CDP and
Accenture Strategy worked together, using almost 2,400 company responses across three years of submission data and interviews with senior consumer goods executives, to understand and highlight the link between superior
environmental performance and better corporate financial results.
Key findings
1
Despite a $447bn+ opportunity, many businesses still fail to capture or report financial value from strong environmental performance
2
Climate and environmental risks, even with known impacts of $700bn+, remain poorly understood and under-quantified despite increasing investor urgency
3
Sustainable business leaders drive positive financial impact through superior environmental performance, but many firms are missing out
Actions for business
1
Define your value framework, identify your opportunities and set achievement goals
2
Ruthlessly execute on iconic wins, shout about success and build enduring valuation capabilities and culture
3
Apply financial capabilities to capture environmental opportunities and show investors a resilient business
Our key
findings.
1.
4 in 10 businesses fail to capture or report any financial value from strong environmental performance. Despite almost $500bn in disclosed value at stake across all reporting companies, trillions are on the table in unquantified
opportunities.
The largest emitters in the global economy report
$447bn in potential growth and savings opportunities, driven by regulatory change and the physical and related impacts of climate change. Yet,
42% of these companies have not quantified, or reported, the potential value.
This is based on Accenture Strategy’s analysis of an outsized global footprint of around 100 firms responsible for 50% of all emissions per sector each year, out of around 1,950 respondents.
This analysis quantifies the sum of potential opportunities reported in 2014, 2015 and 2016 CDP data, using three questions in the climate questionnaire: 6.1a – Impact of opportunities driven by regulatory changes, 6.2a – Impact of opportunities driven
by physical changes in climate parameters, 6.3a – Impact of opportunities driven by changes in other climate-related developments. Note that the “long tail” of 1,850 company respondents which make up the bottom
50% of reported emissions were not analysed, due to the largely qualitative nature of responses to questions 6.1a, 6.2a and 6.3a.
Our analysis does not forecast value available to the remaining 1,850 in the ‘long tail’ of the other 50% of emissions but, based on our sample, we conclude that businesses – large and small – are missing an aggregate opportunity in the order
of trillions. Others agree; for example, New Climate Economy describes a $1tn global circular economy opportunity by 2025
The New Climate Economy. Seizing the Global Opportunity.
[link] and the Ellen MacArthur Foundation estimates that Europe’s economies could benefit by up to €1.8tn in 2030 from a circular economy underpinned by technological disruption.
Ellen MacArthur Foundation. Growth Within: A circular economy vision for a competitive Europe.
[link]
Potential Opportunities Reported from Climate and Regulatory Impacts, Top 50% of Emitters, 2014-2016
Source: Accenture Strategy and CDP data analysis
Despite this remarkable opportunity, only
30% of firms report revenues already captured through more sustainable products and services.
Most firms are not evaluating avenues of growth in sustainable business models or low-carbon products and services, thus missing chances to enable sustainable outcomes for customers.
In our data, 30% of CDP respondents have taken action to realise $1.07tn in low-carbon product revenues.
Value is not captured, or remains unreported, by the other 70%.
Within the 30% of companies which report revenue from low-carbon products, we analysed 308 in detail, and found that 57 claim at least 80% of their revenues come from low-carbon products.
This analysis is based on responses to question 3.2a in the climate questionnaire: “Details of your products and/or services that you classify as low carbon products or that enable a third party to avoid GHG emissions”. The proportion and value of these
revenues are calculated using total revenues reported in question 12.2 in the climate questionnaire.
These 57 represent only 19% of the 308, yet capture almost 50% of the $1.07tn in reported revenue.
Low-Carbon Product and Service Revenues Realised, 2016
Instead, most firms focus on easiest wins in savings. Even here, efforts are subpar, given that our analysis demonstrates significant opportunities and a track record of shorter, reliable paybacks.
