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ESG Case Studies

The esg initiative at the wharton school, the environmental, social and governance initiative seeks to advance academic research on esg topics. , we drive innovative research in the field of esg to investigate when, where, and how esg factors impact business value., esg integration in finance, esg integration in strategy, esg and organizational change.

Parnassus Investments and Wells Fargo & Co.: Balancing Morals, Metrics and Materiality

A look at the efforts of Ben Allen, CEO of Parnassus, to invest in Wells Fargo while advancing the financial welfare of the firm’s investors and the ESG values so important to many of them and to the staff of the firm.

Engine No. 1: An ESG Upstart Challenges Fund-Industry Assumptions About Organizing An ETF and Everyone’s Assumptions About Proxy Fights

A look into Engine No. 1’s efforts to combine a new ETF that both met a need in the market for active ownership and satisfied gatekeepers with a hedge fund that occasionally pursued activist campaigns needing the support of the Big Three to succeed.

Striking a Balance Between Valuation and Values: Investment Managers Weigh Whether Investments in a Major Oil Company and an Ethanol Producer Serve their Dual Mandate

A look at the decisions Michelle Dunstan and Jeremy Taylor, co-managers of the Alliance Bernstein Global ESG Improvers Strategy, had to make in their effort to buy stocks they believed had the best chance to deliver excellent long-term financial results and improve their ESG performance.

Calculating the Net Present Value of Sustainability Initiatives at Newmont’s Ahafo Mine in Ghana

This case study examines the value and strategy of estimating the net present value of sustainability at Newmont’s Ahafo Mine in Ghana.

Choppies’ Waters: Retailing in Botswana and Sub-Saharan Africa

This case study looks at the impact of Choppies, under the guidance of CEO  Ramachandran (“Ram”) Ottapathu, on Botswana and Sub-Saharan Africa.

Designing and Implementing an Integrated Project Management System at Minas-Rio

This case study examines the design and implementation of an Integrated Project Management System to achieve the ultimate goal of First Ore on Ship (FOOS) by November 30, 2014, by Paulo Castellari, CEO of the Anglo American subsidiary Iron Ore Brazil.

Glenmede: How to Credibly Bring an ESG Lens to Investing and Secure Buy-in from Analysts and Clients

A look at Amy Wilson’s efforts to direct ESG investing within the Glenmede Investment Firm credibly and effectively.

Abraaj Group’s Integration of ESG Policies into the Turnaround of K-Electric

This case study explores the efficacy of the Abraaj Group’s strategy in changing the K-Electric company’s direction, with the aim of transforming it into a sustainable, growth-oriented, private sector utility.

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The Kerovka simulation is a highly innovative software tool that is used as part of an organised workshop, either in a classroom or in remote format, to deliver an intense experience that helps participants with a wide variety of experience levels to develop skills for dealing with challenges such as managing crisis scenarios, and leading responsibly & sustainably.

About the Environmental, Social and Governance Initiative

The Environmental, Social and Governance Initiative conducts academically rigorous and practically relevant research with industry partners and across all Wharton departments that investigates when, where, and how ESG factors impact business value. Informed by research, we offer 30+ courses that MBA and undergraduate students can assemble into a major or concentration, over a dozen co-curricular experiences, and three Executive certificate programs. Led by Vice Dean Witold Henisz, the ESG Initiative advances Wharton’s best-in-class education of current and future leaders, enabling them to serve a world undergoing tremendous change.

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Business school teaching case study: Unilever chief signals rethink on ESG

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Gabriela Salinas and Jeeva Somasundaram

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In April this year, Hein Schumacher, chief executive of Unilever, announced that the company was entering a “new era for sustainability leadership”, and signalled a shift from the central priority promoted under his predecessor , Alan Jope.

While Jope saw lack of social purpose or environmental sustainability as the way to prune brands from the portfolio, Schumacher has adopted a more balanced approach between purpose and profit. He stresses that Unilever should deliver on both sustainability commitments and financial goals. This approach, which we dub “realistic sustainability”, aims to balance long- and short-term environmental goals, ambition, and delivery.

As a result, Unilever’s refreshed sustainability agenda focuses harder on fewer commitments that the company says remain “very stretching”. In practice, this entails extending deadlines for taking action as well as reducing the scale of its targets for environmental, social and governance measures.

Such backpedalling is becoming widespread — with many companies retracting their commitments to climate targets , for example. According to FactSet, a US financial data and software provider, the number of US companies in the S&P 500 index mentioning “ESG” on their earnings calls has declined sharply : from a peak of 155 in the fourth quarter 2021 to just 29 two years later. This trend towards playing down a company’s ESG efforts, from fear of greater scrutiny or of accusations of empty claims, even has a name: “greenhushing”.

Test yourself

This is the fourth in a series of monthly business school-style teaching case studies devoted to the responsible business dilemmas faced by organisations. Read the piece and FT articles suggested at the end before considering the questions raised.

About the authors: Gabriela Salinas is an adjunct professor of marketing at IE University; Jeeva Somasundaram is an assistant professor of decision sciences in operations and technology at IE University.

The series forms part of a wider collection of FT ‘instant teaching case studies ’, featured across our Business Education publications, that explore management challenges.

The change in approach is not limited to regulatory compliance and corporate reporting; it also affects consumer communications. While Jope believed that brands sold more when “guided by a purpose”, Schumacher argues that “we don’t want to force fit [purpose] on brands unnecessarily”.

His more nuanced view aligns with evidence that consumers’ responses to the sustainability and purpose communication attached to brand names depend on two key variables: the type of industry in which the brand operates; and the specific aspect of sustainability being communicated.

In terms of the sustainability message, research in the Journal of Business Ethics found consumers can be less interested when product functionality is key. Furthermore, a UK survey in 2022 found that about 15 per cent of consumers believed brands should support social causes, but nearly 60 per cent said they would rather see brand owners pay taxes and treat people fairly.

Among investors, too, “anti-purpose” and “anti-ESG” sentiment is growing. One (unnamed) leading bond fund manager even suggested to the FT that “ESG will be dead in five years”.

Media reports on the adverse impact of ESG controversies on investment are certainly now more frequent. For example, while Jope was still at the helm, the FT reported criticism of Unilever by influential fund manager Terry Smith for displaying sustainability credentials at the expense of managing the business.

Yet some executives feel under pressure to take a stand on environmental and social issues — in many cases believing they are morally obliged to do so or through a desire to improve their own reputations. This pressure may lead to a conflict with shareholders if sustainability becomes a promotional tool for managers, or for their personal social responsibility agenda, rather than creating business value .

Such opportunistic behaviours may lead to a perception that corporate sustainability policies are pursued only because of public image concerns.

Alison Taylor, at NYU Stern School of Business, recently described Unilever’s old materiality map — a visual representation of how companies assess which social and environmental factors matter most to them — to Sustainability magazine. She depicted it as an example of “baggy, vague, overambitious goals and self-aggrandising commitments that make little sense and falsely suggest a mayonnaise and soap company can solve intractable societal problems”.

In contrast, the “realism” approach of Schumacher is being promulgated as both more honest and more feasible. Former investment banker Alex Edmans, at London Business School, has coined the term “rational sustainability” to describe an approach that integrates financial principles into decision-making, and avoids using sustainability primarily for enhancing social image and reputation.

Such “rational sustainability” encompasses any business activity that creates long-term value — including product innovation, productivity enhancements, or corporate culture initiatives, regardless of whether they fall under the traditional ESG framework.

Similarly, Schumacher’s approach aims for fewer targets with greater impact, all while keeping financial objectives in sight.

Complex objectives, such as having a positive impact on the world, may be best achieved indirectly, as expounded by economist John Kay in his book, Obliquity . Schumacher’s “realistic sustainability” approach means focusing on long-term value creation, placing customers and investors to the fore. Saving the planet begins with meaningfully helping a company’s consumers and investors. Without their support, broader sustainability efforts risk failure.

Questions for discussion

Read: Unilever has ‘lost the plot’ by fixating on sustainability, says Terry Smith

Companies take step back from making climate target promises

The real impact of the ESG backlash

Unilever’s new chief says corporate purpose can be ‘unwelcome distraction ’

Unilever says new laxer environmental targets aim for ‘realism’

How should business executives incorporate ESG criteria in their commercial, investor, internal, and external communications? How can they strike a balance between purpose and profits?

How does purpose affect business and brand value? Under what circumstances or conditions can the impact of purpose be positive, neutral, or negative?

Are brands vehicles by which to drive social or environmental change? Is this the primary role of brands in the 21st century or do profits and clients’ needs come first?

Which categories or sectors might benefit most from strongly articulating and communicating a corporate purpose? Are there instances in which it might backfire?

In your opinion, is it necessary for brands to take a stance on social issues? Why or why not, and when?

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Bristol Myers Squibb’s leadership in global diversity & inclusion

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Pharmaceutical

Helping Bristol Myers Squibb achieve its Global Diversity & Inclusion goals

Purpose <br> Transparency

Leading the journey with transparency

As one of the world’s largest biopharmaceutical companies, Bristol Myers Squibb (BMS) doesn’t just develop life-saving medicines. The company is also a leader in global diversity and inclusion (GD&I) initiatives, committing itself to advancing diversity and inclusion (D&I) efforts and improving health equity for better patient outcomes. And the hope is that these actions will inspire other companies in the pharmaceutical industry to do the same. 

For nearly two decades, GD&I—a critical pillar in environmental, social and governance (ESG) strategies—has been a top priority for BMS. In fact, in 2015, the company evolved its employee resource groups to People and Business Resource Groups (PBRGs) to focus on GD&I initiatives and build a workforce that better reflected the diversity of its patients and communities. The groups aimed to create a culture of inclusion and belonging and, ultimately, drive innovation and business results. In addition, CEO Giovanni Caforio signed  the CEO Action pledge for Diversity and Inclusion .

But BMS’ extensive efforts continue to grow. In 2020, the company and the Bristol Myers Squibb Foundation each made  $150 million commitments  to accelerate and expand diversity, inclusion and health equity efforts, including workforce representation. Internally, the company pledged to advance leadership representation by the end of 2022 by achieving gender parity at the executive level and doubling executive representation of Black/African American and Latino/Hispanic employees in the US.

What was BMS’ next step? To tell the world. And to share the GD&I strategy in the company’s first  Global Diversity and Inclusion report , which provides transparency into a broad set of metrics and brings the stats to life with authentic stories from employees.

Writing chapter one of an evolving story

To ensure companies are truly accountable to diversity, equity and inclusion goals, they need to question everything—including their data. BMS’ leadership understood that, and knew the company needed help to enable high-quality data processes as well as framing, qualifying and quantifying its story and aspirations. The goal? To produce a comprehensive report with insights that identify which initiatives are working well and which ones need to be improved—and to provide context that creates an emotional connection with readers.

Aligning strategy, culture and context

The same team members who brought PwC’s inaugural Diversity & Inclusion Transparency Report to life in 2020 tapped into the lessons they learned on that project, including how to communicate with authenticity and consistency, and the importance of a far-reaching communication and socialization plan. The BMS and PwC teams worked collaboratively to connect themes and storylines to the data—putting the report’s metrics in context by illustrating the real-world value of the actions. They also applied the data quality approaches PwC uses with many of its clients to help confirm the accuracy of the quantitative metrics in the report. 

While teaming to identify representation benchmarks, the biopharma company crystallized key messages around its GD&I journey by integrating diverse employee stories and qualitative examples that would resonate with readers. These efforts included cultural dexterity training and helping to curb the spread of COVID-19 through education and outreach campaigns in underserved communities throughout the world.

Rolling out the  first report

BMS strongly believes that GD&I initiatives require much more than simply reporting workforce data: They also should outline what a company stands for—and why. 

The teams assembled one of the most robust narratives of GD&I efforts in the biopharmaceutical industry to date. BMS’ commitments to addressing health disparities, clinical trial diversity, supplier diversity, increased employee giving and workforce representation—all in service to patients—has served as the North Star.

Working together, the multifaceted, multidisciplinary teams crafted a data framework and an actionable publishing timeline. They went through multiple iterations to get alignment with leaders across various functions. In the process, they uncovered additional insights and data points to help guide future initiatives, such as amplifying Everybody Counts (the company’s self-identification campaign) with leader messages and employee videos that breathe life and authenticity into these efforts.

Turning  ideas into actions

Working hand in hand, PwC helped BMS develop a landscape analysis to understand how to aggregate, calculate and determine how the company’s efforts compared to the benchmark analysis. This was a complex process that had to be performed on an aggressive timeline. 

While some members of the multidisciplinary teams tackled numbers, others focused on structure, messaging, insight generation and storyline—a task that’s as complex as data analysis. PwC helped BMS achieve an intricate balance between embedding relevant metrics and providing a compelling narrative with qualitative proof points and illustrative examples. PwC oversaw and helped to guide the whole process, ensuring that all stakeholders were on the same page and working toward the same goals—including meeting very tight deadlines.

Throughout the process, the stakeholders put their heads together to think through their GD&I story, align on the most important elements, find answers to the "so what?" questions, identify areas for growth and improvement—and communicate all of this to employees, customers, shareholders, the industry and the public in an authentic way. While the discussions weren’t always comfortable or easy, they were essential to finding answers and curating the company’s GD&I efforts.

Adding context to the data

BMS leaders had been tracking GD&I data for decades, but needed to provide context to tell a holistic story that employees, clients, healthcare networks and other stakeholders could relate to and easily understand. PwC helped prioritize the stories the company wanted to tell and documented the process, making it more rigorous and disciplined. BMS and PwC worked collaboratively with other agencies to create a meaningful report that married impressive business outcomes with a positive impact on individual people.

The integrated teams aligned on messaging and storylines and produced the robust  Global Diversity and Inclusion report , including within it many employee stories. These narratives, many of which were provided by the PBRGs, breathed life into the detailed metrics that document the company's efforts. Putting the statistics into context helped readers connect emotionally with the report, and BMS’ typical social media benchmarks were exceeded twofold. 

