I began the response by noting my inability to predict the future. I think they expected nothing less from a lawyer. However, based on my previous observations and analysis, I offered a perspective: ESG is a discipline under construction, subject to a dialectical exercise that contributes to fine-tuning and strengthening the operating model that those companies that want to remain, grow and generate value must adopt. in the long term. Beyond the evolution that the term and its approach may undergo, the requirement for companies to adopt a sustainability approach that considers different interest groups in their management model will not be temporary (see previous editions of this column, including “ ESG: a discipline in the making “, “ The end of the ESG revolution has arrived ” and “ Debate on ESG: What does not kill, strengthens “).
Indeed, ESG has become politicized, creating polarization. However, this phenomenon has occurred mainly in the United States without making big waves in the rest of the world, where sustainability criteria continue to take on greater relevance. For example, Larry Fink, CEO of Blackstone and a leading proponent of ESG, has changed his rhetoric, focusing on sustainability practices without explicitly using “ESG,” given the reaction from conservative politicians and investors.
Of course, not all initiatives that are labeled under the ESG label are genuine. There are organizations that have used this term to give an image of sustainability to projects that, in essence, lack it, a practice known as greenwashing. This situation, among others, has generated justified criticism and underscores the need for careful analysis and balanced evaluation to understand the true value of ESG.
In order to contribute to this conversation, I find it useful to reference two recent reports that present interesting perspectives. The first, from Kroll, reveals interesting data on the financial value of adopting strong ESG practices and reflects the analysis of information from more than 13,000 companies from various regions and markets between 2013 and 2021 ( ESG Returns Study, September 2023 ).
Globally, companies with high ESG ratings (Leaders) consistently outperformed their peers with lower ratings (Laggards). Specifically, leaders earned a 50% premium in annual returns compared to laggards. Additionally, Europe leads in ESG implementation, with 32% of Western European companies identified as leaders, contrasting with 10% in North America and 6% in Asia.
Additionally, Kroll’s report reveals that, globally, ESG leaders outperformed laggards in every industry except consumer goods and healthcare. However, a closer look at the US landscape shows a different story: in the energy, healthcare and communications sectors, laggards outperformed leaders.
The second report corresponds to a KPMG survey of 201 executives from large public and private companies in the United States whose function is linked to ESG ( US ESG and Financial Value Survey, September 2023 ). In my opinion, this report complements and qualifies the vision offered by Kroll.
KPMG analysis notes that respondents see ESG adoption as generating financial value and expect the benefits to be even greater in the coming years. Areas where ESG is adding value include M&A effectiveness, access to capital, tax benefits and customer loyalty. At large companies, 43% say ESG is improving financial performance, compared to 6% who say it is reducing performance.