Distribution of payback periods across all reported initiatives designed to reduce environmental impacts from 2014-2016
Source: Accenture Strategy and CDP data analysis
Our analysis shows that most firms take a P&L approach to environmental action that narrowly focuses on costs.
This is a fine start but many firms are not identifying and quantifying all relevant initiatives, even given the huge opportunity from climate change outlined above.
Despite this lack of identification, 64.7% of reported initiatives have a payback period between zero and three years.
This analysis is based on responses to question 3.3b in the climate questionnaire: “For those initiatives implemented in the reporting year, please provide details in the table below - annual monetary savings”.
2.
$699bn in reported environmental risk is the tip of the iceberg – authoritative studies demonstrate long-term asset risks an order of magnitude larger than this.
A leading Integrated Assessment Model has been used to estimate the impact of 21st century climate change on the present market value of global financial assets – output values range from $2.5 trillion to $24.2 trillion.
[link] This is despite almost 70% of investors reporting that environmental and social strategies help manage volatility.
State Street Global Advisors. ESG Institutional Investor Survey 2017.
[link]
Climate-linked risks and the potential impact on corporate operations and assets are poorly understood.
We believe
$699bn in risk reported to CDP is just the start.
We find that many firms have a cursory understanding of risks that could impact their assets, or a comprehensive approach to environmental risk is not publicly disclosed.
Analysis of the quality of reporting on the financial impact of water as a future risk to businesses
Source: Accenture Strategy and CDP data analysis
A shallow understanding of risks (and actions to mitigate these) means business managers have inadequate insight.
This is improving as businesses confront realities of adapting to climate-linked risks, but unquantified risks means that decision-makers cannot account for hidden challenges when formulating new strategies.
The financial risks of GHG emissions
If all CDP climate change respondents had to pay a price per tonne of carbon emissions, the cumulative financial impact from 2014 to 2016 would total $402.4bn.
Source: Accenture Strategy and CDP data analysis.
Carbon was priced at the median per sector values as published by CDP in the ‘Putting a price on risk: Carbon pricing in the corporate world report, September 2015’. This focused on internal prices reported by members ($/tCO2e): Information Technology,
7.85; Industrials, 9.515; Consumer Staples, 10.25; Financials, 11.77; Health Care, 17.01; Materials, 19.59; Consumer Discretionary, 21.33; Utilities, 21.5; Telecommunication Services, 25.86; Energy, 28.28. Total
scope 1 emissions across 2014, 2015 and 2016: 16,100,474,450 tCO2e. Total scope 2 emissions across 2014, 2015 and 2016: 3,461,353,900 tCO2e. Water prices used (USD/ML) were: 1,124 for brackish water / seawater,
fresh surface water and waste water from other organisations; 1,562 for Groundwater – renewable and non-renewable, produced / processed water and rainwater; 1,659 for municipal supply. Prices are medians sourced
from GWI, the NUS International Water Survey and IB Net Tariffs. Total water withdrawals for 2015 and 2016: 818,792,730 megalitres. 2014 water withdrawals were not analysed due to insufficient data in that CDP
reporting year.
The financial risks of water withdrawals
Consumer Goods, Materials and Utilities sectors are most exposed to the potential impact of the ‘true cost’ of water withdrawals. At $993.8bn in 2015-2016, this is 97.0% of ‘true’ water costs across all sectors in CDP response data.
Source: Accenture Strategy and CDP data analysis.