Putting a stake in the ground

BMS’ report was inclusive and transparent, painting a clear picture of the company’s diversity, equity and inclusion initiatives. These GD&I efforts put an initial virtual stake in the ground, inspiring employee engagement and helping to position BMS as a leader in the biopharma industry. 

Other benefits included a deeper understanding of the data in the report, as well as a workable timeline for future reports and guidance to assist with ongoing efforts. 

Building trust and goodwill

The transparency and context of the report contributed to a culture shift. Supported by these efforts and others, such as the Everybody Counts self-identification campaign, managers felt more encouraged to have honest, sometimes difficult conversations with their teams regarding diversity, equity and inclusion topics. That, in turn, often empowered employees to share their thoughts and personal stories about their life experiences with their colleagues and managers.

Reactions to the GD&I report have been positive, and BMS leaders expect that to continue, while acknowledging that the report represents just the first steps in an ongoing journey. The company continues to promote the GD&I dialogue within its industry and has made long-term commitments to gender parity, better representation of Black/African American and Latino/Hispanic individuals in the executive ranks, supplier diversity, employee giving, health equity and clinical trials. Further, BMS will continue to tell the world what it stands for, how it intends to achieve its ambitious GD&I and health equity goals and what pioneering efforts it plans for the future.

Bristol Myers Squibb’s commitment to GD&I produced a groundbreaking report

The biopharma company’s discussions aligned stakeholders on messaging and timelines., “this important effort is the beginning of an ongoing gd&i conversation and is our foundation going forward. pwc challenged our team to think about what is most important and how we can continue to make progress.” .

Linda Leonard Global Diversity & Inclusion Lead, Bristol Myers Squibb

“We’re proud to be part of Bristol Myers Squibb’s journey to address diversity and inclusion and health equity imperatives. This report is a critical step in helping to build trust.”

Luna Corbetta   Principal, PwC

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Luna Corbetta

Principal, Workforce Transformation, Pharma & Life Sciences, PwC US

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Sustainability and Deals Partner, PwC US

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The Business Case for ESG

Brandon B. Boze is partner at ValueAct Capital;  David F. Larcker is James Irvin Miller Professor of Accounting at Stanford Graduate School of Business; and Eva T. Zlotnicka is Vice President at ValueAct Capital. This post is based on a recent paper by Mr. Boze, Professor Larcker, Ms. Zlotnicka, Margarita Krivitski , and Brian Tayan . Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here ).

We recently published a paper on SSRN, The Business Case for ESG , that examines the potential for corporate managers, boards of directors, and institutional investors around how best to incorporate ESG (environmental, social, governance) factors into strategic and investment decision-making processes. Central to the topic is the premise that both companies and investors have become too short-term oriented in their investment horizon, leading to decisions that increase near-term reported profits at the expense of the long-term sustainability of those profits. The costs of those decisions are assumed to manifest themselves as externalities, borne by members of the workforce or society at large.

Prominent investors such as Larry Fink at BlackRock adopt this viewpoint:

To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.

Similarly, Martin Lipton of law firm Wachtell, Lipton, Rosen & Katz has urged corporate clients to adopt what he calls “The New Paradigm,” a more stakeholder-centric orientation that emphasizes a long-term investment horizon:

In essence, the New Paradigm recalibrates the relationship between public corporations and their major institutional investors and conceives of corporate governance as a collaboration among corporations, shareholders and other stakeholders working together to achieve long-term value and resist short-termism.

Evaluating claims such as these on a national or macro-level would require an accurate measurement of the time horizons of business managers today and the degree to which, if any, they ignore or underestimate long-term environmental or social costs in the pursuit of near-term profits.

Boards can improve their analysis of ESG risks and opportunities at a practical level by considering how long-term investors integrate ESG factors into their decision-making process. To do so, we examine a framework informed by the experience of ValueAct Capital. ValueAct is a long-term investor which aims to work constructively with portfolio company management teams and boards in a variety of ways, including at times having a ValueAct representative serve on the board.

Broad Integration of ESG Factors

In many ways, a focus on the durability of earnings and downside risk inherently incorporates many concepts commonly associated with ESG. To that end, ValueAct has also adopted an approach to evaluate ESG-related factors as part of its decision-making process and has deepened engagement with its portfolio companies around these issues. It does so because analysis of ESG factors can:

• Provide an effective risk management framework
• Provide a new lens for strategy development and growth opportunities
• Address the demands of stakeholders such as customers, employees, and investors

As such, ValueAct generally incorporates ESG factors into its process by identifying relevant stakeholders and factors, isolating and evaluating potential risks, and supporting companies as they invest in their businesses to increase returns.

Identifying Relevant Factors. The first step is to map the ecosystem of stakeholders associated with the company and analyze their interests (i.e., their incentives, values, viewpoints, etc.). These stakeholders typically include customers, suppliers, employees, regulators, the general public (including environmental impact), shareholders, and competitors. Once this ecosystem is mapped, it is easier to understand which ESG factors are most relevant to a particular company. Certain factors such as governance and human capital might be applicable broadly, while others such as environmental footprint might be more limited.

As an example of this process, ValueAct created an ecosystem map as part of its diligence of the private student loan industry, including the leading provider Sallie Mae. The map identifies students and their parents, colleges and their financial aid officers, government regulators, U.S. taxpayers, and shareholders as key stakeholders and summarizes the goals of each.

Isolating and Evaluating Potential Risks. Once the relevant factors have been identified, one can evaluate and quantify (to the extent possible) the company’s position and associated risk in each area. The active engagement of an investor with a significant stake and long-term perspective can elevate a company’s discussion of risk at the C-suite and board level, encourage corporate investment to mitigate risk if needed (even at the expense of near-term profit), and provide support for the management team as it justifies its decisions to the broader investment community.

In the example of the student loan industry above, the federal government is an important focal point given its dual role as lender and policy maker.  This suggests several questions:

• Can private student loans provide better value to students than federal programs?
• How might policy changes impact the competitive dynamic between private and federal programs?
• What impact do various sources of student loans have on both school and student outcomes?

In attempting to answer these questions from an investor’s perspective, ValueAct was better able to evaluate how private student loan providers could play a positive role in any higher education policy focused on access, quality and affordability, and therefore serve as an important part of the long-term solution to fund higher education.

Investing to Increase Returns. Beyond risk reduction, ESG factor analysis can lead to the identification of investments or activities by the company that increase long-term returns. For example, a company’s investment in a more sustainable supply chain can deepen relationships with customers (thereby promoting volume growth and premium pricing), attract talent to the organization, and perhaps reduce costs. In the private student loan ecosystem, investments behind improving student outcomes can significantly reduce default risk while also improving the brand in the eyes of customers, employees and regulators. These positive effects can build on one another and create a powerful flywheel effect.  To identify and capitalize on opportunities such as these, senior business leadership must consider material ESG factors as core inputs into their strategy development.

Beyond ESG: Investing Behind Business Models and Transitions Integral to Solving Global Problems

Integration of ESG-related factors is broadly applicable across all companies. In ValueAct’s experience, there is also an opportunity for institutional investors to identify and invest behind companies where sustainability is at the center of the investment thesis, or whose business models are core to the ultimate solution for specific environmental and social problems (increasingly referred to as “impact investing”). These global problems can include carbon emissions, waste recovery, access to education, affordability of healthcare, and biodiversity loss, to name a few.

Below we explore two of those problems—carbon emissions and access to education—and provide an example of companies that are transitioning their business models to address these problems.

Carbon Emissions

Electricity production accounts for over a quarter (27.5 percent) of greenhouse gas emissions in the U.S. Approximately 64 percent of electricity production comes from fossil fuels such as coal and natural gas, 19 percent from nuclear and 17 percent from renewables such as wind and solar. Renewables have steadily gained share as they have become more cost competitive with fossil fuels in certain geographies. Increased investment can accelerate this transition and pull forward the benefits from a climate change perspective.

Global power company AES has a 38-year history of owning and operating contracted generating capacity to utilities around the world. By early 2018, AES was addressing the environmental cost of its reliance on coal as an energy source and was in the process of repositioning its portfolio to renewable sources. The company subsequently made a series of changes to accelerate the transition of its business model. In early 2018, AES announced a broad reorganization, including asset divestitures primarily related to coal plants. The company also committed to a target of decreasing reliance on coal from 41 percent of supply in 2015 to 29 percent by 2020. It publicly set a carbon intensity reduction target of 70 percent by 2030. Through joint ventures with Siemens and others, it built capacity for energy storage and development of renewables. In November 2018, the company voluntarily released a Climate Scenario Report, claiming to be the first U.S. publicly listed energy-related business to do so in accordance with guidelines set by the Task Force for Climate-related Financial Disclosures (TCFD). The company also modified its mission statement to emphasize its commitment to transformation to: “Improve lives by accelerating a safer and greener energy future.”

These actions appear to have had a number of ripple effects. According to AES, the updated mission statement galvanized the company’s culture, helping it to attract talent, increase workforce productivity, and further innovation. The company also received recognition from external parties for its reporting efforts. Shareholders who had pressured the company to conduct a climate-change risk assessment voluntarily withdrew their proxy resolution, and according to AES, some foreign and domestic investors, who previously would not invest in AES because of its exposure to coal, made new investments. During this time of investment in a less carbon intensive business, the company’s price-to-earnings (P/E) multiple expanded from approximately 9x in January 2018 to 14x by March 2019 and its stock price outpaced industry indexes (see Exhibit 2).

Access to Education

Higher education is a critical determinant of future wages, with college graduates earnings approximately 80 percent more per year than those with only a high school degree. The cost of college education, however, has been rising significantly for many years, and student loans become the fastest growing category of consumer debt, rising to $1.6 trillion by the end of 2018. Addressing the problems of access and affordability while maintaining quality offers substantial potential benefits for U.S. citizens and the economy.

The for-profit education industry has long had the potential to provide this solution by offering a less expensive educational experience focused on occupational training. By and large, however, the industry had not achieved this objective. By the early 2010s, poor student outcomes and high student loan default rates led to regulatory scrutiny. The federal government began to enforce punitive performance requirements and cut off funding to those institutions whose graduates could not find well-paying jobs. These actions led to the collapse of several companies in the industry, such as ITT Educational and Corinthian Colleges. Meanwhile, the survivors experienced precipitous declines in revenue and profits. In the case of Strategic Education (formerly Strayer Education), one of the largest for-profit education companies in the United States whose history dates back to 1892, operating margins, which exceeded 35 percent prior to the change, fell into the teens. The company’s stock price declined from a high of $254.50 In April 2010 to a low of $34 per share in December 2013 (see Exhibit 3).

Since mid-2015, Strategic Education made a series of changes to reposition itself for durable growth, based on a business model that contributes to positive societal change. The company reduced tuition rates to increase affordability. It made investment in machine learning and artificial intelligence to lower its costs and improve student outcomes, passing on the savings as lower tuition. It also increased its efforts to measure student outcomes and take the learnings to foster continuous innovation in the education experience. Recently, it merged with Capella University—an online graduate school education company—to build scale and further its competency-based learning. Strategic Education has also expanded non-degree educational offerings for employed workforce members, with corporate partnerships representing approximately a quarter of enrollment and growing.

Subsequently, student experience and retention improved, leading to higher unit economics. Operating margins and profits increased. In 2018 alone, enrollment at Strayer University increased by 8 percent to nearly 48,000 students while the continuation rate and number of students completing the requirements for graduation also rose. Importantly, the company has positioned itself as a contributor to positive social outcomes by improving education and training for students and adults at lower cost.

Concluding Remarks

The examples of AES and Strategic Education illustrate how some companies can benefit from a foundational shift in their business model to explicitly address stakeholder concerns, leading to more sustainable long-term economics. In some cases, it requires that management and the board be amenable to collaborating with stakeholders to determine how to achieve those changes or with a significant shareholder to champion this decision among the broader shareholder base. Ultimately, certain incumbents whose industry faces significant environmental or social challenges can create value and generate returns by more centrally focusing on addressing those challenges.

Why This Matters

• The examples included in this Closer Look involve companies that appear to have a long-term investment horizon and are willing to bear the cost of an up-front investment in order to increase long-term value. How prevalent are companies with a long-term perspective? How many companies miss long-term opportunities because they are excessively focused on short-term profits? What does this say about the quality of corporate governance and board oversight in companies today?
• This paper offers two case studies of companies transitioning “beyond ESG” to solve global problems. Both are traditional businesses whose executives and board members recast their business models to try to solve environmental and/or social problems and improve long-term profit opportunities. Just how widespread are such opportunities? Can every company achieve such a transition and do so profitably?
• The approach described in this Closer Look suggests that opportunities exist for investors to earn competitive risk-adjusted returns with a favorable ESG focus. How large is this opportunity? How does this compare to the total universe of publicly traded companies?

The complete paper is available here .

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Sustainability drives automotive market cap

How Volkswagen is driving clarity and confidence in their sustainability strategy.

Call for change

Having a bold Environmental, Social and Governance (ESG) strategy matters to investors, employees and the public—but not if they don’t understand it. Despite having launched the most ambitious decarbonization and digitalization initiative in automotive history, the Volkswagen Group (VW), the world’s largest automaker by volume, had a market cap well below that of its rivals. VW realized they needed to better articulate their ESG strategy.

To address this, the auto major wanted to implement a more cohesive sustainability narrative—from environmental to diversity to human rights and resource efficiency—that would resonate with its culture and its individual brands. VW also wanted to sharpen its overall ESG focus, defining the initiatives, responsibilities and KPIs that would make sustainability synonymous with the corporate strategy.

Achieving this would clarify its sustainability strategy—to become an emission-free, digitally-connected leader in mobility—and drive greater awareness among stakeholders, including the investment community.

