Corporate sustainability efforts are sometimes considered a nice to have but going green is good for the bottom line according to a new NTT and ThoughtLab report on global corporate sustainability. Companies that focus on environmental, social, and governance (ESG) goals do not compromise returns. In fact, 44% of companies widened their profits as a result of sustainability efforts.
Amid rising pressure from stakeholders, corporate sustainability has seen an uptick in recent years. Top companies like L'Oréal, Mars, and have made progress toward aggressive goals of using 100% reusable, recyclable, or compostable packaging by 2025.
On Tuesday, Molson Coors announced it is investing $85 million to eliminate plastic rings from packaging globally, making the company the largest beer brand in North America to do so.
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Wendy Woods, who has been with Boston Consulting Group for more than 26 years, and says she's seen a major shift over that time in the way companies think about doing good.
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As the global headof BCG's social impact practice — which she helped create — Woods oversaw a report on what she and her team dubbed "total societal impact," a replacement for the lens of maximizing total shareholder return at the expense of other stakeholders, like employees, customers, and society at large. The report's data showed that companies that have implemented plans that would boost "TSI" are actually growing more than those that aren't. It's changing the way major corporations and investors BCG works with understand their role in society, and how occasionally supporting a charity or releasing a warm and fuzzy ad campaign isn't going to cut it anymore.
"And I think total societal impact allows us to get to a different place where, we are saying, this is not just about business being a checkbook, this is about business finding ways to do 'better capitalism' and to do their job of creating shareholder value," Woods told Business Insider, referencing our series exploring the creation of long-term value.
In the past, Woods explained, CEOs could be pitched something like a way to make ingredient-sourcing more sustainable through better relationships with farmers and understand that it had a societal benefit, but not see any reason to undergo a campaign that would likely not reach its full potential until their term as chief executive was up. But now those same types of executives have the material that convinces them otherwise.
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For example, the TSI research found, "In consumer packaged goods, gross margins were 4.8 percentage points higher, all else being equal, for companies that were the top performers in socially responsible sourcing than for the median performers," and, "In biopharmaceuticals, EBITDA margins were 8.2 percentage points higher, all else being equal, for the top performers in expanding access to drugs than for the median performers."
Woods noted that companies like Mondelēz and Mars Inc. have taken this advice and developed plans around sustainability and that even banks can do things like offer lower-priced mortgages to customers who implement "green" standards in their homes.
And not all of the socially conscious initiatives have to be those that would stretch beyond a typical CEO's tenure, Woods said. For example, BCG recently studied the issue of food waste — how $1.2 trillion worth of food, or one-third of all produced globally, is wasted each year. Woods said that when presented with that data, an executive of a food company could see that not only will a food-waste reduction program actually have a social benefit, it could both lower expenses for and boost the public image of the business. And it's something that doesn't need 10 years for implementation. It's something a CEO could feel happy about and easily explain to investors.
As for investors, Woods said, they are also recognizing the benefits of so-called TSI-boosting initiatives. BCG's report states that in 2016, $23 trillion of assets under management around the world — a full quarter — were in funds focused on environmental, social, and governance (ESG) criteria. Woods moderated a panel of socially-conscious investors at the World Economic Forum's annual meeting in Davos, Switzerland in January, and an audience member asked if focusing on ESG (or TSI) would be a dismissal of fiduciary duty. Woods said that, "all four people on the panel said if you aren't doing this, you're ignoring your fiduciary duty because you're putting too much risk into the business."
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This article was originally written by Richard Feloni and published in October 2018.