Carbon was priced at the median per sector values as published by CDP in the ‘Putting a price on risk: Carbon pricing in the corporate world report, September 2015’. This focused on internal prices reported by members ($/tCO2e): Information Technology,
7.85; Industrials, 9.515; Consumer Staples, 10.25; Financials, 11.77; Health Care, 17.01; Materials, 19.59; Consumer Discretionary, 21.33; Utilities, 21.5; Telecommunication Services, 25.86; Energy, 28.28. Total
scope 1 emissions across 2014, 2015 and 2016: 16,100,474,450 tCO2e. Total scope 2 emissions across 2014, 2015 and 2016: 3,461,353,900 tCO2e. Water prices used (USD/ML) were: 1,124 for brackish water / seawater,
fresh surface water and waste water from other organisations; 1,562 for Groundwater – renewable and non-renewable, produced / processed water and rainwater; 1,659 for municipal supply. Prices are medians sourced
from GWI, the NUS International Water Survey and IB Net Tariffs. Total water withdrawals for 2015 and 2016: 818,792,730 megalitres. 2014 water withdrawals were not analysed due to insufficient data in that CDP
reporting year.
Moreover, comparable metrics in the consumer goods sector are not widely used, yet investors need these to determine risks to their capital.
Future balance sheet and cashflow impairments are key investor concerns, even if environmental disruptions are isolated. Disclosure using comparable metrics can illustrate risk exposure and adaptation across investments.
“Comparability is a big challenge, especially for metrics which explain performance, rather than evaluating facts and policies that have been disclosed. A core set of relevant metrics for the sector, disclosed
in a universally comparable manner, would better inform investment decisions.”
Although sustainable business leaders understand how strong environmental performance drives improved financial results, many businesses are missing out.
Understanding and measuring value from strong, progressive environmental performance results in superior corporate financial performance.
A growing body of work demonstrates this link. One 2015 review of 2,200 academic studies by Deutsche Asset & Wealth Management and the University of Hamburg demonstrated a positive correlation between environmental and social strategies and stronger
corporate financial performance, in a majority of cases since the 1970s.
Friede, G., Busch, T., & Bassen, A. (2015), ESG and financial performance: aggregated evidence from more than 2000 empirical studies, Journal of Sustainable Finance & Investment, 5:4, 210-233.
A similar study at the University of Oxford, co-authored by Dr. Michael Viehs, now of Hermes Investment Management, analysed over 200 high-quality academic studies examining the link between sustainability and financial outcomes. In this analysis, 88%
of the studies show that stronger environmental, social, and governance (ESG) practices can lead to better operational company performance, and 80% of the studies find that the stock market performance is positively
correlated with sustainability practices. Moreover, 90% of the studies show that better ESG practices are correlated with lower cost of capital.
Clark, G., Feiner, A., & Viehs, M. (2015), From the stockholder to the stakeholder: how sustainability can drive financial outperformance. Smith School of Enterprise and the Environment at the University of Oxford and Arabesque Partners.
By addressing physical, regulatory and transition risks, leaders safeguard future cashflow.
A quantified understanding of risks to assets, liabilities and financial capital is crucial for preparing the business to operate profitably in the future.
Case Study:
A consumer goods interviewee explained future risks her business faces. After quantifying financial value lost from water scarcity in the last five years, the company used this data to validate cost exposure for the next seven to ten years based on increasing
water challenges in regions of operation. The potential losses were far larger than anyone had expected, in terms of cost of goods sold and sales. This helped the company decide on a stronger strategy for mitigating
water problems and increasing efficiency of use.
Source: Accenture Strategy interview with consumer goods executive, June 2017.
Our actions for
business.
Progressive environmental performance drives stronger financial outcomes. For businesses that have not yet quantified the value opportunity, the journey starts here.
From our analysis, we can only conclude that the majority of consumer goods firms are not far along on this journey.
We recommend
three practical steps to start.
1.
Define sustainable value creation drivers and material issues relevant to your business. Frame how strong environmental performance can impact financial outcomes and provide a basis for setting goals to capture opportunities and
address risks in your context.
Start by understanding how sustainability action can create and protect value in your business context.
In essence, this means starting to understand environmental performance, impacts and opportunities, through the financial lenses of growth and revenues, costs, material risks and intangible value. Use value levers to begin
exploring these.
Value Opportunities in Consumer Goods
Source: Accenture Strategy analysis
Identify specific risks and opportunities most relevant to your own business in financial terms.