When tech meets human ingenuity

Accenture broke the project into three phases. Phase one involved determining where VW stood in relation to its peers. Since investors trust S-Ray, a machine learning platform that generates ESG ratings of companies based on millions of data points for over 7,000 listed companies, the team identified the data needed to generate an S-Ray score and ESG rating in line with VW’s industry-leading efforts.

Next, the team conducted C-level workshops to develop support for the company’s ESG vision, emphasizing decarbonization, circular business models, workforce transformation and human rights in supply chain. The third phase saw the team help articulate VW’s ESG narrative, which included key initiatives, responsibilities, KPIs and a plan to communicate all the company’s efforts.

A valuable difference

In six months, the team consolidated VW’s ESG narrative from 18 sustainability topics to just four major topics, with easily understandable ambitions and KPIs for each area so the company can measure its progress more efficiently. Targets were set in areas such as decarbonization, circular economy, human rights in business and workforce transformation.

With ESG objectives woven into its operational and functional processes, there’s now a clear connection between VW’s S-Ray score and the overall corporate strategy, integrating the NEW AUTO plan to pivot VW to a global software-driven mobility provider that powers the future of EVs and fully networked transportation.

Customers are already on board—in December 2020 VW’s electric ID.3 was the second best-selling car in Europe and by 2021, the Volkswagen Group was being seen as the market leader in e-mobility.

With ESG analysis and real-world ESG performance becoming clearer, VW is able to accelerate its sustainability strategy. Its overall growth ambitions are reflected in its market cap rise, which is becoming consistent with that of other global enterprises. VW’s roadmap is set for further growth as investors look to make smarter bets on how we’ll all get where we want to go—together, and for the planet.

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• Global Private Equity Report

The Expanding Case for ESG in Private Equity

Customers, employees and limited partners are demanding more sustainable, socially conscious corporate behavior. PE firms that can deliver are reaping the rewards.

By Axel Seemann, Dale Hardcastle, Deike Diers, and Jacqueline Han

• March 01, 2021

At a Glance

• ESG investing continues to face skepticism in the private equity industry, especially in the US. 
• But proactive firms aren’t waiting for ROI studies to pan out before incorporating sustainability and social responsibility into how they invest and operate.
• ESG isn’t just a nice thing to do. It is becoming a critical element in gaining market share, engaging employees and raising capital.

This article is part of Bain's 2021 Global Private Equity Report.

Until there is consistent data establishing a positive link between ESG investing and financial returns, there will always be skepticism among private equity investors. That’s just the way the industry is wired.

We’ve all seen the anecdotal evidence that companies can actually “do well by doing good” when they adhere to environmental, social and corporate governance (ESG) standards. But no matter the ownership model, there is reluctance to dive in headfirst, and PE firms face a unique mandate to produce substantial returns quickly.

ESG is broad and amorphous, notoriously hard to define. We lack time-tested standards for measuring either results or impact. That, not surprisingly, leads to muted enthusiasm among some firms and check-the-box efforts among others. Very often, it seems, firms skew toward the “E,” putting new labels on cost or efficiency initiatives that they would have implemented anyway. As Institutional Investor put it in a June 2020 headline , “Private Equity Makes ESG Promises. But Their Impact Is Often Superficial.”

This clearly isn’t always the case. TPG, for instance, has enthusiastically adopted ESG principles both internally and within its portfolios. It is also a leader in launching impact funds and made a high-profile announcement in January that former US Treasury Secretary Hank Paulson would join the firm as executive chairman of TPG Rise Climate, a new fund focused on climate-related investments. At the same time, signatories to the United Nations’ Principles for Responsible Investment (PRI) jumped 28% last year and now number more than 3,000 institutional investors and PE firms, representing a staggering $103 trillion of assets under management.

Yet a closer look at the numbers suggests that real commitment to ESG is less monolithic. While the PRI signatory list includes 431 PE firms from around the world, only 16 of them disclose ESG’s impact on financial returns, according to Institutional Investor , and only half use ESG principles in monitoring more than 90% of their portfolio companies.

There’s also a wide gap in adoption between the PE industry in North America and that in Europe. While 80% of the top 20 EU-based institutional investors have committed to either the PRI, the UN’s Net-Zero Asset Owner Alliance or the Task Force on Climate-related Financial Disclosures, less than half of the top 20 North American institutions have done so, and many of those are based in Canada (see Figure 1).

Limited partners in Europe lead the world in committing to global standards for responsible and sustainable investment

An analysis of ESG performance among PE firms by EcoVadis, a leading global supplier of business sustainability ratings, shows that portfolio companies owned by US-based firms trail those owned by EU-based firms by 12 points. Yet even in Europe there is ample room to grow. Looking at sustainability factors only, the great majority of EU-owned portfolio companies haven’t launched meaningful initiatives (see Figure 2). And the broader corporate world isn’t much further along. EcoVadis data shows that PE-owned companies and corporations are pretty much neck and neck when it comes to ESG maturity scores in both the US and Europe.

European LPs have embraced ESG much more eagerly than those in North America, but there’s still room to grow

A building wave of change.

So is ESG one of those particularly persistent investment fads that will eventually fade away? We wouldn’t bet on that any more than we’d bet against the historic groundswell of global concern around climate change, social upheaval and corporate responsibility. What’s made the PE industry successful in the past is its ability to anticipate future currents of value creation and to think more broadly about how they will reveal themselves. We believe this is one of those moments.  

Sensing that broader economic forces are rapidly changing behaviors and attitudes, many firms aren’t waiting for ROI studies to prove out before banking on ESG. A growing segment of the industry believes that investments in sustainability, social welfare and good governance require a different calculus for now—at least if they want to get ahead of the game.

In the few short years since ESG appeared on the scene, the industry has tended to view it as a sideshow—something good to do in addition to a fund’s normal business of buying and shepherding companies. Some firms have actually segregated these efforts into discrete funds wholly devoted to impact investing, where the goal is to generate social or environmental impact at market-rate returns (see Figure 3).

Leading firms see ESG investing as a core part of creating value and mitigating risk

As ESG matures, however, the firms leading the charge—mostly in Europe—talk less about discrete, segregated ESG initiatives and more about delighting customers, gaining market share, engaging employees and creating the best work environment. As with sector expertise or technology acumen, they have come to consider ESG a core part of what differentiates them as competitors, baking ESG principles into sharpening due diligence, building stronger value-creation plans and preparing the most compelling exit stories.

Private equity has always focused on governance risk and increasingly sees the value in cutting costs through sustainability. What’s changing is firms’ growing awareness that environmental, social and governance issues are highly interrelated and that the biggest benefits over time accrue to companies that balance efforts between all three.

The desire to contribute to a better world is certainly a motivator, but the rationale is all business. These firms recognize that consumers, regulators, employees and sources of capital are energized by the notion that investors can and should use their economic clout to address the many existential crises we face as a society. Each of these groups is ramping up demands for change and, in many cases, rewarding it (see Figure 4).

Stakeholders of all kinds want companies to be more sustainable, socially conscious and well governed

Consumers. Survey after survey shows that consumers—especially the surging wave of millennials and post-millennials—are flocking to companies that they believe act responsibly. “Doing the right thing” may be an imprecise concept, but consumers clearly know it when they see it. Increasingly, it is becoming a critical element of customer loyalty, as measured by Net Promoter Scores.  

A 2020 Capgemini survey of 7,500 consumers and 750 executives globally found that 79% of buyers were changing their preferences based on sustainability. At the same time, only 36% of organizations believed consumers were willing to make these changes. This disconnect is surprising given that companies clearly see a payoff when they buy into the shift in behaviors. A full 77% said sustainability initiatives increased customer loyalty, and 63% have seen a revenue uptick.

What’s clear from the data is that capturing the favor of these ESG-minded consumers has enormous upside. Nielsen estimates that, in the US alone, buyers will spend up to $150 billion on consumer packaged goods viewed as sustainable by 2021.

CVC is one of the firms that speaks less about ESG in isolation and more about using it to create value. As managing partner Jean-Rémy Roussel said in a recent episode of Bain’s Dry Powder podcast , “It’s not a trade-off, it’s not a risk management/litigation issue, it is not conformance to regulation. It is a unique opportunity.”

CVC has developed a systematic approach to embedding ESG and corporate social responsibility initiatives into its value-creation plans, with the specific goal of improving market share and increasing deal multiples. The approach is rooted in the belief that private equity’s traditional focus on boosting EBITDA is actually less effective than focusing on customer loyalty and employee satisfaction, which ultimately generate more value and therefore higher multiples. When CVC buys a company, one of the first things it does is collect hard data on customer and employee satisfaction. It then helps management figure out how to target six key areas—customer focus, simplification, human capital, communities, environment and governance—to improve performance.

A good example of how this works is CVC’s 2017 acquisition of Żabka, a Polish chain of franchised convenience stores. In diligence, CVC identified a number of ESG-related efficiencies and savings. It replaced refrigerants in 2,200 stores and took other measures to reduce annual carbon dioxide production. It reduced the weight of the packaging for one of the chain’s sandwich brands, eliminating three tons of plastic waste. At the end of 2020, it launched a more comprehensive program to reduce CO 2 by at least 5% per year and reach net zero by 2050. It is currently investigating the most credible way to offset CO 2 production at the company level.

The big upside was reengaging with customers to grab market share in a largely stagnant industry. As Żabka studied how to optimize the assortment in its stores, it saw that consumer tastes had shifted dramatically away from typical convenience store fare. The company worked with suppliers to source healthier and more responsible ingredients for its products. It became the first retailer in Poland to use 100% recycled plastic bottles in its branded beverages. It started taking the market lead in selling plant-based food products, hailing their “triple benefits”: customer health, environmental friendliness and animal welfare.

Corporate social responsibility also became increasingly core to the company’s ethos. Żabka now trains employees and franchisees to sell alcohol more responsibly and to recycle more effectively. It has set up programs to eliminate food waste by transferring surpluses to food banks. The company runs career development programs for employees, and it funds scholarships and internships for children from disadvantaged backgrounds.

The results have been impressive: Loyalty and satisfaction scores have soared among customers, employees and franchisees. That led to 20% annual revenue growth from 2017 to 2020, while gross margins increased by 3.9 percentage points. The chain added 652 new stores in 2019, and employment has risen sharply. Social responsibility initiatives have raised the company’s profile across Poland, and a broad corporate campaign to communicate these values and successes has embedded a new sense of purpose throughout the organization.

Employees. As Żabka has discovered, a commitment to sustainability and social responsibility is rapidly becoming essential to attracting and retaining key talent. Research shows that employee loyalty increasingly hinges on a belief that they are working for a company with a nobler mission than just churning out quarterly earnings. A global HP survey of 20,000 workers in 2019 found that 61% believe sustainability is mandatory for companies (on par with diversity and inclusion), and nearly 50% said they would only work for a company with sustainable business practices.

At Unilever, which has made a major public commitment to sustainability, about half of all new employees entering from college say the company’s ethical and sustainability policies are the main reason they wanted to hire on. A sense of mission leads to greater satisfaction, which in turn leads to higher productivity.

Limited partners. One reason ESG is top of mind for PE firms around the world is that a growing number of LPs are demanding it. According to the 2020 Edelman Trust Barometer Special Report: Institutional Investors , 88% of LPs globally use ESG performance indicators in making investment decisions, and 87% said they invest in companies that have reduced their near-term return on capital so they can reallocate that money to ESG initiatives. As noted above, European LPs have demonstrated more commitment to ESG than their counterparts in North America, but the biggest institutions in the US and Canada, including the CPP Investment Board, CDPQ, CalPERS and the California State Teachers’ Retirement System, are firmly on board.

For general partners, this means that ESG is fast becoming a central factor in raising money. CVC’s Roussel, for instance, said that one-fifth of the LPs invested in the firm’s recently closed Fund VIII required an audit showing evidence that ESG was part of the firm’s decision making during both due diligence and ownership. CVC has commissioned EcoVadis to undertake annual assessments of its portfolio companies to demonstrate how ESG maturity has improved under its ownership.

Bankers. Despite the lack of evidence linking ESG to returns, a growing slice of the financial world assumes that sustainable, socially responsible companies are less risky. As a result, PE firms are finding ways to monetize their ESG strategies by lowering their cost of capital. EQT, for instance, launched two ESG-linked subscription credit facilities in 2020 worth €5 billion, with interest rates that decline if the firm performs well against a set of ESG indicators. Firms like Investindustrial and KKR have developed other financing vehicles with ESG incentives or targeted uses. In late 2019, Jeanologia, a Carlyle-owned company that creates clean technologies for jeans manufacturing, agreed to a loan with a rate tied to water savings.

Per Franzén, cohead of the EQT Private Equity Advisory Team, calls the shift to credit-linked facilities “a game-changing moment” for the private equity industry: “By linking sustainability objectives to hard incentives, we are really challenging ourselves and the portfolio companies to fully embrace the potential of sustainability.”

Regulators. If ESG-linked credit facilities are the carrot, regulation is the stick. One reason European firms are addressing ESG more urgently than their US counterparts is that EU regulators are on the case. The EU Taxonomy, a landmark initiative aimed at channeling private capital into sustainable assets, will take effect in December 2021. It will force asset managers in the EU to disclose their share of taxonomy-aligned assets under management, inevitably creating an incentive to raise that share to remain competitive.

By contrast, US regulators are headed the other direction—at least for now. The US Department of Labor in November 2020 issued a rule discouraging fiduciaries from using nonfinancial (read: ESG) principles in screening pension investments. 

Taking the lead

This push and pull between skeptics and believers is typical of game-changing moments. The market, of course, will eventually decide the case, but momentum is building in powerful places. While the top 20 LPs in the US on average may be less inclined or incented to join their global counterparts in committing to ESG, fund-raising is a global business, and GPs still face firm pressure from investors to show progress on these issues. Meanwhile, the firms in the lead are building ESG investing into a differentiating capability. They are convinced it will give them an edge in a PE market that has never been more competitive.

