Why ESG activities correlate with stronger financial performance


A study by Bain & Company and EcoVadis has found that ESG activities correlate with stronger financial profitability and growth for private firms.

The study – titled Do ESG Efforts Create Value? – assessed how ESG activities and outcomes have impacted 100,000 companies, 80% of which are private. The ESG activities included sustainability, diversity and employee satisfaction.

The research examined how various aspects of ESG activities revealed in EcoVadis scorecards —including implementing practices to reduce carbon and improve DEI, embedding sustainability into management processes and procuring sustainably—correlate with both ESG outcomes and financial performance.

The study highlighted the correlation was found in the fact companies with more women on their executive teams have better financial results, as well as companies that rank in the top 25% of their industry for executive team gender diversity have annual revenue growth approximately 2% above companies in the bottom quartile.

In addition, renewable energy usage was found to correlate with higher EBITDA margins in carbon-intensive industries. In the natural resources, transportation and industrial goods sectors, companies that use more renewable energy also had higher EBITDA margins.

Companies that focus on ethics, environmental and labour practices within their supply chains were also found to be more profitable. These companies have margins 3 to 4% above those that don’t focus on their suppliers’ ESG credentials.

Bain and EcoVadis also found that ESG leaders have higher employee satisfaction, while companies with the most satisfied employees grow faster and are more profitable.

They also have three-year revenue growth up to 5% above those with less-satisfied employees and margins as much as 6% higher than those laggards.

There were also findings that emphasised opportunities for private firms to improve their ESG efforts. Only 35% of large private companies achieve top scores for carbon management, compared to 53% of large public companies.

Bain & Company advisory partner Axel Seemann said, “Our findings provide much-needed perspective in the debate as to whether ESG activities correlate with financial performance. 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.”

Ecovadis chief ratings officer Sylvain Guyoton added, “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. 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.”

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