ESG activities, regarding sustainability, diversity and employee satisfaction, correlate with stronger financial profitability and growth for private companies, said Bain & Company recently.
The study titled “Do ESG Efforts Create Value?” was jointly conducted by Bain & Company and EcoVadis to assess how ESG activities and outcomes have impacted 100,000 companies, of which 80% are private.
The research examined how various aspects of ESG activities revealed in EcoVadis scorecards —including implementing practices to reduce carbon and improve DEI, embedding sustainability into management processes and procuring sustainably—correlate with both ESG outcomes and financial performance, Bain said.
The findings show that, in addition to benefiting the planet and society, ESG activities are associated with both stronger revenue growth and higher EBITDA margins, Bain noted.
Correlations between ESG activities and business results
According to the firm, Below are the correlations between ESG activities and business results.
- Companies with more women on the executive team have better financial results.
- Companies that rank in the top 25% of their industry for executive team gender diversity have annual revenue growth approximately 2 percentage points above that of companies in the bottom quartile.
- And their EBITDA profit margins are 3 percentage points higher than that same group.
- Renewable energy usage correlates with higher EBITDA margins in carbon-intensive industries. In the natural resources, transportation and industrial goods sectors, companies that use more renewable energy have higher EBITDA margins.
- Companies that focus on ethics, environmental and labor practices within their supply chains are more profitable. These companies have margins 3 to 4 percentage points above those that don’t focus on their suppliers’ ESG credentials.
- ESG leaders have higher employee satisfaction; companies with the most satisfied employees grow faster and are more profitable. They have three-year revenue growth up to 5 percentage points above those with less-satisfied employees and margins as much as 6 percentage points higher than those laggards.
- Beyond the basics of fair pay and ensuring a safe work environment, benefits may include career training, mental and physical healthcare, childcare, and educational opportunities, all of which boost employee satisfaction and, as a result, productivity and retention.
- These findings emphasise the opportunities for private companies to improve their ESG efforts, which currently lag those of public companies.
- Only 35% of large private companies achieve top scores for carbon management, compared to 53% of large public companies.
