How do ESG goals impact a company’s growth performance? (2024)
Environmental, social, and governance (ESG) goals are part of nearly every large company’s agenda. But with ESG criteria coming under increasing scrutiny and corporate budgets getting squeezed, do CEOs who courageously pursue sustainable and inclusive growth deliver for shareholders?
We’ve known for some time that C-suite leaders who chase growth without considering how their strategies could impact people, the planet, and their firm’s long-term sustainability increase reputational risk. New McKinsey research now reveals they are also less likely to lead their companies to full growth potential.
We analyzed a comprehensive set of performance metrics for the 10,000 largest global companies spanning 2016–22, with a particular focus on the past five years, a period of unprecedented upheaval that saw the world move from a low-interest-rate, relatively calm business environment to one roiled by the COVID-19 pandemic, generationally high inflation, deepening geopolitical tensions, accelerating climate events, and the rise of generative AI.
Our findings reveal that while strong ESG scores do not compensate for weak fundamentals, “triple outperformers”—companies that achieve stronger growth and profitability than their peers while improving sustainability and ESG scores—deliver two percentage points greater annual excess TSR than companies that excel only on financial metrics (exhibit). Between 2017 and 2021, a period where fewer than one in four companies enjoyed annual revenue growth in excess of 10 percent, more than half of triple outperformers reached or exceeded that benchmark.
“CEOs are navigating an increasingly demanding business landscape where their every move is dissected like never before,” said McKinsey senior partner Michael Birshan. “Our research suggests that not only can companies do well while doing good; they can perform better because of it.
Boosting shareholder returns with sustainable, inclusive growth is one of six strategies for continuous growth outperformance we’ll explore in our forthcoming report, Courageous Growth, the latest installment in our landmark research series for C-suite leaders who explicitly choose growth, activate pathways to drive it, and master our ten rules for achieving it.
Because even when funding is scarce and the economic outlook is uncertain, C-suite leaders who commit to growth and stay the course by maintaining a through-cycle mindsetsteward their companies to the pinnacle of growth performance.
ESG risk management supports sustainable, long-term growth by proactively evaluating potential issues; early knowledge of potential risk provides more time to adapt and develop cost-mitigating strategies.
Our findings reveal that while strong ESG scores do not compensate for weak fundamentals, “triple outperformers”—companies that achieve stronger growth and profitability than their peers while improving sustainability and ESG scores—deliver two percentage points greater annual excess TSR than companies that excel only ...
We find that ESG performance has a positive and highly significant relationship with firm value and profitability with a coefficient of 0.008 and 0.049 respectively.
ESG scores let organizations and their investors compare one company against another. Benchmarking. Beyond comparing vendors, an ESG score can enable broader industry benchmarking to understand how a specific industry vertical scores and where different companies fall within the results.
2. Cost reductions ESG can also reduce costs substantially. Among other advantages, executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 percent.
ESG refers to the environmental, social, and governance aspects of a company's operations that can affect its performance and value in the market. By considering these factors, businesses can better manage risks, unlock opportunities, and drive positive change within society.
ESG program has become crucial for long-term value and business resiliency through efficient use of natural resources and effective policies on social and economic aspects. A country which has a good ESG performance would achieve higher economic growth.
By evaluating factors such as carbon footprint, energy efficiency, labor practices, and corporate governance, ESG scores provide insights into a company's long-term sustainability and resilience.
A better ESG performance company is inclined to have a higher P/B ratio, which can be attributed to the positive prospect and long-term sustainable growth with lower volatility in earnings, hence supporting the firm's valuation.
A positive reputation for sustainability and responsible business practices attracts customers and appeals to potential partners, investors, and employees who share similar values. Consequently, a strong ESG strategy safeguards the company's long-term success and enhances its standing within the business ecosystem.
Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.
that perform well on ESG are generally less risky, better positioned for the long term, and possibly better prepared for uncertainty. The research is also showing a major commitment from investors to move to more rigorous evaluation.
ESG performance improves stock price synchronicity by reducing information asymmetry. The “noise reduction” effect of ESG performance is significantly lower in non-state-owned enterprises and enterprises with low investor trust.
Introduction: My name is The Hon. Margery Christiansen, I am a bright, adorable, precious, inexpensive, gorgeous, comfortable, happy person who loves writing and wants to share my knowledge and understanding with you.
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