BCG: ESG commitment translates into better financial results

04 January 2021 Consultancy.eu

One of the most debated topics in the world of sustainability has now been handed some more evidence to fuel the discussion. A new study by Boston Consulting Group in France shows corporates that pay more attention to social and environmental facets – and more broadly purpose – tend to reap the financial rewards.

Two Boston Consulting Group subsidiaries – advanced analytics & data science arm BCG Gamma and purpose consultancy Brighthouse – teamed up to analyse companies on the CAC 40 index in France to gauge their commitment to social and environmental issues. These companies were then ranked, giving rise to the IES index.

In a show of combined skills, BCG Gamma scanned more than a million company documents – financial reports, corporate social responsibility (CSR) documents, press articles, etc. – to provide data for the study, which was then analysed qualitatively by Brighthouse. Metrics include a company’s behaviour towards its employees, partners, customers and society as a whole, as well as its public positions and reputation.

ESG commitment provides boost to financial performance

Themes range from social commitment and environmental performance to ethical behaviour and societal discourse. All these factors considered, companies were scored out of 100 and ranked. The resultant IES is an attempt at improving traditional financial analysis & forecasting, which fails to consider environmental, social and corporate governance (ESG) metrics.

With climate change now emerging as one of the world’s top extreme risks, factoring ESG into financial calculations throws up a much more accurate picture of financial health, and the future of a company. In fact, the researchers also cross-referenced performance by France’s largest listed companies with their position on the IES, to find that more ESG commitment actually means better financial performance.

Companies performing better than their peers on the IES did so on in the CAC 40 benchmark as well. “These results should encourage companies to embrace ESG, because not doing so comes with a hefty price tag. Having more engaged employees and privileged customers is really beneficial for the financial performance of a company,” explains Mathieu Ménégaux, General Manager of BrightHouse in Paris.

Billions are already flowing into ESG investments in Europe and around the world, and the results of the study suggest that the trend will increase. That being said, the researchers highlight that even the top companies on the IES index have significant room for improvement across all metrics.

Top 15 companies on the IES ranking

An overview of the fifteen top performing companies on the BCG Gamma and Brighthouse ranking:
1. Kering (72/100)
2. Danone (66/100)
3. Sodexo (64/100)
4. Pernod Ricard (61/100)
4. L'Oréal Paris (61/100)
6. Orange (59/100)
7. Essilor (58/100)
8. Accor (57/100)
9. Veolia (56/100)
10. BNP Paribas (55/100)
11. Capgemini (54/100)
11. Legrand (54/100)
13. Schneider Electric (53/100)
14. Dassault Systemes (52/100)
14. Unibail-Rodamco-Westfield (52/100)

A notable trend is that consumer goods companies are a cut above the rest, with 6 players in the top 10. The researchers point to an increasingly demanding and discerning consumer as a reason for this. Also clear from the results is that companies mainly focus their commitments towards consumers and society: on average, their actions for these criteria score 72/100 and 66/100. When it comes to their behaviour with partners, companies still have a long way to go.