Boston Consulting Group’s new study of 300 of the world’s largest pharmaceuticals, consumer, oil and gas, technology and banking confirms a positive link between responsible business practices (ESG) or Total Societal Impact (TSI by BCG), and a firm’s bottom line.
EBITDA or earnings before interest, tax, depreciation and amortization were 3.4 percent higher among responsible oil and gas companies compared to those that did not have, say, better health, safety or environmental practices. Among pharmaceuticals that practiced sustainability or had higher ESG scores, EBITDA was up to 8 percent higher.
Go DeeperWhy This Matters
Investors are increasingly scrutinizing data on a firm’s sustainable and responsible business practices before buying long, in an attempt to limit long-term exposures from ESG related issues.
Employees, millennials specifically, not only want their employers to have a greater sense of purpose but also seek active roles in firm’s sustainability efforts.
Additionally, perhaps most importantly, customers are increasingly tuning in to any ESG information that can shape their buying, or selling, decisions.
Sustainable and Responsible Investing or SRI has also grown immensely, to $23 trillion in 2016 from just $18 trillion two years earlier, accounting for 26 percent of total managed assets, $88 trilion globally, according to a new study by McKinsey.
Long Story Short
BCG’s study is a big deal. It is basically saying that investing paradigms are shifting from what was, just a few decades ago, one where environmental, social or governance concerns were always subordinate to net income priorities, to one where those concerns matter materially now.
“If we look at the news over the past few weeks, we see prime examples of what happens to established names such as Bell Pottinger, KPMG and Miramax (Weinstein scandals) when ESG issues are ignored,” says Fiona Reynolds, managing director of the UN’s responsible investment initiative, the UNPRI in the Financial Times. “The damage can be irreparable.”
Read Some More
“Total Societal Impact – A New Lens for Strategy – Summary,” Boston Consulting Group, October 2017.
“ESG No Longer a Niche as Assets Soar – Brief,” Institutional Investor, October 2017.
