Does ESG Improve Performance?
Infosys Ltd
From companies greenwashing to the sluggish regulations and adoption of human-centred business practices, it feels like ESG is still on the back foot after the 2022 backlash. But despite the setbacks and the fact that ESG is a constant work in progress, there are several reasons for it to be adopted at scale. One such compelling reason is that there is a continuous stream of statistics and facts that prove ESG improves business performance or leads to bottom-line savings.
ESG As A Core Concept
ESG is sustainability, but whenever we think of sustainability, we tend to think about the environment. While sustainability is about that, ESG’s brand of sustainability encompasses financial and human resources as well. All in all, ESG is designed to save on productivity for people, the bottom line for businesses, and use fewer natural resources without skimping on quality products and services.
To show this point, there are several studies and research projects that show ESG as a promising prospect:
A Deloitte study found that over half of executives said they anticipated benefits from ESG reporting. This includes employee retention, improved ROI, stronger stakeholder trust, higher brand reputation, and risk reduction.
Infosys conducted research that concluded there is a strong connection between ESG and financial returns.
McKinsey & Co. also found ESG lowers the weighted average cost of capital, which affects the bottom line.
Regardless of political beliefs, ESG is genuinely good for business and has proven time and again that it makes businesses all the more profitable.
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ESG Can Spur Massive Work Movements
There have been several new workforce trends, with the most notable being union mobilisation and hybrid working spaces. Even if unions are painted in a negative light by big corporations, the reality is that unions benefit everyone when they are functional and funded. It is a fact that unions can save companies tons of money and prevent them from folding at the small and medium levels.
But even if there isn’t as much information on unions' impact on profitability, there are a growing number of remote and hybrid work options. With many companies and workers getting a taste of working from home during the pandemic, the new work atmosphere enhanced their engagement with work.
All of this comes back to the sentiment that when workers are looked after and feel good, they will perform at a higher level than usual. Whether it’s unionisation or the opportunity to work from home, at the office, or both, these can improve working conditions. And at the very least, a business going fully remote will save significantly on renting office space.
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It Can Enhance Green Innovation
Research by Shahid Ali and others revealed that ESG ratings can improve green innovation. How this would work is that innovation would increase by reducing financial constraints and bolstering the environmental awareness of managers. In other words, the more people who have a better grasp on environmental issues or even a basic understanding, the more they can spark green innovation within their industry and company.
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Things Just Keep Getting Better
Yes, ESG still has a long road ahead of it, and many issues need to be addressed. Corporate greenwashing is a huge issue, yet certain regions, such as the EU, are taking active regulatory measures to start addressing it. However, with the constant testing of the various sectors of ESG, it is reassuring to see that these studies are proving that ESG is a solid business strategy and promises solid returns, both directly and indirectly.
From a wider perspective, ESG promises to set the foundations for a better understanding of how we can shift our economic activities to be respectful of our planet and its resources, and how an improved use of those resources will benefit the bottom line. If anything, that will prove to be the performance metric that creates change.
Follow our rapidly growing listing of Company ESG Profiles to see where performance is improving through ESG ratings and reports.