These are environmental issues meaningful to your sector. Going a step further, the business should move from issues simply in scope, to specific opportunities and risks in your unique operating context. These may have
significant positive or negative commercial impacts, a high likelihood of occurrence, or a combination of both.
This means identifying appropriate, understandable metrics to assess and drive performance on priority opportunities and risks over time. Such metrics are the basis for guiding desired achievement on environmental progress, value
creation and preservation, risk management, and ultimately, investor confidence.
Amount of crop losses, % offset through financial mechanisms; average crop yield, 5-year standard deviation per type and region; discussion of risks and opportunities presented by climate change for key crops
How well the business is managing and adapting to emerging agricultural challenges in light of climate change
Environmental & Social Impacts of Goods Supply Chains
Sustainability Accounting Standards Board: Technical Bulletin – Climate Risk , p. 21 & 26.
[link]
% of ingredients sourced from regions with high water stress; % of food sourced that are third-party certified for environmental or social standards; approach to ingredients with risks due to environmental or social considerations
How the business is managing and adapting to current and emergent risks in its supply chains
Product Sustainability Index
Wal-Mart 2017 Global Responsibility Report: Value chains.
[link]
Sustainability performance by supplier, on up to 15 specific issues per product category
How the business is rewarding suppliers operating more sustainably and fostering broad improvement across categories and suppliers
Improving Every Life Goal
Sharing a Common Goal: Improving Every Life (3M).
[link]
“Help customers reduce their GHGs by 250m T of CO
2e emissions through use of 3M products, by 2025.”
Whether the business is bringing low-carbon innovation to market, fostering or protecting revenue, and delivering value to society
Reducing Environmental Impact by Half
The Unilever Sustainable Living Plan.
[link]
“Halve the environmental footprint of the making and use of our products as we grow our business,” including GHG impact per consumer use, per tonne of production”
2.
Ruthlessly pursue early, iconic successes that demonstrate real financial and environmental value creation. Make these a platform for influencing thinking and culture across your business, and justifying the need for new valuation
capabilities.
Target sustainable business cases with clear commercial and environmental potential.
One interviewed executive made it clear that sustainability experts “often know technologies and solutions, but fail to quantify value created,” so building finance-driven business cases is critical.
Accenture Strategy interview with an executive reporting to CDP, June 2017. It requires teams to analyse the potential financial impact of an initiative, in addition to the quantified environmental impact. This process should make use of the now-defined value framework, and can contribute to achieving
sustainability targets the business has set.
Case
Environmental Performance Achieved
Financial Value Achieved
Marks & Spencer
M&S embraced ambitious environmental and social initiatives for driving measurable change, core to its business, through Plan A, starting in 2007. Now with targets to 2025, Plan A builds on its achievements, with 100 new goals and commitments.
Marks & Spencer: Plan A 2025 Commitments.
[link]
In 2013-14, M&S reported a net benefit of £145m, and
cumulative net benefit of £465m from Plan A since its launch in 2007.
Tobias Webb: Interview with Adam Elman, Head of Global Plan A Delivery, Marks & Spencer.
[link]
DuPont
DuPont, a diversified company which plays a daily role in lives of consumers everywhere, began to tackle sustainability over two decades ago to reduce risk. This has evolved into a profitable business, with R&D targeted to quantifiable environmental
benefits from new products.
McKinsey: Profits with purpose: How organizing for sustainability can benefit the bottom line.
[link]
In 2014, DuPont reported
$2bn in annual revenue from products that reduce GHG emissions, plus
$11.8bn from non-depletable (renewable) resources.
McKinsey: Profits with purpose: How organizing for sustainability can benefit the bottom line.
[link] DuPont has a goal to invest $10bn in ‘sustainable innovation’ R&D by 2020.
DuPont: 2016 sustainability performance highlights.
