ESG Accountability: A Tangible Way of Tracking Value

André Solórzano
Manager, Data Insights, CECP

March 15--During CECP’s recent Board of Boards CEO convening held on February 29th, 2016, CECP provided attending CEOs of the world’s largest companies with a comparison of financial and ESG performance, between companies that are affiliated with CECP (“CECP companies”) and other large companies in the Fortune 500 not affiliated with CECP (“non-CECP companies”). Discover with us the most compelling findings.

ESG origins
The concepts of Socially Responsible Investing (SRI) and Environmental, Social, and Governance (ESG) measures have evolved from a mere moral concept, in which investors would avoid industries that caused harm to society to complementary measurements of companies’ performance. The desire to hold companies accountable for their social impact was driven by global revolutions on topics such as global warming and civil rights. In the 21st century, many are questioning Milton Friedman’s theory that the sole responsibility of business is to increase its profits. And in fact, the world’s top-performing CEOs are no longer measured only based on their financial performance but also on their engagement with social and environmental issues, as evidenced in the 2015 Harvard Business Review’s ranking of CEOs.

Is there a connection? 
New visions of corporate social responsibility continue to evolve with the inclusion of ESG factors into investment discussions. Given this new focus, CECP sought to inquire into the connection between ESG and financial performance. To do this, we compared CECP companies, which are a part of a coalition focused on corporate societal engagement, and non-CECP companies. 

Corporate Sustainability goes along with financial performance
Across all of the measures listed below, we compared 2013 to 2014 performance (2015 data was not yet available for all companies).  
Click here to see the one-pager showing all results summarized below.

• Aggregated revenues: CECP companies had stronger aggregated revenue than non-CECP companies. Aggregated revenues grew by 9.3% for CECP companies.
• Pre-tax profit: Median pre-tax profit for CECP companies went from $2.9 billion to $3.0 billion; median pre-tax profit for non-CECP companies went from $753K in to $836K.
• Market capitalization: CECP companies had higher value of market capitalization than non-CECP companies. 
• P/E ratio: CECP companies and non-CECP companies both had stable and similar median P/E ratio growth.  
• EBITDA: Median EBITDA growth rate was higher for CECP companies. 

CECP companies were more Environmentally friendly than non-CECP companies

• Greenhouse gas emissions (GHG): CECP companies decreased their median amount of GHG, which is measured in millions of metric tons. Non-CECP companies not only had higher median levels of GHG but also increased levels.
• Water use: Both CECP and non-CECP companies increased their median consumption of water, which is measured in millions of cubic meters.
• Total waste: CECP companies had a substantial decrease of median total waste, which is measured in thousands of metric tons. Although non-CECP companies had lower levels of total waste, they saw a smaller decrease in median total waste.

CECP companies invested more in Society than non-CECP companies

• Employee turnover: CECP companies had a smaller median employee turnover rate compared to non-CECP companies.
• Total giving: Despite an overall decrease in total giving in the last two years, CECP companies invested more in society than non-CECP companies.
• Outcomes and/or Impacts Measurement: More companies recognized the value of measuring social outcomes and/or impacts across the board. CECP companies were particularly conscious of the importance of measuring their social outcomes and/or impacts. 

CECP companies were more aware of the rights and responsibilities of management and Governance

• Women on boards: CECP companies recognized the importance of having more women on their executive boards more than non-CECP companies. 
• ESG linked to compensation for board: CECP companies had three times more percentage of companies that linked their ESG metrics to their boards’ compensation than non-CECP companies. 
• CSR/sustainability committee: The percentage of companies that had a CSR/sustainability committee that reported directly to the board was higher for CECP companies than non-CECP companies. 

ESG measurement is not a “nice-to-know” indicator of a company’s overall performance, it is a crucial component of most companies’ reporting. Click here to read a Corporate Performance 2014 Snapshot with key ESG and financial performance metrics for the world’s largest companies. Tweet about your ESG accomplishments over the course of the last couple of years @CECPTweets and reshape the way the corporate world cohabitates with the environment, society, and its employees and shareholders.

Sources: Giving in Numbers: 2015 Edition data from CECP, in association with The Conference Board, and Bloomberg Terminal

CECP is a coalition of CEOs united in the belief that societal improvement is an essential measure of business performance. Founded in 1999, CECP has grown to a movement of more than 150 CEOs of the world’s largest companies across all industries. Revenues of engaged companies sum to $7 trillion annually. A nonprofit organization, CECP offers participating companies one-on-one consultation, networking events, exclusive data, media support, and case studies on corporate engagement.