What does it look like to build ESG into the value-creation cycle from beginning to end? Consider EQT’s approach in 2016 when it bought AutoStore, a Norwegian maker of warehousing robots that is headquartered on a remote fjord, a six-hour drive from Oslo. The warehouse industry had limited focus on environmental or workplace issues at the time. But the firm and management saw an opportunity to change the conversation with AutoStore’s flagship robot, which automates retail warehouses by wandering through a compact shelving system, picking and packing.

EQT anticipated two ways it could create value at AutoStore. First, the firm would encourage the company to address its own footprint with a series of cost-saving initiatives aimed at decreasing consumption and reducing carbon emissions. Second, it would focus the company’s marketing on sustainability and workplace quality. AutoStore’s robot already used less energy and was significantly quieter than any other product on the market. But the management team and salesforce weren’t hitting those value arguments in their sales pitch.

EQT’s perspective came from the top of the firm―one of its primary investment themes is that sustainability attributes are increasingly becoming key purchasing criteria in any industry, and the AutoStore deal team was convinced warehousing was no different. To bring the company’s leadership on board, it launched a set of value-creation initiatives linked to sustainability and put a regular reporting function on the board agenda, tying environmental concerns to governance. The company also launched a project to determine if the robot’s sustainability features were a point of differentiation among customers. The answer was yes.

Leadership directed the company’s R&D lab to make its robot even more sustainable and worker friendly. By switching from a lead-acid to lithium-ion battery and increasing the share of recyclable components, engineers significantly reduced the carbon footprint of the product while maintaining its remarkable energy efficiency. (The robot uses one-tenth the energy of a vacuum cleaner.) By running in the dark, it also reduces energy usage within the warehouse.

Armed with a much improved next-generation product, the company then retooled its communication strategy to focus on sustainability and savings alongside the robot’s impressive technical abilities. The new message resonated loudly with customers globally. During EQT’s ownership, its global installations grew by 2.5 times, the number of installed robots tripled, revenues quadrupled and EBITDA increased by 4.5 times. And the social impact was significant: During ownership, global employment doubled, including in the small village where the company has its headquarters and is an important contributor to the local economy.

ESG isn’t about doing good for good’s sake; it’s about recognizing what customers really want and turning that into a strategy that creates tangible value.

EQT’s insight was that, even in a hard-bitten B2B industry like warehousing, sustainability matters. ESG isn’t about doing good for good’s sake; it’s about recognizing what customers and other stakeholders really want and turning that into a strategy that creates tangible value. Funds are finding that ESG issues that weren’t necessarily a factor commercially a few years ago are now front and center. And Covid-19 has only accelerated the pace of change. A Bain survey of more than 12,000 consumers in the US and EU showed that 44% agree or strongly agree that sustainability will be even more important in the wake of the pandemic (see Figure 5).

In the wake of the Covid-19 pandemic, consumers are embracing sustainability more than ever

The message is gradually sinking in across the PE industry. During a recent refresh of its value-creation plan for a paper company, a PE firm identified a potential 3- to 5-point EBITDA uplift tied to a series of sustainability initiatives, including revamping its product lineup in a sustainable way. Responding to consumer demands for products easier on the environment, the company plans to rapidly expand its 100% recycled products and those made from alternative fibers like cotton. That will give it time to tap a set of lucrative new markets by developing paper-based alternatives to plastics in products like transparent-window envelopes and composite packaging.

Sustainability is becoming a central theme in its marketing and changing the company’s positioning globally. The plan anticipates that revenue growth—and avoided revenue loss—will be the biggest contributors to improved results (see Figure 6).

One PE owner plans to use ESG initiatives to boost cash flow at a recently acquired paper company

The opportunity even exists in industries you wouldn’t expect. ESG value creation seems obvious in “clean” or socially conscious sectors—electric vehicles, alternative energy, education, healthcare and so on. But GPs are recognizing that the next buyer will often pay a higher multiple for a company in an environmentally questionable industry that has become more sustainable and responsible than its competitors.

Investindustrial has developed a potent franchise in sustainable investing partly by finding—and fixing—companies like Polynt-Reichhold, a specialty chemicals player with some 40 manufacturing facilities globally. Through various sustainability measures, the company reduced its carbon intensity to a level approximately 40% below its best-performing peers. A global shift to LED lighting shaved 400 megawatt-hours of electricity usage per year. Improving insulation on its storage tanks in Norway saved 800 megawatt-hours annually.

The quest for a winning ESG formula

While ESG investing has crawled out of its infancy, it remains early days. Even the leading firms are still figuring out where to play and how to win. One thing is already clear, though—making it work takes the same level of commitment and ambition firms devote to developing any new differentiated capability.

In our experience, the firms getting it right have a few things in common:

• Clear definition, alignment and ambition. ESG can mean a lot of things, so it is critical that firms define what it means for them and build on that. Winning firms also go well beyond lip service by securing alignment around their chosen ambition, starting with the investment committee and extending to individual portfolio and deal teams. Setting up a central ESG team and hoping for the best is not a recipe for success.
• Focused execution. Different companies in different industries need to apply ESG differently. What’s important is to pick a few things that really matter and move the needle in those areas. Increasing diversity or reducing the carbon footprint are good places to start, but it takes real commitment and execution to produce results. It’s also important to build on early wins to communicate success and expand the scope.
• Full integration. Capturing the true value of ESG requires embedding it along the entire PE value chain, from due diligence through ownership to exit. While it might not be an investable theme in all deals, it certainly should be a consideration in every diligence. The most effective firms treat it as a capability. They strive to make ESG second nature—an integral part of value creation. Simply tracking random KPIs isn’t enough. Firms need to have a value-creation strategy specific to their industry and customer base.
• Capability investment. Most firms that have adopted ESG have started with risk mitigation and compliance issues. Taking the next step to value creation requires adding capabilities to identify, track and manage ESG risks and opportunities effectively. Firms also need to learn how to take advantage of sector-level ESG experts, partners and other ecosystem resources to support value-creation plans.
• Measurement of results and continuous improvement. As with anything else, getting better at ESG investing relies on continuous learning and not waiting for the perfect answer. Firms that have built a track record of ESG value creation have been willing to experiment and then develop winning approaches into playbooks and repeatable models that lead to consistent results. That means establishing clear measures of year-over-year continuous improvement and setting up processes to roll up and monitor ESG performance across the portfolio.

Skepticism around ESG will persist as long as we lack empirical evidence that it pays off. Devising the right measures will take time and creativity. That said, ESG is rapidly moving to the center of how many firms view the value-creation process as they pick up and follow what the market is telling them.

More from the report

Letter from Hugh MacArthur

2020: Escape from the Abyss

The Expanding Case for ESG

A Left-Brained Approach to Portfolio Company Talent Decisions

Capturing the True Value of Virtual Selling and Sales Plays

SPACs: Tapping an Evolving Opportunity

Have Classic Buyout Funds Run Their Course?

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Guidance and case studies for ESG integration: equities and fixed income

2018-09-13T00:00:00+01:00

Portfolio managers and analysts are increasingly incorporating ESG factors into their investment analyses and processes. However, ESG integration remains in its relative infancy, with investors and analysts calling for more guidance on exactly “how” they can “do ESG” and integrate ESG data into their analysis.

CFA Institute and Principles for Responsible Investment (PRI) set out to create a best practice report ( Guidance and case studies for ESG integration: equities and fixed income ) and three regional reports [one for the Americas (AMER), one for Asia-Pacific (APAC), and one for Europe, the Middle East, and Africa (EMEA)] to help investors understand how they can better integrate ESG factors into their equity, corporate bond, and sovereign debt portfolios.

We are able to achieve this goal by:

• surveying 1,100 financial professionals, predominantly CFA members, around the world;
• running 23 workshops in 17 major markets;
• interviewing many practitioners and stakeholders;
• publishing more than 30 case studies written by equity and fixed-income practitioners;
• analyzing Bloomberg’s ESG company disclosure scores; and
• reviewing data from the PRI Reporting Framework , the largest global database of information on investors’ ESG practices.

This publication, Guidance and case studies for ESG integration: equities and fixed income , provides a global insight on the ESG integration techniques of leading practitioners across all regions of the world and includes case studies by analysts, portfolio managers, and investors, who share how they integrate ESG into their analysis and tell their stories of ESG integration.

It also introduces an ESG integration framework that can be a reference for practitioners to use when comparing their ESG integration techniques with their peers’ ESG integration techniques and identify those techniques that are suitable for their own firm. We hope the work presented here helps both equity and fixed income investors to better understand the many ways in which they can integrate ESG analysis into their investment decision making.

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Fortifying company growth with ESG

PwC’s team collaborated with the client to identify relevant issues where it could walk the ESG talk even further. These conversations helped identify the material environmental and societal issues where the forgings manufacturer could play a meaningful role.

#TogetherWeFuture

Forgings manufacturer

Building strategy and setting up a roadmap to help the company achieve its ESG commitments

Ramkrishna Forgings Limited (RKFL), a manufacturer and supplier of open and closed die forgings, wanted to integrate Environmental, Social and Governance (ESG) components into its business and operations.

Our community of solvers from the ESG team along with RKFL connected with its stakeholder groups to identify relevant issues where it could walk the ESG talk even further. These conversations helped identify the material environmental and societal issues where the forgings manufacturer could play a meaningful role.

As a result of these interactions, RKFL narrowed down on the following three core areas to focus on as its ESG vision in a bid to achieve carbon neutrality by 2050.

Environmental consciousness – by preserving and protecting the environment across its operations

Communities – by aspiring to be the employer and partner of choice for their employees and suppliers respectively and helping local communities thrive

The long-run – by operating ethically and responsibly, with transparency

Among its commitments is the aim to ensure that 50% of its energy use will be from renewable sources by 2028. It also committed to source locally, recycle 100% of its water use by 2025 and decrease 50% of its overall waste through the 3R approach.

The manufacturer aims to incorporate future-ready employee upskilling and well-being programmes in 2023. The client wants to collaborate with its suppliers to ensure they comply with their ESG vision by 2024 through training and workshops. 100% of key suppliers will also be audited on their ESG compliance in the same year.

The Solution

To ensure that the company met its three-pronged mission, our community of solvers laid out an achievable road map to help it through the process. It helped the company set a sustainable strategy as well as achievable yet ambitious targets to ensure it meets its proposed goal of carbon neutrality. A governance team will be formed to deliver, monitor, and report the company’s ESG performance in accordance with global standards and reporting frameworks as well as SEBI’s circular on Business Responsibility and Sustainability Report mandate.

Ready to begin your ESG journey? PwC India can help.

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Top 10 Sustainability Case Studies & Success Stories in 2024

Cem is the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per Similarweb) including 60% of Fortune 500 every month.

Cem's work focuses on how enterprises can leverage new technologies in AI, automation, cybersecurity(including network security, application security), data collection including web data collection and process intelligence.

Environmental and social practices have a significant impact on the long-term success of businesses. Some businesses outperform others in this area, giving them a competitive advantage. We will present ten sustainability success stories to executives searching for methods to close the sustainability gap between themselves and outperformers. 

We take a holistic approach to sustainability when presenting these case studies, seeing environmental and social challenges as a part of maintaining a sustainable business (see Figure 1). We also recognize that, while technology can aid in the improvement of corporate sustainability, changing business processes can be just as successful. As a result, we will provide a variety of scenarios that fully demonstrate the ESG framework .

1. UPS ORION: Improve transportation efficiency

Transportation activities accounted for almost 30% of US greenhouse gas (GHG) emissions. (See Figure 2). For a company like UPS, which distributes goods across regions, transportation activities make up the bulk of GHG emissions. As a result, enhancing transportation efficiency is crucial for organizations like UPS to remain sustainable.

As a solution, UPS adopted an AI system called ORION which is a route optimizer that aims to minimize the number of turns during the delivery. Initiation began in 2012 and up today UPS has been working on developing it.

ORION saves UPS 10 million gallons of fuel per year, which means that in addition to the financial benefits, it decreases UPS’s carbon footprint by 100,000 metric tonnes per year, or the equivalent to removing more than 20,000 cars from the roads.

There are public cloud route optimizer systems which businesses can deploy without building hardware. These tools help firms to use their software as a service by paying a subscription cost.

To learn more about ensuring supply chain sustainability with technology you can read our Top 5 Technologies Improving Supply Chain Sustainability article.

Figure 2: US GHG emissions.

2. IKEA IWAY: Make business with ESG oriented corporations

Supplier code of conducts are established guidelines that require other businesses to demonstrate their operations’ social and environmental impacts. The objective is to reward companies that meet strong ESG standards. It is also one of the positive governance indications for organizations, as we highlighted in our ESG metrics article .

IWAY is the supplier code of conduct of IKEA forcing suppliers to meet certain environmental and humanitarian qualities to work with. The initiative has been in place for over 20 years, and over that time, IKEA has refined it based on their prior experiences. IWAY six is the most recent version of IKEA’s supplier code of conduct, which evaluates:

• Core worker rights.
• Safety of the working place.
• Life-work balance of employees.
• Water and waste management of potential suppliers.
• Prevention of child labour. 

3. General Electric digital wind farm: Produce green energy efficiently

Wind turbine productivity varies greatly depending on the design, weather conditions, and geography of the location it is deployed. Using IoT and digital twins to collect data on each wind turbine and simulate possible modifications such as adjusting the direction of the wind turbine can assist corporations in locating their wind turbines in a wind farm more effectively (see Figure 3).

Furthermore, the performance of wind turbines declines with time and may require maintenance; employing sensors and digital twins can assist in determining the appropriate time for repair.

Figure 3: How digital twins can optimize wind turbine productivity.

The General Electric’s (GE) digital wind farms are based on these two elements. GE optimized over 15,000 turbines using sensors and digital twins technologies. Each wind farm can create up to 10% more green energy as a result of the digital wind farm initiative, which helps to enhance our worldwide green energy mix.

