A new study, published by Bain & Company and EcoVadis, has found that a more sustainable business is generally more profitable. The research assessed how Environmental, Social, and Governance (ESG) activities have affected the financial performance of 100,000 businesses.
The research covered 80,000 private companies and an additional 20,000 listed companies, and underscores the value of a corporate sustainability strategy, showing that most companies enhancing their social and environmental impact also see financial growth, with no significant negative correlation found.
What were the study’s findings?
The research pinpointed four strongly positive correlations between profitability and ESG. One such highlight was that businesses with the most satisfied team members have three-year revenue growth up to 6 percent above those in their sectors with the least satisfied team members. The three-year period assessed was from 2019 to 2021.
In addition, in companies with the least satisfied team members, the average net income margin was 10 percent. By contrast, in organisations with the most satisfied team members, this increased to 16 percent. Therefore, the study suggests employees at companies with a strong focus on ESG are more likely to be satisfied. This is because they are more likely to have a safe work environment and fair pay.
Not to mention, these organisations also offer additional advantages for workers, such as upskilling, healthcare, childcare, and networking. An emphasis on renewable energy procurement and energy efficiency presents another chance to harmonise sustainability with profitability. This research discovered the correlation to be especially strong in carbon and energy-intensive sectors like manufacturing and transport. Additionally, the advantage was strongest in markets like the EU, which have carbon taxes.
Another opportunity spotlighted in the research conducted by Bain & Co and EcoVadis was driving diversity in boardrooms. Those organisations with the highest share of women on their top executive team grew twice as fast during the three years as those with the lowest share. In essence, there was a 3 percent difference in median net income between these two cohorts of businesses. The company carrying out the research has attributed this trend to the fact that more diverse leadership teams can offer a broader view of risks and opportunities.
Summary
It is also important to keep in mind that those listed companies were investing and focusing a lot more on ESG than private companies. Therefore, the authors of the research are not only highlighting how ESG is an opportunity to become a more profitable enterprise but also urging leaders within the non-listed companies to step up and act against climate change. It’s clear that a big barrier for companies embracing sustainability and climate action is a lack of understanding or a clear pathway of how to tackle this pressing issue. Our corporate sustainability diploma will allow you to start your sustainable business journey today.