[link]
Unilever
Unilever focuses on environmental and social performance through the Sustainable Living Plan. ‘Sustainable Living’ brands, such as Lifebuoy, Ben & Jerry’s, Dove and Hellmann’s, are crucial to the company’s growth. These brands are “furthest ahead
on this journey and combine a strong social or environmental purpose”.
Marketing Week: Unilever’s sustainable brands grow 50% faster than the rest of the business.
[link]
Sustainable Living brands
grew over 50% faster than the rest of the business, making up
60% of overall company growth in 2016. This is unsurprising since Unilever’s research demonstrates over half of consumers already buy, or want to buy, sustainably.
Marketing Week: Unilever’s sustainable brands grow 50% faster than the rest of the business.
[link]
Kroger
“Kroger, which is one of the most analytics-savvy supermarket chains, started to see the shift toward natural and organic in its sales data” in 2011.
Fortune: Is the largest natural-foods brand even sold at Whole Foods?
[link] To capitalise on demand for organic and natural products, Kroger launched the Simple Truth private label brand in 2012.
From zero,
Simple Truth reached $1.5bn in sales by 2015, three years after launch.
Fortune: Is the largest natural-foods brand even sold at Whole Foods?
[link] By 2017 the brand generated $1.7bn, with
organics driving more than $1bn of that total.
Food Business News: Simple Truth a bright spot in disappointing year for Kroger.
[link]
Shout about success
The business needs to know, in financial and environmental terms, why an iconic project is successful, how it is creating value, and why similar achievements are essential for the future. This is vital for winning over
minds (and hearts) on why the business should pursue a more sustainable future.
Build enduring capabilities and a habitual culture.
This entails developing valuation skills that work for your context. To move financial accountability for environmental progress into strategies and business plans, training and subject matter expert (SME) advice may be required to build capabilities
in teams. For many sustainability teams, this might mean training in financial acumen, or dedicated SME resources from corporate finance.
Accenture Strategy interview with an executive reporting to CDP, June 2017.
A culture of embracing environmental action with financial merit won’t develop overnight. Even with goals in place, parts of the business require support to ‘make a habit’ of applying a value framework and managing outcomes
against commercially-relevant metrics and goals.
3.
Apply capabilities for measuring sustainable value creation to influence longer-term decision-making, embrace new opportunities, confront risks, and demonstrate real action to investors.
Confront environmental risk, capture emergent revenue and cost opportunities, and contribute to a more resilient business.
In the long term, capabilities for measuring and delivering value creation through sustainability can be applied to strategic decision-making regularly – and particularly when key investment decisions are considered.
When viewed through a lens of value, business cases for commercial success through sustainability opportunities and risks often hold significant promise.
Sources: Sustainability Accounting Standards Board
Sustainability Accounting Standards Board: Technical Bulletin – Climate Risk, p.5.
[link] and Taskforce on Climate-related Financial Disclosures.
Task Force on Climate-related Financial Disclosures: TCFD Recommendations Report, p.10.
[link]
Demonstrate measurable progress to investors.
The same value framework and metrics, developed and applied inside the business, can provide insight to investors on how environmental action is capturing value and reducing risks to assets and capital.
Disclosures don’t need to be exhaustive for every internal metric, but can focus on what matters to consumer goods investors: action on environmental opportunities and risks to ensure long-term productivity of invested
capital and thus future cashflow.
Leading sustainable businesses continue to prove what years of research already says: that understanding, quantifying and driving value from progressive environmental action is critical for building more resilient companies and delivering superior financial
results.
Markets and investors are increasingly focused on how climate change will impact capital preservation and future returns in consumer goods. Therefore, disclosing environmental performance and the associated value created and protected is vital.
