ESG initiatives go beyond benefitting society and the environment
According to a joint study by Bain & Company and EcoVadis released today, ESG initiatives related to sustainability, diversity, and employee satisfaction are associated with greater financial performance and growth for private enterprises.
The "Do ESG Efforts Create Value?" study examined the effects of ESG activities and results on 100,000 companies, 80% of which are private. This study offers fresh perspectives on the benefits of ESG performance for private companies and emphasises the need for private equity firms to incorporate ESG into their strategy.
“Our findings provide much-needed perspective in the debate as to whether ESG activities correlate with financial performance,” said Axel Seemann, an advisory partner at Bain & Company. “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 study looked at the correlations between financial performance and ESG results for several EcoVadis scorecard-revealed ESG actions, such as executing strategies to reduce carbon emissions and boost DEI, integrating sustainability into management practices, and sourcing sustainably. The results demonstrate that ESG initiatives not only benefit society and the environment, but they are also linked to faster revenue growth and higher EBITDA margins.
Four Companies that have more female executives perform better financially. enterprises with executive teams that are gender diverse in the top 25% of their industry experience annual revenue growth that is around 2 percentage points higher than that of bottom-quartile enterprises. Additionally, they outperform that group's EBITDA profit margins by 3 percentage points.
In sectors with high carbon emissions, using renewable energy is associated with higher EBITDA margins. Companies that use more renewable energy have higher EBITDA margins in the natural resources, transportation, and industrial goods sectors. Businesses that prioritise ethics, the environment, and labour standards throughout their supply chains are more successful. These businesses have margins that are three to four percentage points higher than those of their competitors that don't pay attention to the ESG credentials of their suppliers.
Employee happiness is higher in ESG leaders; businesses with the happiest workers expand more quickly and profitably. They outperform companies with unsatisfied personnel in terms of margins and three-year revenue growth by up to 5 percentage points and 6 percentage points, respectively. Benefits may go beyond the fundamentals of fair compensation and providing a safe workplace and may consist of childcare, educational opportunities, career training, and healthcare for both the mind and body. All of these things increase employee satisfaction, which in turn increases productivity and retention.
The prospects for private enterprises to enhance their ESG efforts, which now lag those of public companies, are highlighted by these findings. Compared to 53% of major public corporations, just 35% of large private companies receive the highest grades for carbon management, according to the study.
“These findings should motivate companies at all levels of ESG maturity to redouble their investment in accelerating their sustainability journey,” said Sylvain Guyoton, chief ratings officer at EcoVadis. “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. Ultimately, cascading these practices into their value chains can support, for example, Scope 3 decarbonization and circularity initiatives, and also puts those trading partners on the same path to value creation. Our research shows this hard work will be well worth it.”