4. Swire Properties green building: Minimize GHG emissions

Swire Properties is a construction company that operates in China and especially in the Hong Kong area. In 2018, the company built One Taikoo Place which is a green building that aims to reduce GHG emissions of Swire Properties in order to align with sustainability goals of the company’s stakeholders.

Swire properties use 3D modeling techniques to optimize the building’s energy efficiency. Reduce electricity consumption by using smart lighting systems with sunshine and motion sensors. A biodiesel generation system has been installed in the building, which converts waste food oil into biodiesel. Swire Properties additionally uses low carbon embedded materials and a lot of recycled materials in their construction.

Swire Properties was able to cut GHG emissions intensity throughout their portfolio by nearly 20% because of the usage of digital technologies and low carbon integrated materials.

5. H&M Let’s Close the Gap: Deposit scheme for gathering raw material

In 2021, we consumed 1.7 times more resources than Earth generates annually because our economic outlook is based on production, use and disposal. Such an economy is not sustainable and that is the reason why the concept of circular economy (CE) is trending nowadays.

The most basic principles of CE is to use trash as a raw material for production through innovation, recycling, or repairing and reusing existing products.

H&M’s “Let’s Close the Gap” project began in 2013 as a CE best practice that collects and categorizes discarded clothing from customers. If the garment is in decent condition, they will restore it and find a new owner for it. If a garment reaches the end of its useful life, H&M will recycle it and reuse the material in new goods.

Customers who bring in their old clothes are rewarded with tokens that can be used to get a discount at H&M shops. Incentivizing customers creates a complete CE loop.

In 2019, 57% of H&M’s raw materials were sustainable, according to Forbes. By 2030, the company hopes to improve it 100 percent.

6. Gusto: Hiring female engineers to close gender inequality gap

Gender inequality remains a major social issue despite all the improvements. There are two common types of gender disparity in the workplace. The first is gender pay disparity, which occurs when companies pay male employees more and provide better working conditions than female employees in the same position. 

The second is occupational segregation, in which women are hired for non-technical jobs while men hold the majority of leadership roles. This was the situation at software firm Gusto, where female engineers made up slightly more than 5% of the engineering team at the beginning of 2015. 

Julia Lee , one of Gusto’s first female engineers, claimed that other engineers did not accept her ideas because she was a “female engineer.” Gusto initiated an HR drive to reduce gender inequality by prioritizing the recruitment of female engineers, prohibiting female workers from scrolling, and deleting masculine job ads like “ninja rockstar coder.”

Gusto was able to improve its female engineer ratio to roughly 20% by the end of 2015 thanks to the campaign. The average ratio among software businesses’ engineering teams was 12% in 2013, therefore this was a significant improvement in a short period of time.  

7. HSBC: ESG concerned green finance

Finance companies can help speed up the transition to sustainable business practices by supporting initiatives run by responsible businesses. By the end of 2025, HSBC has committed to investing $100 billion in sustainability projects. HSBC already has funded sustainability projects that require more than $50 billion in investment as of 2019, indicating that the corporation is on track to meet its objective.

HSBC created an ESG risk evaluation framework to assure funding for green projects in 2019. Since then, the framework has been improved. In 2021, HSBC’s ESG practices were rewarded with an AA rating by MSCI.

HSBC is also working toward a goal of using 100% renewable energy as their source of electricity by 2030. Company reduces its consumption of paper, and single used plastics for coffee and beverages.

For more information about best ESG practices you can read our Top 6 ESG Reporting Best Practices article.

8. Signify light-as-a-Service: Enhance production stewardship

The product-service system ( PSS ) is a business model in which producers acquire a product over its lifetime and rent or lease it to the users. PSS ensures product stewardship since the product always becomes the asset of the company. It encourages producers to provide high-quality, repairable items in order to extend the product’s useful life. As a result, it helps to close the circularity gap by ensuring better use of natural resources.

Signify, a luminaire producer, adopts such a business strategy where it demands a subscription fee according to usage period of their lightning systems. PSS allows Signify claims that PSS allows them to produce 0 luminaire waste and drops maintenance costs around 60%.

9. Airbus additive manufacturing: Manufacture lighter planes with 3D printing

AIMultiple expects that additive manufacturing will disruptive for the airplane manufacturing since:

• It speeds up the manufacturing of parts compared to traditional molding techniques.
• It is cheaper due to effective use of raw materials and time reduction of production.
• It enables the manufacturing of lighter parts by up to 45% , resulting in lighter planes that burn less fuel. According to Airbus, additive manufacturing technology can reduce an A320 plane’s annual GHG emissions by around 465,000 metric tons, which is roughly the same as eliminating 100,000 automobiles from the road for a year. (An average car emits 4.6 tonnes of GHG per year). 

To effectively use 3D printers Airbus partnered with Materialise , a Belgium-based technology company  that specialize in additive manufacturing.

For more information regarding improving corporate sustainability by digital transformation you can read our Top 4 Digital Technologies that Improve Corporate Sustainability article.

10. Tata Power: Solar plants on the roofs

Rooftops offer a lot of empty space that can be used to install solar panels. Such initiatives have been taken in various parts of the world. Tata Power does it in India and generates green electricity by using idle places of buildings.

In 2021, Tata Power was able to spread their program throughout 90 Indian cities, producing 421 million watts of electricity, which is equivalent to nearly 40 thousand homes’ yearly electricity use in the US. (The average annual power usage for a residential utility customer in the US was 10,715 kWh in 2020, according to the EIA .).

We expect that in the near future the cooperation between energy and construction companies will enhance the use of idle places in buildings in a more effective way. Such an industrial symbiosis reduces both sectors’ ESG risk.

For more information on the top carbon footprint calculators, check our article, Top 7 Carbon Footprint Calculator Software/Tools for Businesses .

To learn more about corporate sustainability you can contact with us:

This article was drafted by former AIMultiple industry analyst Görkem Gençer.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Cem's hands-on enterprise software experience contributes to the insights that he generates. He oversees AIMultiple benchmarks in dynamic application security testing (DAST), data loss prevention (DLP), email marketing and web data collection. Other AIMultiple industry analysts and tech team support Cem in designing, running and evaluating benchmarks.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised enterprises on their technology decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

AIMultiple.com Traffic Analytics, Ranking & Audience , Similarweb. Why Microsoft, IBM, and Google Are Ramping up Efforts on AI Ethics , Business Insider. Microsoft invests $1 billion in OpenAI to pursue artificial intelligence that’s smarter than we are , Washington Post. Data management barriers to AI success , Deloitte. Empowering AI Leadership: AI C-Suite Toolkit , World Economic Forum. Science, Research and Innovation Performance of the EU , European Commission. Public-sector digitization: The trillion-dollar challenge , McKinsey & Company. Hypatos gets $11.8M for a deep learning approach to document processing , TechCrunch. We got an exclusive look at the pitch deck AI startup Hypatos used to raise $11 million , Business Insider.

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Top 6 esg & sustainability reporting best practices in 2024, 7 ways to improve your supply chain sustainability in 2024, 3 reasons to measure product carbon footprint in 2024.

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A wonderful collection of case studies on corporate sustainability. I enjoyed the read. I am convicted to delve into promoting sustainability in Africa.

Hello, James! Thank you for your feedback. Awesome! That’s a great cause to pursue.

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ESG Case Study – The Walt Disney Company

By Sara Rodriguez, Sage ESG Research Analyst

About The Walt Disney Company

The Walt Disney Company is an American multinational media and entertainment conglomerate operating in multiple segments including media networks, studio entertainment, and theme parks and experiences. With a long, rich history of producing entertainment content since 1923, Disney owns some of the world’s most recognizable brands—in 2021 Disney’s brand was valued at $51.2 billion and was number 22 on BrandFinance’s list of the top 500 companies globally.

Environmental

According to the Sustainability Accounting Standards Board (SASB), there are no identified environmental key performance indicators for companies in the media industry. However, Disney’s business model is far from that of a traditional media company, and encompasses multiple industries including leisure facilities, hotels, restaurants, cruise lines, apparel and footwear, and toys that make up its Parks, Experiences, and Products segment. This piece of Disney accounted for 25% of total revenue in the third quarter of 2021, and as much as 37% pre-COVID. As such, environmental concerns are of material importance to Disney’s business model, as this segment faces both climate change risks and opportunities.

Disney is a leader from an emissions perspective. While many companies focus on a reduction in greenhouse gas (GHG) emission intensity, Disney has been able to decrease its absolute Scope 1 and 2 emissions and total energy usage from 2018 to 2020. In 2020, Disney met its target to reduce GHG emissions by 50% from 2012 levels. Disney’s parks and experiences offer customers a variety of restaurants, which generate food waste. The company recognized a desire to send less total waste to landfill and implemented extensive programs focused on food waste capture, material sorting, and the reduction of plastics and unnecessary waste. In 2020 Disney diverted 60% of waste from landfills and incineration, sending less total waste to landfill than in 2015. Additionally, Disney reduced its potable water usage from 6.46 billion gallons in 2018 to 4.99 billion in 2020.

Disney’s 2020 annual investor report mentions that the demand for travel and tourism can be significantly adversely affected as a result of severe weather conditions or natural disasters such as hurricanes, earthquakes, and excessive heat. Additionally, the company may incur additional costs if it must obtain insurance coverage with respect to these events. Disney’s corporate sustainability report (CSR) does not yet cover climate change risk and it seems that the company does not have a proposed mitigation strategy, which is something we will continue monitoring.

Disney encounters most of its financially relevant sustainability issues in the social category. The company’s CSR features links to a multitude of company policies including: a code of conduct for manufacturers, conflict minerals policy, diversity and inclusion commitment, human rights policy, nutrition guidelines, and smoking in movies policy. While this is commendable, it is difficult to gauge the effectiveness of a policy merely on its existence. This is a problem that reigns true for ESG analysis across the board, and we hope to continue to see sustainability standards and frameworks work to solidify the decision-usefulness and transparency of disclosures related to policies.

Despite the difficulty in determining if policies strengthen a company’s social performance, it is simple to gauge past performance based on controversy. Disney is the world’s leading licensing business and has a global network of suppliers. As such, Disney is exposed to a variety of supply chain risks, especially labor rights. Over the past decade, Disney has been subject to numerous controversies involving labor rights and has been accused of multiple violations including unsafe working conditions, severe overtime, inadequate safety training and protective equipment, and paying wages below the legal minimum. These accusations have ranged in location across the globe. Although it is unclear whether Disney adopted it supply chain policies due to its bad behavior or if they were previously in place, Disney has programs to conduct due diligence of its supply chain operations and prevent labor rights violations. Disney’s Code of Conduct for Manufacturers is consistent with the International Labor Organization (ILO) and is enforced through the company’s International Labor Standards (ILS) program. This program requires licensees and vendors to conduct on-site compliance audits in higher risk countries and report to Disney for review and approval. Notably, Disney terminated its manufacturing contracts in Bangladesh following the 2013 Rana Plaza Building collapse due to noncompliance with its policy.

Freedom of association is another pertinent labor rights issue present in Disney’s operations. 54% of Disney’s U.S. employees are covered by collective bargaining agreements – however, the company operates in countries where collective bargaining is prohibited. Recently, Disney committed to paying all U.S. Disney Parks and Resorts hourly employees a minimum of $15/hour by the end of 2021. However, this development may have been the result of increasing scrutiny of Disney by both the public and elected officials. In 2018, 23 congress members signed a letter to Disney’s former CEO Robert Iger, urging him to use the company’s profits to pay Disneyland employees a living wage.

Media pluralism is a social topic material to media companies, and refers to the social, racial/ethnic, and political diversity represented in the company itself and in the media content it produces. Disney tracks and discloses company demographic data including its global breakdown of female and minority employees. From 2018 to 2020, Disney’s percentage of female employees and female management decreased. During that same time, the percentage of minority employees increased, as did minority employees in management positions. Overall, the company offers transparent and in-depth demographic reporting that exceeds that done by most other companies regardless of industry.

To bolster diversity within its content, Disney recently unveiled the Onyx Collective, a production entity designed to feature work by underrepresented creators. Disney’s long history also means it must grapple with how to approach past content depicting offensive racial stereotypes and culturally insensitive material. Movies such as Peter Pan, Dumbo, and Pocahontas have been a point of contention for modern audiences. Rather than remove the content, Disney’s launch of streaming service Disney+ featured a warning for some movies, informing audiences of “outdated cultural depictions.” This decision has been praised as a way to spark conversation and acknowledge the harmful impact of these films without eliminating them from view.

Journalistic integrity is one of the main ESG facets related to companies operating in the media industry. SASB describes journalistic integrity in three pillars:

• Truthfulness, accuracy, objectiveness, fairness, and accountability
• Independence of content and/or transparency of potential bias
• Protection of privacy and limitation of harm

While it is difficult to gauge company performance on these pillars, the second pillar of journalistic integrity is one where Disney struggles. Acquisitions have been a major vehicle of growth for Disney. In 1995, Disney merged with Capital Cities/ABC Inc., which was the second largest corporate takeover at the time. The merger included a minority stake in A&E Television Networks and a majority stake in ESPN. In the 2000s under CEO Robert Iger, the company acquired Pixar Animation Studios, Marvel, and Lucasfilm. In 2019, Disney completed the purchase of the majority of 20th Century Fox’s entertainment assets. That same year, the company launched its own streaming service, Disney+. Even with Disney’s pre-established dominance, these mergers and acquisitions have allowed Disney to own some of the world’s best known, highest-grossing entertainment franchises. From 2015 to 2019, Disney’s market share almost doubled from 20% to about 40%, and in 2019, almost 40% of all U.S. box office sales came from a Disney-owned movie. The company’s news segment also has an incredibly far reach. According to Disney’s annual investors report, ABC Television networks has affiliation agreements with 240 local television stations reaching almost 100% of U.S. television households.

Source: 2020 Corporate Social Responsibility Report, Disney.