This study is based on Accenture Stategy’s analysis of the responses to CDP's Climate, Water and Forests questionnaires in 2014, 2015 and 2016. The initial analysis drew on Accenture Strategy’s proven valuation frameworks to examine what Income Statement
and Balance Sheet impacts the companies reporting to CDP had experienced, and that they could experience in the future, as a result of their environmental performance. In addition to evaluation of discrete quantitative responses, Accenture
Strategy also assessed several thousand qualitative responses to CDP’s questionnaires to collate a fuller picture of the financial outputs and outcomes of CDP’s members’ environmental performance.
In the second phase of work, a range of stakeholders from across the Telecommunications and Consumer Goods sectors were consulted via interviews to explore the key barriers each sector is facing to using environment-focussed financial data when making
business decisions, and to explore potential solutions for how to address these barriers.
Accenture Strategy and CDP focused on Consumer Goods and Telecommunications sectors to highlight differences in financial opportunities and risks across sectors. Consumer Goods businesses are heavily exposed to physical, climate and operational risks
through reliance on agricultural and commodity inputs, and face challenges to brand value from inaction on environmental issues. Telecommunications businesses have exposure to carbon risks through their energy consumption intensity, yet
offer products and services which play a major role in enabling carbon footprint reductions for customers and others.
Companies responding to questionnaires totalled: In 2014 – 1,853 (Climate), 349 (Water) and 93 (Forests). In 2015 – 1,907 (Climate), 416 (Water) and 108 (Forests). In 2016 – 1,960 (Climate), 481 (Water) and 156 (Forests)
Accenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies
that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow
@AccentureStrat or visit
www.accenture.com/strategy
CDP
We want to see a thriving economy that works for people and planet in the long term. To do this we focus investors, companies and cities on taking urgent action to build a truly sustainable economy by measuring and understanding their environmental
impact. To achieve this, CDP, formerly the Carbon Disclosure Project, runs the global disclosure system that enables companies, cities, states and regions to measure and manage their environmental impacts. We have built the most comprehensive
collection of self-reported environmental data in the world.
We are an asset manager with a difference. We believe that, while our primary purpose is helping beneficiaries retire better by providing world class active investment management and stewardship services, our role goes further. We believe
we have a duty to deliver holistic returns – outcomes for our clients that go far beyond the financial and consider the impact our decisions have on society, the environment and the wider world.
Our goal is to help people invest better, retire better and create a better society for all.
We offer clients access to a broad range of specialist, high conviction investment teams with £30.1 billion* assets under management. In Hermes EOS, we have the industry’s leading engagement resource, advising on £310.7 billion* of assets.
Hermes' investment solutions include:
Private markets – Infrastructure, private debt, private equity and real estate
High active share equities - Asia, global emerging markets, Europe, US, global, and small and mid cap
Credit - Absolute return, global high yield, multi strategy and global investment grade
Multi asset - Multi asset inflation
Stewardship – Active engagement, intelligent voting, sustainable development and advocacy
* Please note the total AUM figure includes £5.9bn of assets managed or under an advisory agreement by Hermes GPE LLP (“HGPE”), a joint venture between Hermes Fund Managers Limited ("HFM") and GPE Partner Limited. HGPE is an independent entity
and not part of the Hermes group. £0.1bn of total group AUM figure represents HFM mandates under advice. Source: Hermes as at 30 June 2017 with the exception of one portfolio totalling £10.5m valued as at 31 May 2017.
This definition of environmental performance is broad, because it captures not just the risks to businesses, but the opportunities arising from climate change and sustainability action as well.
Sources: Sustainability Accounting Standards Board
Sustainability Accounting Standards Board: Technical Bulletin – Climate Risk, p.5.
[link] and Taskforce on Climate-related Financial Disclosures.
Task Force on Climate-related Financial Disclosures: TCFD Recommendations Report, p.10.
[link]
Johnson & Johnson started its Earthwards development process in 2009 to focus and challenge product teams to design “innovative and more sustainable solutions across a product’s lifecycle – from formulation and manufacturing, to product use and end-of-life”.
