Does ESG boost financial performance?

Companies that prioritise Environmental, Social and Governance (ESG) have seen their profits grow by 10% in the last three years, according to the Moore Global ESG Report. Businesses that invest in ESG enjoy higher revenues and greater access to finance. But while some sectors like finance and IT are embracing ESG, others, such as the public sector, have some catching up to do. Here, we’ll look at the report’s findings to understand how ESG could be the key to long-term financial success.

Understanding ESG

ESG encompasses a set of criteria that can assess a business’s impact on society and the environment. It examines the company’s carbon footprint, sustainability initiatives, team diversity, employee conditions, and community engagement. The governance aspect of ESG evaluates the company’s ethical practices and leadership structures. To put it simply, ESG is about doing business in a way that ensures profitability while also benefiting society and the environment.

The Moore Global ESG Report

To gain insight into how ESG influences business performance, the Moore Global ESG Report commissioned a survey among leaders from more than 1,260 companies with at least 50 employees across the UK, Australia, France, Germany, Italy, Netherlands, and the US. Here are some of the key points of the report:

Financial performance on the rise

Companies that have invested more in Environmental, Social and Governance in the past three years have seen a significant increase in their income, almost 10%, more than double the income growth rate of companies that haven’t prioritised ESG. Overall, businesses engaged in ESG have seen revenues jump by $3.1 trillion. According to the report, the difference between the revenue and profit figures reflects the delay between the investment companies make to implement new ESG initiatives and their coming into effect.

Improved access to capital

According to the report, 84% of businesses prioritising ESG say it has become easier to raise capital, and they have benefited from more favourable terms. Among these companies, those based in the United States reported that ESG played a role in attracting external investment. Italy followed closely at 41.8%, with Germany at 37.5%. However, not all firms say they have seen a material benefit. For instance, only 18.8% of companies surveyed in the Netherlands said it helped them attract external funding.

Rise of dedicated ESG roles

In response to the growing importance of ESG, 51% of large firms practice what they preach and have now established dedicated ESG roles within the business. Meanwhile, despite concerns over skills and staff shortages, as highlighted in an earlier PwC survey, 9.9% of businesses focusing on ESG saw their workforce grow twice as fast compared to less committed companies.

Room for improvement

While companies within sectors like IT (92.9%) and finance (92.3%) readily embrace ESG, the public sector is falling behind.

Advantages and disadvantages of ESG

Advantages of ESG

• ESG commitment is connected to nearly 10% income growth, double that of non-ESG-committed companies
• 84% of companies find prioritising ESG makes it easier to raise capital as investors favour businesses aligned with sustainable practices
• Employee numbers in ESG-committed companies grew twice as fast than in those companies not committed to ESG

Disadvantages of ESG

• Most businesses must allocate significant resources to leverage the ESG dividend
• Achieving high ESG standards may require significant changes to business models, including funding for new team members, upgraded facilities, and enhanced IT systems

The Moore Global ESG report highlights that ESG is not a passing trend or a “nice to have” but is here to stay and set to become more integral to daily business operations. It provides a compelling case for companies to invest in ESG to secure growth and profitability and differentiate themselves from the competition while contributing to a better future.