A New BCG Analysis of 300+ Companies Finds Businesses That Perform Well in Environmental, Social, and Governance Areas Can Improve Their Valuations and Margins
BOSTON—Companies that outperform in industry-relevant environmental, social, and governance (ESG) areas boast higher valuation multiples and margins, all other factors being equal, than those with weaker performance in those areas, according to a new report by The Boston Consulting Group (BCG). The report, titled Total Societal Impact: A New Lens for Strategy, is being released today.
The research comes as companies are being urged to pay greater attention to their overall role in society. In this environment, companies should factor what BCG calls total societal impact (TSI) into their corporate strategies. TSI is the total benefit to society from a company's products, services, operations, core capabilities, and activities. TSI is the aggregate of all the ways a company impacts society—and currently no single metric captures that. However, performance in important ESG areas is a good starting point for understanding a company’s TSI—providing a concrete way to assess the link between a company’s TSI and its financial performance.
The report examines companies in five industries: consumer packaged goods, biopharmaceuticals, oil and gas, retail and business banking, and technology. It assesses not only quantitative links between ESG performance and financials, but also identifies eight key success factors that can help companies improve both their societal impact and financial performance. (A quantitative analysis was not conducted for technology because the ESG measures BCG deemed most relevant in the industry were not available.) Among the findings:
“Our analysis provides compelling evidence that companies can develop a robust strategy to make positive contributions to society with confidence that such an approach will increase enterprise value--not diminish it,” says BCG CEO Rich Lesser, a coauthor of the report.
The Case for Maximizing Total Societal Impact
BCG’s findings reflect the value of a focus on TSI. Companies that take actions to maximize positive societal impact can reduce the risk of significant negative events (such as manufacturing accidents) and open up powerful new opportunities. The opportunities include tapping into new markets, cutting costs by reducing waste, and building a more inclusive—and reliable—supply chain.
The areas that are linked to the biggest impact on valuations and margins differ by industry:
“Our research provides an important compass for business leaders,” says Wendy Woods, a BCG senior partner, head of the firm’s Social Impact practice, and a coauthor of the report. “It allows CEOs in the four industries we studied to identify the specific areas where they can take actions that will boost both TSI and TSR. These findings illustrate that the best way for business to ensure growth and longevity is to meet some of the hardest challenges in society in a way that supports performance.”
The Key to Maximizing TSI
BCG’s research included extensive interviews with 200 people in more than 20 companies, dozens of investment professionals, and employees of international development organizations and NGOs. Those interviews helped shed light on eight actions companies can take to maximize both TSI and TSR:
“Companies need to execute in all eight areas,” says David Young, a BCG senior partner and coauthor of the report. “But governance and commitment at the top are particularly critical. The board and the CEO must be clear about the importance of maximizing TSI—and drive that effort deep into the organization.”
A copy of the report can be downloaded at on.bcg.com/2z4gKQv.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or firstname.lastname@example.org.
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