This consolidation was allowed by the Telecommunications Act of 1996, which reduced the Federal Communications Commission’s (FCC) regulations on cross-ownership of media and eliminated the 40-station ownership cap. The effect of this legislation is often cited using a popular statistic – today, only six media conglomerates control 90% of the media we read, watch, or listen to. For comparison, 90% of American media was owned by about 50 companies in 1983. This consolidation is inherently at odds with the principle of media companies to supply access to accurate and unbiased information, and while Disney is hardly the only media vertically integrating, it is consistently ranked in the top three largest media companies by revenue.

Disney-owned ABC saw an uptick in viewers in 2020, making it the network with the third-highest market share among adults aged 18-49. As such, Disney’s potential to heavily influence ABC coverage may have a negative effect on viewers’ access to unbiased information. When news breaks of unsavory events related to accusations of labor rights violations in Disney’s supply chain or low wages at its theme parks, can ABC present an unbiased view of its parent company? Will it choose to cover the topics at all?

On top of affecting free and unbiased information, consolidation can negatively affect wages, innovation, and the viability of independent films. As a corporation concerned with reporting its revenues, Disney is more inclined to seek content that can move fluidly across its different media channels, making it more likely to ignore creative talent and content in favor of commercial viability.

We can see Disney contradict its journalistic integrity in its relationship with China. China’s box office is considered the largest market in the world, however, the Chinese Communist Party exerts strict control over the content it allows played in China and often censors films that do not meet the criteria of “telling China’s story well.” According to a report published by PEN America, “as U.S. film studios compete for the opportunity to access Chinese audiences, many are making difficult and troubling compromises on free expression.” In 2020, the release of the remake of Disney’s Mulan faced intense backlash and calls for a boycott after the leading actress expressed her support for Hong Kong police during protests. Additionally, audiences noticed that the movie’s credits thanked eight government entities in Xinjiang, the region in China where Uighur Muslims have been detained in mass internment camps. As Disney expands its Chinese business interests (such as its 47% stake in the new Shanghai Disneyland Park), it is possible that increased censorship in line with the wishes of the government in Beijing may further align with the company’s business goals. Additionally, while Disney’s ownership of cross-media entities is in line with regulation by the Federal Communications Commission (FCC), the company may face future regulatory risk, especially if it partakes in further consolidation.

Governance is the pillar of ESG that must be solid for a company to succeed in its sustainability goals, and we find that Disney presents governance risks despite having some strengths. The company’s board of directors is generally diverse, with four out of ten directors being women and three out of ten considered racially/ethnically diverse. Disney’s executive team is 42% female and 22% racially/ethnically diverse, the latter of which can use improvement. Disney’s sustainability report discloses to multiple frameworks including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), CDP, and Task Force on Climate-related Financial Disclosure (TCFD). The company is generally considered to be highly transparent in its disclosure by ESG rating providers, however, the report offers no level of third-party assurance of the data.

Political lobbying, an important issue often left out of the governance section of ESG analysis, has been found to correlate with more than 3,600 corporate risk incidents worldwide over the past 13 years. Lobbying is connected to numerous ESG issues pertinent to investors’ financial decision-making, including corruption and bribery. We know that Disney has previously used its political clout and campaign contributions to secure tax incentives in Florida and California, the home of its expansive theme parks and studio entertainment hub, respectively. The company disclosed that it spent almost $39 million on federal lobbying from 2010 to 2019 but does not disclose state lobbying expenditures. A March 2021 shareholder proposal called for Disney to improve its disclosure of lobbying activity, however, the proposal was rejected by shareholders. It is notable that over two-thirds of Disney stock is owned by large institutional investors who take responsibility for proxy voting when clients purchase shares in a fund. Calls for Disney to disclose lobbying activity have been brought forward by activist shareholders before, and we expect to see it happen again.

Risk & Outlook

While Disney’s environmental progress is commendable, the company faces material ESG risk present in its social and governance activities due to past controversies and current behavior. Furthermore, we are not fully convinced that Disney’s net positive effects on society significantly outweigh its net negative effects. Corporate citizenship is important for building mutually beneficial relationships between organizations and the public, and as a company largely dependent on the intangible asset of brand value, it is crucial for Disney to prioritize its reputation as a corporate citizen. Overall, we’d like to see progress on the social and governance issues that really matter when it comes to Disney and will be watching for developments. We have decided to downgrade Disney from its previous Leaf Score of a 4 to a 3. We still consider Disney to be suitable for our ESG strategies, but no longer consider it an above average ESG performer.

Sage ESG Leaf Score Methodology

No two companies are alike. This is exceptionally apparent from an ESG perspective, where the challenge lies not only in as­sessing the differences between companies, but also in the differences across industries. Although a company may be a leader among its peer group, the industry in which it operates may expose it to risks that cannot be mitigated through company management. By combining an ESG macro industry risk analysis with a company-level sustainability evaluation, the Sage Leaf Score bridges this gap, enabling investors to quickly assess companies across industries. Our Sage Leaf Score, which is based on a 1 to 5 scale (with 5 leaves representing ESG leaders), makes it easy for investors to compare a company in, for example, the energy industry to a company in the technology industry, and to understand that all 5-leaf companies are leaders based on their individual company management and the level of industry risk that they face.

For more information on Sage’s Leaf Score, click here.

• 2020 Corporate Social Responsibility Report. The Walt Disney Company.
• Institutional Shareholder Services (ISS) ESG Corporate Rating Report for The Walt Disney Company.
• Fiscal Year 2020 Annual Financial Report. The Walt Disney Company.
• 2021 Notice of Annual Meeting of Shareholders and Proxy Statement. The Walt Disney Company.
• Media & Entertainment: Sustainability Accounting Standard. Sustainability Accounting Standards Board. 2018.
• BrandFinance Global 500 (100) 2021. Brand Finance. 2021.
• Dreier, Peter. Disney Is Not the Greatest Place on Earth to Work. The Nation. March 2020.
• Lobbying—the forgotten ESG risk? RepRisk. September 2020.
• Sanders, Bernie. How Corporate Media Threatens Our Democracy. In These Times. January 2017.

Disclosures

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. The infor­mation included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. This report is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results. Sustainable investing limits the types and number of investment opportunities available, this may result in the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other strategies screened for sustainable investing standards. No part of this Material may be produced in any form, or referred to in any other publication, without our express written permission. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

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Consumers care about sustainability—and back it up with their wallets

Total US consumer spending accounts for over $14 trillion annually and two-thirds of the US GDP. An important subset of this spending goes toward everyday consumer packaged goods (CPG), ranging from foods and beverages to cosmetics and cleaning products. The sheer size of the CPG sector—with millions of employees and trillions of dollars in annual sales—makes it a critical component in efforts to build a more sustainable, inclusive economy.

About the authors

This article is a collaborative effort by Sherry Frey of NielsenIQ and Jordan Bar Am , Vinit Doshi, Anandi Malik, and Steve Noble , representing views from McKinsey’s Consumer Packaged Goods Practice.

CPG companies increasingly allocate time, attention, and resources to instill environmental and social responsibility into their business practices. They are also making claims about environmental and social responsibility on their product labels. The results have been evident: walk down the aisle of any grocery or drugstore these days and you’re bound to see products labeled “environmentally sustainable,” “eco-friendly,” “fair trade,” or other designations related to aspects of environmental and social responsibility. Most important is what lies behind these product claims—the actual contribution of such business practices to achieving goals such as reducing carbon emissions across value chains, offering fair wages and working practices to employees, and supporting diversity and inclusion. But understanding how customers respond to social and environmental claims is also important and has not been clear in the past.

When consumers are asked if they care about buying environmentally and ethically sustainable products, they overwhelmingly answer yes: in a 2020 McKinsey US consumer sentiment survey , more than 60 percent of respondents said they’d pay more for a product with sustainable packaging. A recent study by NielsenIQ found that 78 percent of US consumers say that a sustainable lifestyle is important to them. Yet many CPG executives report that one challenge to their companies’ environmental, social, and governance (ESG) initiatives is the inability to generate sufficient consumer demand for these products. There are many stories of companies launching new products incorporating ESG-related claims only to find that sales fell short of expectations.

How can both of these things be true? Do consumers really care whether products incorporate ESG-related claims? Do shoppers follow through and buy these products while standing in front of store shelves or browsing online? Do their real-life buying decisions diverge from their stated preferences? The potential costs—particularly in an inflationary context—of manufacturing and certifying products that make good on ESG-related claims are high. Accurately assessing demand for products that make these claims is vital as companies think about where to make ESG-related investments across their businesses. Companies should therefore be eager to better understand whether and how these types of claims influence consumers’ purchasing decisions. Is a shopper more likely to purchase a product if there’s an ESG-related claim printed on its package? What about multiple claims? Are some kinds of claims more resonant than others? Does a claim matter more if it’s appended to a pricier product? Is it less meaningful if it comes from a big, established brand?

Over the past several months, McKinsey and NielsenIQ undertook an extensive study seeking to answer these and other questions. We looked beyond the self-reported intentions of US consumers and examined their actual spending behavior—tracking dollars instead of sentiment. The result, for CPG companies, is a fact-based case for bringing environmentally and socially responsible products to market as part of overall ESG strategies and commitments. Creating such products turns out to be not just a moral imperative but also a solid business decision.

Products making ESG-related claims averaged 28 percent cumulative growth over the past five-year period, versus 20 percent for products that made no such claims.

To be clear, this is only a first step in understanding the complex question of how consumers value brands and products that incorporate ESG-related claims. This work has significant limitations that merit mention at the outset.

First, although this study examines how the sales growth of products that feature ESG-related claims fared relative to similar products without such claims, 1 Many factors can influence growth—including distribution, pricing, marketing, and product claims not related to ESG. This analysis was not designed to control for all variables. It did control for factors such as brand size, brand type, and price tier, as well as how long a product has been in the marketplace. it does not demonstrate a causal relationship that definitively indicates whether consumers bought these brands because of the ESG-related claims or for other reasons. For instance, the study does not control for factors such as marketing investments, distribution, and promotional activity. It primarily explores the correlation between ESG-related claims and sales performance.

Second, McKinsey and NielsenIQ did not attempt to independently assess the veracity of ESG-related claims for these products. It is of course paramount for the development of a sustainable and inclusive economy that companies back any ESG-related claims they make with genuine actions. “Greenwashing”—empty or misleading claims about the environmental or social merits of a product or service—poses reputational risks to businesses by eroding the trust of consumers. It also compromises their ability to make more environmentally and socially responsible choices, and potentially undermines the role of regulators. This research is limited to assessing how ESG-related claims correlate with purchasing behavior.

Our approach: Getting granular with ESG in store aisles

In collaboration with NielsenIQ, McKinsey analyzed five years of US sales data, from 2017 to June 2022. The data covered 600,000 individual product SKUs representing $400 billion in annual retail revenues. These products came from 44,000 brands across 32 food, beverage, personal-care, and household categories.

Six types of ESG claims

We found six types of ESG claims identified on product packages:

• animal welfare (“cage free,” “cruelty free,” “not tested on animals”)
• environmental sustainability (“compostable,” “eco-friendly”)
• organic positioning (an indication of organic certification)
• plant based (“plant based,” “vegan”)
• social responsibility (“fair wage,” “ethical”)
• sustainable packaging (“plastic free,” “biodegradable”)

NielsenIQ’s measurement capabilities enabled us to identify 93 different ESG-related claims—embodied in terms such as “cage free,” “vegan,” “eco-friendly,” and “biodegradable”—printed on those products’ packages. The claims were divided into six classifications: animal welfare, environmental sustainability, organic-farming methods, plant-based ingredients, social responsibility, and sustainable packaging (see sidebar, “Six types of ESG claims”). The research also drew on consumer insights from NielsenIQ’s household panel, which tracks the purchasing behavior of people in more than 100,000 US households.

At the most fundamental level, the analysis examined the rate of sales growth for individual products by category over the five-year period from 2017 to 2022. We compared the different growth rates for products with and without ESG-related claims, while controlling for other factors (such as brand size, price tier, and whether the product was a new or established one). The results provide insights into whether, and by how much, products with ESG-related claims outperform their peers on growth and how different types of products and claims perform relative to each other.

Not every brand that made a claim saw a positive effect on sales, and the data indicate a plethora of nuance at the product level. But this study did broadly reveal, in many categories, a clear and material link between ESG-related claims and consumer spending. The following four overarching insights are important for consumer companies and retailers that build portfolios of environmentally and socially responsible products as part of their overall ESG strategies and impact commitments.

1. Consumers are shifting their spending toward products with ESG-related claims

The first goal of the study was to determine whether, over this five-year period, products that made one or more ESG-related claims on their packaging outperformed products that made none. To compare, we looked at each product’s initial share of sales in its category and then tracked its five-year growth rate relative to that share. 2 As an example: among large brands in the frozen-dessert category, products with a “plant based” claim grew at a rate of 8.5 percent over five years, compared with 4.4 percent for comparable products without “plant based” claims, resulting in a growth differential of 4.1 percent. We learned that consumers are indeed backing their stated ESG preferences with their purchasing behavior.

This study did broadly reveal, in many categories, a clear and material link between ESG-related claims and consumer spending.

Over the past five years, products making ESG-related claims accounted for 56 percent of all growth—about 18 percent more than would have been expected given their standing at the beginning of the five-year period: products making these claims averaged 28 percent cumulative growth over the five-year period, versus 20 percent for products that made no such claims. As for the CAGR, products with ESG-related claims boasted a 1.7 percentage-point advantage—a significant amount in the context of a mature and modestly growing industry—over products without them (Exhibit 1). Products making ESG-related claims therefore now account for nearly half of all retail sales in the categories examined.

Growth was not uniform across categories (Exhibit 2). For instance, products making ESG-related claims generated outsize growth in 11 out of 15 food categories and in three out of four personal-care categories—but only two out of nine beverage categories. Shopping data alone can’t explain the reasons for such variances. In the children’s formula and nutritional-beverage category, for example, it’s possible that buying decisions reflect advice from doctors and that consumers probably won’t let ESG-related claims outweigh clinical recommendations.

