitable.
Published by Bain & Company and EcoVadis, the study covers 80,000 private companies and a further 20,000 listed companies. It was global, with results tracked from businesses in an array of countries and sectors.
While not every business working to improve its environmental and social impact recorded revenue growth and earnings, the majority did. And, in all cases, the study found “no strong negative correlation”.
The study highlights four strongly positive correlations between ESG and profitability. One of these is that businesses with the most satisfied employees have three-year revenue growth up to 6% above those in their sectors with the least satisfied employees. 2019 to 2021 is the three-year period assessed. Additionally, at firms with the least satisfied employees, the average net income margin was 10%. At firms with the most satisfied staff, this increases to 16%.
Employees at firms with a strong focus on ESG are more likely to be satisfied, as they are more likely to have fair pay and a safe work environment. These firms are also more likely to offer additional benefits such as childcare, healthcare, networking and upskilling.
Another opportunity to align profitability and sustainability is a focus on energy efficiency and renewable energy procurement. The study found the correlation to be particularly strong in energy and carbon-intensive industries such as transport and manufacturing. Additionally, the benefit was strongest in markets with carbon taxes, like the EU.
Promisingly, edie’s own recent research of sustainability representatives from 225 organisations found that 74% see investing in energy efficiency this year as either a high priority or business-critical priority. 70% class broader investment in the net-zero transition as this important.
The third opportunity highlighted in the Bain & Co and EcoVadis study is ensuring diversity in boardrooms. Companies with the highest share of women on their top executive team grew twice as quickly between 2019 and 2021 as those with the lowest share. There was also a 3% difference in median net income between these two cohorts of businesses.
Bain & Company attributes this trend to the fact that more diverse leadership teams can provide “a broader view of opportunities and risks”.
It bears noting that the study found that, in general, listed companies were focusing and investing far more heavily in ESG than private companies. As such, the authors are urging leaders in non-listed companies to step up.
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.