“Is sustainability good for financial performance?”
Sustainability and financial performance are becoming increasingly intertwined, with companies facing mounting pressure to adopt Environmental, Social, and Governance (ESG) initiatives.
The current landscape sees rising regulatory requirements and amplified attention from investors and stakeholders, sparking debates on the true value of sustainability investments. Shedding light on this discussion, a recent KPMG study delves into the compelling link between ESG initiatives and solid financial results.
Drawing data from 2,617 companies spanning 18 industries and 61 countries, the study uncovers how specific sustainability measures can notably boost a company's gross profit margin (GPM). Through the analysis, 21 sustainability indicators emerge as key drivers of a company's GPM growth. Among these indicators, several shine for their significant impact:
Encompassing Environmental Indicators reveal that companies focusing on reducing carbon emissions, managing land environmental impact, and minimizing electronic waste witness a tangible enhancement in GPM. For example, a reduction in total CO2 equivalent emissions correlates with a 0.08 percentage point GPM increase per million-ton reduction.
Social Indicators: Companies valuing staff well-being by offering services like daycare, implementing transport impact reduction measures, and upholding ethical business practices see positive financial outcomes. Noteworthy is the 2.21 percentage point GPM increase for companies providing daycare services.
Governance practices like transparent board member attendance, a one-share one-vote policy, and a high representation of female executives are tied to improved financial performance. A mere 1% rise in female executives corresponds to a 0.06 percentage point GPM increase.
In a broader context, the study underscores the growing necessity for business leaders to embed sustainability into their core strategies, viewing it not just as a moral obligation but as a strategic business asset. Companies with robust ESG profiles are better positioned to navigate today's turbulent market conditions, boasting enhanced resource efficiency, superior risk management, and a more favorable standing with consumers and investors.
While the KPMG study does not definitively establish a direct link between ESG initiatives and financial performance, the identified correlations offer valuable insights on where businesses can concentrate their sustainability efforts for optimal financial gains. As the global business arena evolves, proactive investment in sustainability is poised to propel companies towards environmental responsibility and financial prosperity.
For a deeper dive into this findings and detailed analysis, read the full report here.
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