The process targets sustainability improvements across seven impact areas and is assured annually by a third party. In 2015, 80 qualified products achieved $9bn in sales, and the company has a goal to achieve 20% of revenue from Earthwards
products.
Johnson & Johnson: Caring & Giving, Our Strategy & Approach.
[link]
How do climate risks apply to companies, sectors or the whole economy?
In 2016, CDP found that over 1,200 of the world’s largest companies are disclosing their current carbon pricing approach, or their plans to start, and 147 are embedding a carbon price in strategies and operational approaches. Such a mechanism helps systematically
achieve emissions reductions and related targets.
CDP. Embedding a carbon price into business strategy.
[link] These companies find that an
internal carbon price provides an incentive or added reason to reallocate resources toward low-carbon activities; becomes a factor in the business case for R&D; and
reveals hidden risks and opportunities in operations and supply chains. More insight is available in
CDP’s 2016 research.
State Street’s 2017 survey of institutional investors found that 68% claim integration of ESG (environmental, social and governance) factors has significantly improved returns and 69% say this has helped managed volatility.
State Street Global Advisors: ESG Institutional Investor Survey 2017.
[link]
In May 2017, EY found that 61% of investors believe companies don’t disclose ESG risks that could affect their business and that they should disclose these more fully – a 21 point increase over the previous survey. The same EY study found that 76%
of survey respondents would reconsider an investment with risk or poor environmental performance.
EY: Is your nonfinancial performance revealing the true value of your business to investors? Tomorrow’s investment rules 2017.
[link]
A 2017 review of challenges to ESG investing by BNP Paribas found that 64% of asset owners believe a lack of robust data was hindering greater adoption of ESG across their investment portfolios, and only 15% thought this would be a barrier two years from now.
IPE Intelligence on European Pensions and Institutional Investment. ESG analytics challenge feeds cost worries: survey.
[link]
Morrow Sodali’s annual survey found that nearly 75% of investors in 2017 (representing $14tn in assets under management) view disclosure on ESG factors to be very important -- suggesting that companies need to disclose their performance on environmental factors most material
within the industry they operate in, and how effectively they manage risk factors.
Morrow Sodali: Annual Institutional Investor Survey 2017.
[link]
Learn More:
The Sustainability - Financial Performance Correlation in Focus
Recent meta-studies focus on making sense of the numerous peer-reviewed studies since the 1970s to understand whether there really is a positive relationship between environmental and financial performance, and what drives this link.
One exhaustive study, conducted in 2015 by researchers from the University of Hamburg and Deutsche Asset & Wealth Management,
combined findings from 2,200 studies, and found that:
The business case for ESG investing is well founded, as 90% of studies finding a non-negative correlation between environmental, social and governance factors and corporate financial performance.
A large majority of the 2,200 studies report positive findings.
The positive ESG impact on financial performance appears to be
stable over time.
Friede, G., Busch, T., & Bassen, A. (2015), ESG and financial performance: aggregated evidence from more than 2000 empirical studies, Journal of Sustainable Finance & Investment, 5:4, 210-233.
Another 2013 meta-study of 52 papers over 35 years found
a positive relationship between environmental and financial performance, although this is influenced by environmental and financial performance measures used, regional differences, sector and duration of studies.
Albertini, E. (2013), Does Environmental Management Improve Financial Performance? A Meta-Analytical Review, Organization & Environment 26:4, 431-457.
A 2017 study of FTSE 350 companies from 2006 to 2012 found that
firms which incorporate sustainability issues into their business operations are better able to
leverage their resources toward stronger financial performance and shareholder value creation than other companies.
Gómez-Bezares, F., Przychodzen, W. & Przychodzen, J. (2017), Bridging the gap: How sustainable development can help companies create shareholder value and improve financial performance. Business Ethics: A Eur Rev, 26: 1–17.
The long-running academic debate continues, but on balance, a plurality of studies support similar correlations and the financial case for strong environmental performance.
