Often the first question we get in a new business meeting is, “we can’t argue about the need for action, but can you guarantee that by embedding sustainability into our business will lead to more positive financial results?”. We believe people know ‘in their gut’ that it makes sense to become a sustainable business, but understandably many still need the proof.
From inception of TheESGBusiness we’ve always believed that ‘embedded business’s’ are going to be successful in the long term. But we’re also aware that the business benefits are essential to justify sustainable investment. On which we created the below to showcase the benefits of being a sustainable business.
Whilst the above makes sense, what’s the proof?
Investment pressures
“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
—Larry Fink, Founder of BlackRock
Institutional investors like BlackRock are using ESG as a framework for evaluating financial risks and opportunities. The more sustainable a business is, the lower the perceived long-term risk. Whilst most businesses aren’t required to report on ESG (yet), those that do will be more attractive to the investment community. Lenders are issuing a growing number of sustainability-linked loans, where the interest rate is linked to the borrower’s performance on a set of defined ESG criteria. Global sustainability linked loans amounted to $122 billion in 2019, up 168 percent from 2018 (1).
ESG-focussed companies also enjoy premium valuations when it comes to mergers and acquisitions (M&A). Renewable energy providers averaged valuation to EBITDA multiples of 15.2X in M&A deals between 2019 and 2021, compared to 6.1-12.8X for traditional oil and gas companies (2).
Employee pressures.
Apart from being a factor in investment decisions, ESG is also playing an increasingly important role in employee engagement and retention. Employees who work in an environment that embraces sustainability are more motivated, productive, and loyal. And this is only set to increase. By 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce, compared to 52 percent in 2019 (3). These generations place greater importance on environment and social concerns than their predecessors do – and will expect more from employers on these issues.
Consumer demand
The more concerned consumers become, the more they’re looking to make environmentally sound choices and aren’t afraid of paying more. The past 5 years has seen a 71% increase in search for sustainable goods globally (4). Not only are consumers more likely to buy a sustainable product, but they’re also prepared to pay more for it. In the USA sustainable products are at an average premium of 28% (5). This shift in consumers seeking out and paying more for sustainable products reinforces the opportunities for sustainable brands. Consumers are paying attention to sustainability, with 64 percent of them choosing, switching, avoiding, or boycotting brands based on their stance on societal issues (6).
The result
It’s good news for embedders, which is highlighted from IBM’s Institute for Business Value survey of 5,000 C-suite executives across 22 industries and 22 countries (7).
So, to answer the question “can you guarantee that by embedding sustainability into our business it will lead to more positive financial results”, it’s a resounding yes. However, it’s not a straightforward road and demands a long-term commitment. But businesses that integrate sustainability into their decision making will be the most successful in the long run.
If you’re interested to understand how your businesses can benefit from embracing ESG, please don’t hesitate to get in contact with us.
- Mercer’s Global Talent Trends 2020
- ESG considerations in M&A, Deloitte
- The Economist Intelligence Unit.
- Bain & Company. Consumers say their environmental concerns are increasing due to extreme weather. 13.11.23
- Bain & Company.
- Gallup, 2022, https://news.gallup.com/poll/389780/investors-stand-esg-investing.aspx
- IBM Institute for Business Value (IBM IBV) survey. Based on 5,000 C-suite executives across 22 industries and 22 countries.
