The Essential Link Between ESG Targets & Financial Performance
- Media Manager
- Sep 14, 2022
- 1 min read
Harvard Business Review
Written By: Mark R. Kramer and Marc W. Pfitzer
Published: September 2022
In recent years tremendous progress has been made in standardizing and quantifying measures of companies’ performance on environmental, social, and governance (ESG) criteria. There has also been a surge in investor interest in companies that are rated highly on ESG performance or appear to be taking ESG goals seriously.
Yet surprisingly few companies are making meaningful progress in delivering on their ESG commitments. Of the 2,000 global companies tracked by the World Benchmarking Alliance, most have no explicit sustainability goals, and among those that do, very few are on track to meet them. Even companies that are making progress are, in most cases, merely instituting slow and incremental changes without the fundamental strategic and operational shifts necessary to meet the Paris Agreement or the United Nations Sustainable Development Goals.
Summary.
Despite heightened attention to environmental, social, and governance (ESG) issues, surprisingly few companies are making meaningful progress in delivering on their commitments. Most firms are not integrating ESG factors into internal strategy and operational decisions and are giving investors little to no explanation of the impact of ESG performance on corporate earnings.
To integrate ESG efforts into their core business models, firms should take these steps:
Identify the ESG issues material to the business;
factor in ESG effects when making strategic, financial, and operational decisions;
collaborate with stakeholders;
redesign organizational roles; and
communicate with investors.