Value in Environmental Performance: A Sector Example
One
consumer products manufacturer we interviewed, regarded as a sustainability leader, regularly examines financial value of environmental performance in two ways: value generation (via sustainable products’ top line growth, consumer
loyalty, cost savings and brand equity) and value at risk (via production risks from increasing water scarcity and lack of renewables, plus reputational risks from selling branded packaged products in regions with poor recycling infrastructure).
Source: Accenture Strategy interview with consumer goods executive, June 2017.
Revenue Case Study
One consumer goods firm interviewed estimates both short- and long-term commercial impact in terms of revenues, costs and brand value to understand how environmental action in its products contributes to P&L. In some cases, sustainability investments
require a longer timeframe to pay back, but sponsors that look beyond the financial year “immediately seize on commercial impact in longer term brand and marketing strategies” when this is the case.
Source: Accenture Strategy interview with consumer goods executive, June 2017.
Assets & Intangibles Case Study
A consumer goods executive we interviewed explained that a “connection between sustainability action on products and financial return is not always linear”. On several occasions, brand managers recognised that even if sustainability improvements to products
didn’t return immediate sales boosts, a much greater loss through tarnished brand value was at stake – and needed to be quantified.
Source: Accenture Strategy interview with consumer goods executive, June 2017.
Scoping The Opportunities & Risks
The Sustainability Accounting Standards Board recommends a basic identification process
Sustainability Accounting Standards Board: Technical Bulletin – Climate Risk.
[link] for defining relevant opportunities and risks in a sector context:
Poses direct financial risks
May be regulated in the near future
Are becoming industry norms and drive competitive best practices
Are raised by stakeholders and threaten brands or license to operate
Represent opportunities for innovation and growth
Prioritising Most Relevant Opportunities & Risks
From issues in scope, specific and relevant opportunities and risks can be identified in your unique operating context, by assessing commercial impact (positive or negative) and likelihood of occurrence.
Source: Accenture Strategy analysis.
Do investors care?
The corporate perspective
“The number of metrics available from an Environment, Social and Governance (ESG) perspective is enormous, and many don't really help investment decisions. Drilling down to what impacts really matter for the sector is crucial, along with providing an
explanation of the company’s environmental performance, how it is being measured, and how it is changing over time.”
Fund Manager, Hermes Investment Management
All but one of the nine executives Accenture Strategy interviewed agreed that investor interest in the corporate approach to environmental challenges has ramped up in the last few years. Several reported joining investor roadshows to provide detailed
interactions on sustainability, whilst others noted specific, deep questions now asked on climate change, product sustainability, and low-carbon or environmentally-responsible innovation in products and services. One interviewee summarises
it well: “there has definitely been an evolution in the last few years – investors are being more demanding when it comes to sustainability performance – and this is going to increase in the future”.
Source: Accenture Strategy interviews with nine executives, May and June 2017.
About the Authors
Barny Harrison
Manager, Accenture Strategy – Sustainability, London Barny has over a decade of cross-industry experience in sustainability analysis and modelling and a focus in the mining and food and beverage sectors. He also works on ecological research in Southeast Asia and is preparing a REDD+
application for an Indonesian forest reserve.
[email protected]
Aaron Hay
Consultant, Accenture Strategy – Sustainability, London Aaron has eight years of experience in sustainability strategy development, execution and financial valuation in corporate, government and NGO settings. Aaron tackles challenges in consumer goods, retail, and logistics sectors
across Europe, the Middle East and North America. Aaron is an avid urban cyclist and a nearly-complete vegetarian to assist animals and his own carbon footprint.
[email protected]
Bryan Loke
Analyst, Accenture Strategy – Sustainability, Singapore Bryan has experience in GHG forecast modelling, carbon footprinting, and smart building energy management. He feels strongly about how we can best preserve our architectural heritage while still keeping pace with cities’ development
agendas, and is fond of urban photography.
[email protected]