The overall trend, however, was clear: in two-thirds of categories, products that made ESG-related claims grew faster than those that didn’t. Evidence from NielsenIQ’s household panel showed that some demographic groups—such as higher-income households, urban and suburban residents, and households with children—were more likely to buy products that made one or more ESG-related claims. Still, the research shows that a wide range of consumers across incomes, life stages, ages, races, and geographies are buying products bearing ESG-related labels—with an average of plus or minus 15 percent deviation across demographic groups for environmentally and socially conscious buyers compared with the total population. This suggests that the appeal of environmentally and socially responsible products isn’t limited to niche audiences and is making genuine headway with broad swaths of America.

2. Brands of different sizes making ESG-related claims achieved differentiated growth

Large and small brands alike saw growth in products making ESG-related claims. In 59 percent of all categories studied, the smallest brands that made such claims achieved disproportionate growth. But in 50 percent of categories, so did the largest brands that made these claims (Exhibit 3). Some examples of category variance: in sports drinks and hair care, smaller brands grew more quickly, while in fruit juice and sweet snacks, the larger brands did. (The data can’t explain the underperformance of medium-size brands, but it’s possible that they lack the marketing and distribution scale of large brands and the aura of credibility that may benefit smaller brands.)

What about newer versus established products ? Newer ones making claims outperformed their newer, nonclaiming counterparts in only 32 percent of categories. 3 We defined established products as those that recorded sales in the first year (July 2017 to June 2018) of our study data. We defined newer products as those that recorded no sales in the first year of our study data. For the purposes of this study, newer products included, for example, new sub-brands, new product lines from existing brands, and new flavors and pack sizes from existing brands. In 68 percent of categories, established products making ESG-related claims outperformed established products without them. Again, the data don’t explain these discrepancies. One hypothesis is that shoppers may expect newer products to make ESG-friendly claims but are pleasantly surprised when older products make them. (Notably, established products that made ESG-related claims also tended to experience slower sales declines than established products that didn’t.)

Similar performance rates were seen across all price tiers for products that made ESG-related claims. Success in the less-expensive price tiers might, in part, reflect the high prevalence of private-label products making such claims. In 88 percent of categories, private-label products that made them seized more than their expected share of growth.

This finding suggests that consumers choosing private-label brands may not merely be searching for the cheapest items available—they might also be eager to support affordable ESG-related products. During an inflationary moment, when affordability is probably becoming more important to consumers, CPG manufacturers and retailers might consider interpreting these data as incentives to offer their value-seeking shoppers more ESG-friendly choices at these lower price points.

3. No one ESG-related product claim outperformed all others—but less-common claims tended to be associated with larger effects

Consumers don’t seem to consistently reward any specific claims across all categories: we found no evidence that a particular claim was consistently associated with outsize growth. However, we did find that less-common claims were associated with higher growth than more prevalent claims. This might show that claims can be a means of differentiation, especially if they also have a disproportionate impact on a company’s ESG goals and impact commitments.

Products that made the least prevalent claims (such as “vegan” or “carbon zero”) grew 8.5 percent more than peers that didn’t make them. Products making medium-prevalence claims (such as “sustainable packaging” or “plant-based”) had a 4.7 percent growth differential over their peers. The most prevalent claims (such as “environmentally sustainable”) corresponded with the smallest growth differential. Yet even products making these widespread claims still enjoyed roughly 2 percent higher growth than products that didn’t make them, suggesting that commonplace claims can be differentiating.

An analysis of NielsenIQ’s household panel data also reveals a positive association between the depth of a brand’s ESG-related claims and the loyalty it engenders from consumers (Exhibit 4).

Brands that garner more than half of their sales from products making ESG-related claims enjoy 32 to 34 percent repeat rates (meaning that buyers purchase products from the brand three or more times annually). By contrast, brands that receive less than 50 percent of their sales from products that make ESG-related claims achieve repeat rates of under 30 percent. This difference does not prove that consumers reward brands because of ESG-related claims, but it does suggest that a deeper engagement with ESG-related issues across a brand’s portfolio might enhance consumer loyalty toward the brand as a whole.

4. Combining claims may convey more authenticity

This study also analyzed the effects on growth when a product package displayed multiple types of ESG-related claims. On average, products with multiple claims across our six ESG classification themes grew more quickly than other products: in nearly 80 percent of the categories, the data showed a positive correlation between the growth rate and the number of distinct types of ESG-related claims a product made. Products making multiple types of claims grew about twice as fast as products that made only one (Exhibit 5).

We are not suggesting that companies can simply print more claims and certifications on their products and expect to be rewarded. These claims must of course be backed by genuine actions that have a meaningful ESG impact , and companies should heed the serious warning about greenwashing we presented in our introduction. Nonetheless, this finding does suggest that consumers may be more likely to perceive that a multiplicity of claims (rather than only one) made by a product correlates with authentic ESG-related behavior on the part of the brand. It also indicates that brands might be wise to reflect on their commitment to ESG practices and to ensure that they are thinking holistically across the interconnected social and environmental factors that underpin their products.

What does this mean for consumer companies and retailers?

Over the past century, global consumer consumption has been a central driver of economic prosperity and growth. This success, however, also comes with social and planetary impacts that result from producing, transporting, and discarding these consumer products. It should thus carry a moral imperative, for consumers and companies alike, to understand and address these impacts to society and the planet as part of buying decisions and ESG-related actions. Product label claims—if they represent true and meaningful environmental and social action—can be an important part of fulfilling this moral imperative.

For companies at the forefront of manufacturing and selling consumer packaged goods, there is no one formula for investing in environmentally and socially responsible product features and claims. Opportunities exist on multiple fronts. It’s important for consumer companies and retailers, first, to prioritize and invest in ESG-related actions that deliver the greatest advancement of their overall ESG commitments and , second, to inform customers of those actions, including information conveyed through product label claims. Our research points to a few insights that companies might consider as they attempt to advance their ESG commitments while also trying to achieve differentiated growth.

• Ensure that ESG product claims support an overall ESG strategy with a meaningful environmental and social impact across the portfolio. This study shows that ESG-related growth can be possible across a broad range of brands—large or small, national or private label, in price tiers both high and low. Companies should define the actions, throughout the enterprise, that have the greatest ESG impact and then publicize those actions, where appropriate, with claims across their product portfolios. Rather than making a single large bet in a particular product or category, companies will probably have a greater ESG impact and a better chance of achieving outsize growth if they incorporate high-impact ESG-related benefits across multiple categories and products.
• Develop a product design process that embraces ESG-related claims alongside cost engineering. Investments in product design aim to achieve a growth upside but must also—especially during an inflationary period—consider its cost. To ensure that investments in ESG-related claims have the greatest possible impact, companies can consider building strong product design capabilities that take a holistic look across costs, quality, and ESG-related impact. Using a disciplined design-for-sustainability  approach, product designers can maximize the visibility, efficacy, and cost-efficiency of ESG-related product features that will resonate with consumers. Meanwhile, ingredients, materials, and processes that don’t contribute to this goal should be eliminated.
• Invest in ESG through both existing brands and innovative new products. A healthy portfolio generally has a balanced mix of new and established products. ESG-related claims can play an important role in both. This study suggests that a flagship, established product fighting for share in a highly competitive environment could potentially create an edge by offering relevant and differentiating ESG-related claims. Given the outsize role of new products in boosting category growth, it’s critical to ensure that environmentally and socially responsible products account for a significant share of a company’s innovation pipeline—both to meet customer demand for such products and to ensure that they help advance the company’s overall ESG strategy.
• Understand the ESG-related dynamics specific to each category and brand. Categories differ in significant ways, so it is critically important to study category-specific patterns to learn what has worked best in which contexts. Understanding which high-impact ESG claims are associated with consistently better performance in a given category can help companies focus on the claims that matter most to consumers in those categories. Companies can also benefit from being thoughtful about how specific ESG-related claims might align with the core positioning of each brand or differentiate it from those of competitors.
• Embrace the holistic, interconnected nature of ESG by creating products addressing multiple concerns. This study shows that consumers seemingly don’t respond to specific ESG-related claims consistently across all categories. But they do tend to reward products that make multiple ESG-related claims, which may do more to help a product achieve a company’s overall ESG goals while also conveying greater authenticity and commitment to consumers. The incremental growth potential from introducing a second or third ESG-related benefit for a product may be equal to the growth impact of introducing the first one. To achieve stronger growth while delivering enhanced ESG-related benefits, companies could find it helpful to consider undertaking a category- and brand-specific assessment to determine whether and how to implement multifaceted claims.

Companies will probably have a greater ESG impact and a better chance of achieving outsize growth if they incorporate high-impact ESG-related claims across multiple categories and products.

This study does not answer all questions about the impact of investments by consumer companies in environmentally and socially responsible products. It does not assess the veracity of ESG-related claims, the relative environmental or social benefits of different claims, or the incremental cost of producing products that authentically deliver on those claims. It does, however, provide an important fact base revealing consumers’ spending habits with regard to these products, and this may help companies accelerate their ESG journeys. There is strong evidence that consumers’ expressed sentiments about ESG-related product claims translate, on average, into actual spending behavior. And this suggests that companies don’t need to choose between ESG and growth. They can achieve both simultaneously by employing a thoughtful, fact-based, consumer-centric ESG strategy. The overarching result might be not just healthier financial performance but also a healthier planet.

Jordan Bar Am is a partner in McKinsey’s New Jersey office,  Vinit Doshi is a senior expert in the Stamford office,  Anandi Malik is a consultant in the New York office, and Steve Noble is a senior partner in the Minneapolis office. Sherry Frey is vice president of total wellness at NielsenIQ.

The authors wish to thank Oskar Bracho, Nina Engels, Gurvinder Kaur, Akshay Khurana, and Caroline Ling for their contributions to this article. They also thank NielsenIQ for its contributions to the collaborative research conducted for this study.

This report draws on joint research carried out between McKinsey & Company and NielsenIQ. The work reflects the views of the authors and has not been influenced by any business, government, or other institution.

This article was edited by Seth Stevenson, a senior editor in the New York office.

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Tech Accelerator

This ESG strategy and management guide explains what ESG involves and how it can benefit companies. You'll also find guidance on creating an ESG strategy and measuring a company's performance on ESG issues, plus information on frameworks for ESG reporting and software that can help manage ESG initiatives. Throughout the guide, hyperlinks point to related articles that cover those topics and others in more depth.

ESG strategy and management: Complete guide for businesses

Esg initiatives can help boost business success. this guide takes an in-depth look at creating and managing an esg strategy to benefit a company and its various stakeholders..

• Craig Stedman, Industry Editor

For companies of all sizes, environmental, social and governance issues have become key business considerations. Corporate ESG policies and practices are closely watched by investors, employees, customers, government officials and other stakeholders. That makes an effective ESG strategy underpinned by strong management processes increasingly important to long-term business success.

ESG isn't a new phenomenon. The history of ESG investing , in which investors use ESG criteria to help evaluate companies, dates back to 2004 to 2006. In those three years, the term ESG was popularized, a legal framework for factoring ESG information into investment decisions was outlined, and a set of six ESG investing principles that's still used today was published -- all efforts driven by the United Nations. ESG investing's roots go even deeper to the socially responsible investing practices that started to take shape in the 1960s and 1970s and expanded over the next two decades. But ESG initiatives in companies have been thrust into the spotlight in recent years because of increasing pressure -- from both inside and outside organizations -- to improve environmental sustainability and act in socially responsible ways.

Studies show that most large companies have ESG programs. In a report published in October 2022, consulting firm KPMG said its research found that 96% of the world's 250 largest companies by revenue report publicly on ESG or sustainability matters. Similarly, Governance & Accountability Institute Inc., an ESG consultancy, said in a November 2022 report that 96% of the companies in the S&P 500 and 81% of the ones in the Russell 1000 Index published sustainability reports in 2021.

But many ESG efforts aren't fully formed, and some companies have yet to get started. In a 2022 survey of IT professionals involved in technology purchasing decisions that was conducted by TechTarget's Enterprise Strategy Group division, only 30% of the 400 respondents said their organization's ESG program was mature. Another 41% said their company had partially implemented ESG initiatives, while 29% said nothing was in place at that point.

The 3 pillars of ESG

ESG focuses on various issues related to environmental, social and corporate governance practices. An ESG program documents a company's impact on the environment and on different stakeholders as well as its approach to governance; it also assesses potential business risks and opportunities in each of the three areas. Here's a breakdown of the key ESG factors to consider as part of corporate initiatives:

• Environmental. Examples of environmental factors include energy consumption; water usage; greenhouse gas emissions and overall carbon footprint; waste management; air and water pollution; deforestation; biodiversity loss; and adaptation to climate change.
• Social. The social factors of ESG involve a company's treatment of employees, supply chain workers, customers, community members and other groups of people. Examples include fair pay and living wages; diversity, equity and inclusion ( DEI ) programs; workplace health and safety; fair treatment of customers and suppliers; responsible sourcing; oversight of supply chain partners; community engagement; charitable donations; and social advocacy.
• Governance. This involves the internal management practices, policies and controls that govern how a company operates. Examples include the composition of senior management and the board of directors; executive compensation; financial transparency; regulatory compliance; risk management; data privacy policies; ethical business practices; and rules on corruption, bribery, conflicts of interest and political lobbying.

ESG is closely related to business sustainability and corporate social responsibility ( CSR ), two other concepts that look beyond standard profit-and-loss calculations. But there are clear differences between the three concepts . Business sustainability focuses more broadly on positioning a company for ongoing success through responsible management practices and business strategies, while CSR is a self-regulating approach to taking actions that have societal benefits. By comparison, ESG is a formalized strategy that includes measurable goals and processes for tracking, managing and reporting on them.

