Sustainability has made its way to the centre of business considerations as it has become one of the metrics in determining an organisation's financial success.
KPMG's latest white paper, “Is sustainability good for financial performance?”, explores the relationship between sustainability and financial returns, including the impact of sustainability investments on financial performance.
Erkan Erdem, principal, national leader for Economic & Statistical Consulting Services at KPMG, says they identified the most valuable ESG efforts for companies across different sectors through surveys and studies.
According to the study, which looked into the relationship between 60 sustainability metrics and gross profit margin, conducting an econometric analysis of more than 2,500 businesses across 18 industries and 60+ countries, there are 21 indicators strongly linked to strong financial performance.
Such include lowering CO2 emissions, implementing land environmental impact reduction and e-waste reduction initiatives, having business ethics policies, day care services for employees, and a higher share of women executives
The reason these matter, Erdem says, is because sustainability strategies can only be sustainable if they drive growth by giving firms a competitive advantage.
Sustainability practitioners also report that measurement is a key challenge to secure resources and achieve cross-organisational alignment.
Erdem says these results are not necessarily causal, but as companies develop strategies, they can provide a helpful guide, so leaders invest where it matters most.
KPMG explores other potential mechanisms why a sustainability investment may appear to have zero or negative relationship with profit margin in a statistical sense, such as selective disclosure of sustainability metrics and the cost of investments.
- The study also revealed that some sustainability investments may not directly impact profit margins, but that may vary by company.
- We also explore other potential mechanisms why a sustainability investment may appear to have zero or negative relationship with profit margin in a statistical sense, such as selective disclosure of sustainability metrics and the cost of investments.
KPMG's study provides a comprehensive analysis of the financial returns to sustainability, offering valuable insights for business leaders.
"Our findings are statistical relationships based on data from thousands of companies, but each company should carefully consider sustainability investments within the broader context of its overall business strategy and assess how each investment impacts its financial metrics through data collection and measurement," Erdem says. "As the business landscape continues to evolve, sustainability will undoubtedly play a crucial role in shaping financial outcomes."
