New study highlights the global impact of ESG focus on company performance
Companies that have embraced ESG (environmental, social and governance) principles in recent years have enjoyed higher revenues, stronger profits growth, better customer retention and greater access to finance, according to new research by Moore Global, the global accounting, audit, and advisory network.
The new study, which included 1,262 large companies from eight major economies found that those focusing on ESG over the last three years are growing sales at twice the rate of those that are not as committed, with revenues increasing almost 10% in that time. If all companies in the surveyed countries adopted ESG at the same level, the uplift is estimated to be worth $4 trillion. The study also found:
- Profits for keen ESG adopters have risen three times faster than those less keen
- 83% of companies invested in ESG reported improved customer retention
- 84% reported that ESG practices improved their ability to attract external investment
Crucially, given the current climate of skills and staff shortages and difficulty attracting new staff, firms placing greater emphasis on ESG have seen their headcount grow more than twice as fast as those less committed.
The companies in the survey, classed as the engine room of the global economy, are substantial enterprises but not typically on the stock market. These mid-tier companies have been placing greater importance on ESG since just before the emergence of COVID-19, and seen their revenues grow pick up by $3.1 trillion (EURO 3.1t / GBP 2.6t / AUD 4.5t), even as the pandemic seriously disrupted economic activity across the globe.
Alongside revenue growth averaging at 10%, that group’s profit growth was recorded at a slightly lower rate of 9.1%, reflecting the investment most companies made to implement new ESG principles and practices.
According to Mary Tressel, Moore’s global sector lead for ESG, the findings prove investment by firms in the three principles pay off overall. She said: “The positive impact of ESG is clear. If the revenue growth figures we found were replicated across every large business in the world, the difference to global GDP growth would be significant. The investment companies have made in ESG is paying dividends that other businesses can easily replicate, and everything we found in our survey says they should.
“Large companies are using ESG to give them back the edge. It is bringing an holistic, stakeholder-centric approach into the boardroom and delivering results for shareholders at the same time. To compete with bigger players, smaller and medium sized companies can replicate the principles of ESG in a very authentic way and enjoy similar benefits around recruitment and retention as well as seeing financial uplift.”
The survey also delivered an insight into the performance of ESG in different regions and across different sectors:
The sector with the greatest uplift in customer retention was, unsurprisingly, retail with 89% of stores groups reporting an improvement. However, the sector was closely followed by IT, manufacturing and distribution and finance/accounting. 86% of companies adopting ESG also noticed greater positive reactions to their brand from customers.
Many firms were more attractive to employees too, as they increasingly seek to work with businesses whose values align with their own. Headcount for ESG-focused firms grew 11% since 2019, compare with 6.5% for other businesses.
The manufacturing and distribution sector were the most passionate about the environmental pillar of ESG, with healthcare and finance sectors citing social as the most significant for them. Government and public sector saw governance as the most important ESG principle.
- The United States recorded the most widespread adoption of ESG principles, so it is no surprise to see its firms recording a $2.1t uplift. The combined figure for the European region was $930bn and in Australia, the estimated figure was $59bn.
- Australia: While all regions had embraced ESG as a principle, businesses taking practical steps to achieve high practical engagement with ESG practices were most prevalent in Australia, with particularly high engagement figures for social aspects (92.7%).
- Europe: At the other end of the scale, the region with the lowest rate of engagement with environmental principles of ESG, was Europe (85.9%).
- Europe: Among companies that have adopted ESG principles, those in Italy showed the highest increase in customer retention, with almost 90% reporting rises Italian businesses also found the greatest perceived ability to attract investment.
- United States: Businesses in the US were most likely to have a dedicated ESG role (60.8%), and they also reflected the highest headcount growth figures (11.1%)
Mary Tressel continued: “ESG has been viewed in some quarters as a ‘nice to have’ but this study reveals the impact for adoption – on finances, human resources and brand influence.
“With today’s rising costs of doing business, areas like customer retention will become even more important to businesses as they seek to come out stronger than the competition. ESG could be the answer many companies are looking for to differentiate their approach.”
Moore Global commissioned the Centre of Economics and Business Research (CEBR) to survey 1,262 decision makers in large companies (250+ employees) across eight major economies of the US, UK, Germany, France, Spain, The Netherlands, Italy, and Australia, considering the impact of ESG on business performance.