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McKinsey: Five ways ESG is adding value

Procurement professionals are no strangers to the growing profile of ESG and there’s been a meteoric rise in ESG-oriented investing, McKinsey has revealed. 

Global sustainable investment has reached $30 trillion –  68% up since 2014 and a further tenfold increase since 2004. 

Rewind to 2012 and sustainable investments constituted 21.5% of assets professionally managed in Asia, Australia and New Zealand, Canada, Europe, and the United States. 

“By 2021, sustainable investments constituted more than 35 percent of globally managed assets,” McKinsey revealed. 

ESG targets are yet to be implemented at almost three out of 10 businesses, a survey of attendees at PASA’s Sustainable Procurement and ESG Today event. 

How ESG is creating value

ESG creates value in five ways, according to McKinsey’s research across various industries:

  1. Increased top-line growth: ESG helps companies enter new markets and grow existing ones, with sustainability-focused products growing 5.6 times faster than traditional ones.
  2. Cost savings: Good ESG practices can curb rising operating expenses, with a correlation between resource efficiency and financial performance found across multiple sectors.
  3. Reduced regulation: A strong ESG reputation can lead to less regulatory pressure, greater strategic freedom, and better community relations.
  4. Improved productivity: Good ESG can boost employee morale and attract quality talent, with 82% of US employees surveyed by McKinsey affirming the importance of purpose at work.
  5. Optimal investment and assets: ESG can enhance investment returns by directing capital to more sustainable opportunities, such as renewables and waste reduction. Investing in ESG strategies may require significant funds, but inaction may be costlier in the long run.

How to embed ESG into an organisation

Mckinsey says that in order to maximize impact, a purposeful business strategy must be well-governed. 

It recommends companies utilise The SCORE model framework, developed by the Enacting Purpose Initiative, which consists of five key five questions.