Having a positive impact on society is more than just making the world a better place; it also makes good business sense.
Investors are closely watching as consumers demand that companies take a stand and act on critical societal issues. From climate change to diversity and inclusion, investors are increasingly considering how companies support communities, society and the planet as part of their investment thesis.
Historically, environmental and social matters were a part of a company's philanthropic support of its community, and today, according to a KPMG survey of sustainability reporting, 80 percent of large and mid-cap companies around the world have environmental, social and governance strategies and reporting, which have now evolved into a core pillar on which shareholders, consumers and other stakeholders evaluate a company. Corporations are expected to have goals to make a significant, positive societal impact. As consumers seek increasing accountability from companies, ESG factors are also increasingly being taken into consideration by investors.
Consumers care
The value of investing in socially conscious companies started to change when research demonstrated that consumers were choosing to purchase from these companies with a social mission, resulting in positive company performance. And the interest continues to grow.
The survey found that more than three-quarters of American consumers (78 percent) “want companies to address important social justice issues.” Many of those respondents (63 percent) reported they are “hopeful businesses will take the lead to drive social and environmental change moving forward, in the absence of government regulation.” And even more (87 percent) said they “will purchase a product because a company advocated for an issue they cared about.”
Investors care
Investors are scrutinizing not only a company's financial performance, but its commitment to vital societal issues as well. BlackRock CEO Larry Fink has opined to companies on the importance of creating long-term sustainable value for shareholders, including the existential crisis of climate change. With assets of more than $7 trillion, BlackRock has strongly affirmed that environmental and social priorities are the cornerstone of its investment approach. As a result, many money managers are using ESG factors for investment decisions, especially commitments to reducing climate change.
In fact, between 2018 and 2020, total U.S.-domiciled sustainably invested assets under management, both institutional and retail, grew 42 percent to $17.1 trillion, up from $12 trillion. This growth is driven by multiple factors, including the global spotlight on climate change and corporate responsibility to lead the change.
Since the development of the Task Force on Climate-Related Financial Disclosures (TCFD) in 2017, companies have been providing more effective climate-related disclosures and the financial impact on their business, allowing investors and other stakeholders to make more informed decisions. Engaging with these stakeholders on ESG initiatives increases transparency, helps manage expectations and provides a future path for these programs. Many companies are increasing their transparency by providing third-party analysis of critical industries. The Conference Board found that, for a company, one of the most significant benefits of obtaining external assurance is the credibility and trust it can help build with stakeholders.
As executives, you will be asked about your company's commitment to sustainability, social issues and governance (if you haven't already), and the interest continues to grow. As public companies seek to appeal to a shifting investor base, how a company ranks on its ESG scorecard matters, as roughly one in four dollars in the U.S. is now invested through an ESG lens. In fact, we recently shared our ESG scorecard. As leaders, we have the opportunity to build shareholder value that embraces an excellent return to society in addition to a good return on investment.
