Sustainability: A Bottom Line Boost
Over the past few years, companies embracing Environmental, Social, and Governance (ESG) principles have enjoyed investor favour.
According to Morningstar, sustainable investment funds received a sizable $29 billion in net new money worldwide in the first quarter of 2023 despite difficulties like inflation, rising interest rates, and recession fears.
Amid increasing scrutiny of their ESG practices, companies like Tesla, Aramco, and Lamborghini risk substantial losses in value unless they improve their sustainability performance to align with consumer perceptions, warns Brand Finance.
Brand Finance cautions that numerous brands are facing imminent risks to their value due to disparities between public perceptions and actual sustainability performance. When consumers perceive a company's sustainability efforts to be better than reality, a public backlash could trigger a "correction" of their sustainability perceptions value.
Tesla, renowned for its electric vehicles and battery technology, holds a sustainability perceptions value of $17.8 billion, according to Brand Finance. However, the company faces a risk of $4.1 billion due to comparatively lower performance in governance and social sustainability, making it the most vulnerable brand in the study. Standard & Poor's removal of Tesla from its ESG Index due to labour relations concerns adds to its challenges.
Conversely, Microsoft enjoys sustainability performance that exceeds consumer perception, offering a potential $1.5 billion in untapped brand value through better communication of its sustainability initiatives and services, according to Brand Finance.
Walmart, with its strong commitment to ESG practices throughout its supply chain and ambitious renewable energy goals, has achieved a high sustainability rating. However, Brand Finance has noted that its sustainability perception is significantly behind its performance, creating a "value gap" of $1.1 billion.
To measure positive or negative "value gaps," Brand Finance compared consumer perceptions of a company's sustainability with its actual performance using data from CSRHub. CSRHub consolidates information from over 850 sources, generating a company's "consensus ESG rating."
Brand Finance considers its study a vital initial step in understanding the financial significance of sustainability perceptions for businesses and emphasises the potential value that may be at stake.
To view and compare company ESG Ratings and Sustainability Reports across sectors, follow our Company ESG Profiles page.
Source: CFO Dive