How can ESG initiatives benefit businesses?

From a general standpoint, ESG programs can contribute to business sustainability efforts and ensure that there's a commitment to -- and accountability for -- responsible and ethical practices in companies. Those things can pay long-term dividends, but there are also more immediate reasons for companies to invest in ESG strategies. The following are five specific business benefits of ESG initiatives :

• Competitive advantages over business rivals. Companies with successful ESG programs can improve their market position and brand strength compared with competitors.
• More attractive to ESG-focused investors. ESG investing has become a significant part of capital markets. In a report published in December 2022, the US SIF Foundation said $8.4 trillion in assets were being managed in the U.S. using ESG and sustainable investment approaches, amounting to 12.6% of all investment assets under professional management in the country.
• Better financial performance. ESG initiatives can help improve a company's overall financial performance by reducing energy bills, operating costs and other expenses -- in addition to potentially driving higher sales.
• Increased customer loyalty. Companies that adhere to ESG principles can more easily attract and retain customers who apply ESG considerations in buying decisions. For example, in the Enterprise Strategy Group survey, 70% of the respondents said they think their company would pay more than a 5% price premium for products from IT vendors with strong ESG practices.
• More sustainable and adaptable business operations. It's also easier for companies with well-managed ESG strategies to adapt to changes in regulatory and legal requirements, as well as the effects of climate change, depletion of natural resources and other environmental issues.

In addition, ESG initiatives can increase employee engagement, make it easier to hire and retain workers, reduce business risks and improve the standing of companies in the communities where they have operations.

How to create an ESG strategy

Companies should look to incorporate various ESG trends, practices and ideas into their plans. Some examples include reducing greenhouse gas emissions, creating more responsible and sustainable supply chains, implementing climate adaptation measures and adopting a circular economy model, which aims to reuse product components and materials instead of throwing them away or recycling them.

With such considerations in mind, here are eight steps to take in developing and implementing an ESG strategy:

• Get input from internal and external stakeholders. Consult with board members and business executives about ESG issues that are important to the business, and talk to various other stakeholders -- employees, institutional investors, customers, suppliers, community leaders -- about ones that matter to them.
• Assess the materiality of different ESG issues. Use the input you've gathered to identify the issues that are most important to both the business and stakeholders, as well as the issues that are less important to either party or to both. The individual elements of the ESG strategy can then be prioritized based on that assessment.
• Establish a baseline on ESG performance. Document current performance levels, policies, practices and statistics on the ESG factors that will be addressed as part of the strategy. Doing so provides a starting point for future comparisons to evaluate the progress of ESG efforts.
• Define measurable goals for ESG initiatives. This involves setting objectives and performance targets for the ESG strategy as a whole and the various pieces of it. Some of these goals might include desired improvements on KPIs, while others might call for maintaining current performance levels and practices that already meet requirements.
• Create a deployment roadmap. Next, build out a detailed implementation plan for the ESG program with project timelines, milestones and responsibilities.
• Choose the reporting standards and frameworks to use. As covered in more detail below, numerous ESG reporting options are available to companies. Many businesses use more than one to meet different reporting and disclosure requirements. Choosing the right framework or combination of them is a key part of developing a successful ESG strategy.
• Collect, analyze and report on ESG data. Once the ESG program is operational, processes are needed to collect and analyze data on the relevant KPIs and then to prepare reports for stakeholders. Full reports typically are done on an annual basis, but internal progress updates for the board and senior management are more frequent.
• Review and revise the strategy as needed. ESG requirements can change as business needs, stakeholder concerns and regulatory mandates evolve. An ESG strategy should be reassessed regularly to make sure it's still effective and to identify required updates -- including weak spots that need to be optimized.

ESG audits and materiality assessments

The second step in the list above is formally known as an ESG materiality assessment . Such assessments apply the financial accounting concept of materiality to ESG issues and extend it to what's called double materiality . That considers not only how material -- or important -- different ESG factors are to a company's business operations, but also their materiality to different groups of stakeholders.

Combining that materiality information provides a blueprint for ESG strategies, which can be visualized by creating a materiality matrix. It plots different ESG issues in a grid along x- and y-axes that represent their importance to the business and stakeholders, thus depicting the issues from least to most important.

In addition to helping companies prioritize ESG plans, materiality assessments can aid in creating a business case for initiatives and deciding what performance measurements to track. To be accurate, though, an assessment must begin with a comprehensive stakeholder engagement process to gather information on relevant ESG issues as well as related risks, opportunities and goals.

Later in an ESG program, ESG audits are another important step to take. They involve internal or third-party audits to verify that ESG data, performance metrics and reports are accurate and comply with accepted standards. That process is commonly referred to as ESG assurance , which can take two forms: limited assurance that involves less scrutiny and verification by the auditor, and higher-level reasonable assurance that results in an auditor affirming that the ESG information is materially correct.

An ESG audit is similar in nature to a financial audit. As a result, best practices in preparing for an audit include implementing appropriate controls on ESG data collection and reporting, establishing board oversight of the reported information and conducting an audit readiness assessment beforehand.

Examples of ESG initiatives across an organization

An ESG strategy typically includes separate initiatives in different departments and operations throughout a company. Here are some examples of what that can involve:

• IT. In the IT department, data centers are at the heart of green computing efforts because of the high amounts of energy consumed in them. To help increase energy efficiency and reduce carbon emissions, green best practices in data centers include consolidating servers and storage devices; replacing old technologies with newer equipment that uses less energy; using AI and machine learning tools to create power usage effectiveness models and autonomously manage HVAC functions; and redesigning facilities to take advantage of hot and cold aisle configurations and energy-efficient doors, windows and lighting.
• HR. The HR department plays the lead role in ESG initiatives related to employees. This can include managing DEI programs aimed at increasing the representation of different groups of people in the workforce and ensuring that all employees are treated equally. Employee experience and engagement efforts, fair pay practices, and health and well-being initiatives -- mental health support and flexible work schedules, for example -- also fall under HR.
• Supply chain. As part of ESG programs, supply chain managers are in charge of responsible sourcing initiatives that take environmental and social factors into consideration on purchases of materials and finished products. They're often also tasked with overseeing supply chain partners on labor practices, efforts to reduce greenhouse gas emissions and other sustainability measures.
• Marketing. The marketing department is responsible for ESG marketing efforts that highlight a company's ESG initiatives, goals and progress on meeting those goals. Done properly, ESG marketing can help increase brand recognition, customer loyalty and, ultimately, revenue. But it needs to be honest about ESG plans and practices. If not, a company could face a backlash, including charges of greenwashing -- making false, unsubstantiated or exaggerated claims about environmental actions.
• Finance. The CFO is directly responsible for financial transparency and accounting integrity initiatives as part of the governance aspect of ESG. The finance department also has a hand in considering and funding ESG initiatives in other parts of the organization as a result of its control of budgeting, financial planning, cash flows and other financial functions.
• Legal. Development of corporate policies on ethical business practices and rules that prohibit actions such as bribery and corruption are commonly led by the legal department.

Who should oversee and manage ESG programs?

Oversight of ESG programs often begins at the board level or in the C-suite, with the CEO, COO or executive committee as a whole taking the management lead. Some companies have now added a chief sustainability officer or a chief ESG officer to lead their corporate programs. This role also might be referred to as the vice president of sustainability or ESG in other cases.

Companies might also have a chief diversity officer who oversees DEI programs, generally in collaboration with the HR department. Otherwise, individual ESG initiatives are typically managed by department heads, such as the CFO, the chief marketing officer, the general counsel and the CIO. The latter has a particularly big role to play in driving environmental sustainability efforts because of IT's high energy consumption and the proliferation of e-waste as systems and devices are replaced. In addition, the CIO must ensure that IT systems and tools are deployed as needed to support ESG efforts.

How to measure ESG performance and progress

Performance is measured through various ESG metrics , which are KPIs that can be both quantitative and qualitative in nature. Some examples of quantitative metrics include the following:

• Greenhouse gas emissions.
• Energy and water usage.
• Amount of waste generated.
• Compensation data.
• Employee turnover rates.
• Charitable contributions.
• Workforce and board diversity.

Examples of qualitative metrics, on the other hand, include labor practices, community engagement, codes of conduct and policies on business ethics.

ESG metrics are the key content in the reports that companies file on the status and progress of their initiatives. Metrics also help executives manage ESG-related risks and can be used by organizations to measure themselves against the triple bottom line . The TBL is a sustainability-focused management concept and framework that treats the social and environmental impact of companies and the economic value they create as bottom-line categories. It was designed to encourage business leaders to think more deeply about how their company operates instead of focusing only on financial performance.

Key terms to know

Read our glossary of sustainability and ESG terms that business and IT leaders should know to help set a foundation for developing an ESG strategy.

Top ESG reporting frameworks

Reporting frameworks and standards provide a structured approach for publicly disclosing information about a company's ESG strategy and initiatives. They help businesses demonstrate their commitment to ESG practices and sustainable growth, while also creating transparency and accountability and giving stakeholders a detailed view of ESG programs. In addition, ESG rating agencies use submitted reports and other data to issue ESG scores to companies, either as a number or a letter rating that investors and other stakeholders can use in evaluating an organization.

The following list outlines some of the prominent ESG reporting frameworks :

• IFRS Sustainability Disclosure Standards. These are new standards covering disclosures of sustainability-related financial information and information about climate-related risks and opportunities. The International Sustainability Standards Board (ISSB), which was created in 2021 by the International Financial Reporting Standards (IFRS) Foundation, is developing the standards and plans to release the first version of them in mid-2023.
• SASB Standards. Released in 2018 by the now-defunct Sustainability Accounting Standards Board (SASB), they provide specifications on disclosures of financially material sustainability information that are tailored for 77 industries. The SASB Standards were consolidated into the IFRS Foundation in 2022 and will be replaced by the IFRS standards, although the ISSB is building on them to create the new ones.
• CDSB Framework. This framework enables ESG reporting to be included in annual reports and 10-K filings. But, like the SASB Standards, it will soon be replaced by the IFRS standards. The Climate Disclosure Standards Board (CDSB), which developed it, was also absorbed by the IFRS Foundation in 2022, and no further work is being done on the CDSB Framework.
• GRI Standards. Developed by the Global Reporting Initiative (GRI), they include sets of universal, sector-specific and topic-based standards for sustainability reporting on economic, environmental and social factors. GRI published the first version as guidelines in 2000 and made several updates before formally releasing the GRI Standards in 2016.
• CDP. Founded in 2000 as the Carbon Disclosure Project and now known just by its acronym, CDP runs a system for disclosing information on business risks and opportunities related to climate change, water security and deforestation. Companies fill out questionnaires on those topics, and CDP gives them letter-grade scores that can be viewed by stakeholders.
• Task Force on Climate-related Financial Disclosures. Typically referred to as the TCFD, the 31-member task force was set up by the Financial Stability Board in 2015. Two years later, it released a set of 11 recommendations on the information that companies should disclose about financial risks related to climate change.
• United Nations Global Compact. Launched in 2000, the UN Global Compact is a corporate sustainability initiative that aims to align business strategies and operations with 10 principles on human rights, labor practices, the environment and anti-corruption practices. Participating companies file an annual report on their adherence to the principles.
• Workforce Disclosure Initiative. The WDI, which was created in 2016, offers a CDP-like reporting platform focused on workforce practices and management. Companies fill out an online survey on workplace health and safety, employee well-being policies and other topics to receive a disclosure scorecard from the WDI.

Reporting has primarily been voluntary thus far, but ESG disclosure mandates are expanding -- at least in the European Union. The EU's Corporate Sustainability Reporting Directive (CSRD) went into force in January 2023. In stages starting in 2025, the CSRD eventually will require approximately 50,000 companies to file annual reports on business risks and opportunities related to social and environmental issues and how their operations impact both people and the environment. That's more than four times the number of companies required to report under an earlier directive approved in 2014.

The CSRD could apply to some EU subsidiaries of U.S. companies or to the parent companies themselves if they meet criteria included in the directive. In the U.S., meanwhile, the Securities and Exchange Commission proposed a more limited rule on climate risk disclosures for publicly traded companies in 2022. The rule has yet to be finalized, though.

Convergence of ESG and green IT

In addition to green computing practices in data centers, ESG strategies are converging with other approaches for making the use of technology in companies greener. That includes green IT , a broader concept that encompasses the efforts to make data centers more energy-efficient along with initiatives such as green storage, green networking and green software development.

Another aspect is green cloud , which involves the steps that cloud platform vendors are taking to improve energy efficiency and reduce carbon footprints in their data centers. AWS, Google and Microsoft have all made commitments to increased sustainability and energy efficiency, with various goals on using renewable energy and becoming carbon neutral or negative. The growing number of IoT devices is also leading to an increased focus on how to address sustainability concerns and meet ESG goals in IoT deployments .

ESG tools and technology

Software that can help companies manage ESG initiatives is available from various IT vendors. That includes IBM and major business applications vendors, such as Microsoft, SAP, Salesforce and smaller rival IFS. More specialized providers also sell ESG and sustainability management software , which typically provides a broad set of features for data collection, reporting, analysis and carbon accounting, among other tasks.

For example, these tools can be used to measure greenhouse gas emissions in both a company's own operations and across supply chains using the Greenhouse Gas Protocol's scope 1, 2 and 3 categories as a basis. Key ESG reporting frameworks that are commonly supported include CDP, the GRI Standards, the SASB Standards and the TCFD recommendations. The software can also be used to conduct ESG materiality assessments, track metrics and, in some cases, support DEI programs and other social ESG initiatives.

In a February 2022 report on sustainability management tools, Forrester Research said the following product features were among the criteria it used to evaluate products for the report:

• Support for materiality assessments.
• Carbon calculation and accounting.
• Data management functionality.
• Performance monitoring, benchmarking and auditing.
• Sustainability reporting and risk disclosure.
• Climate action strategy development and tracking.
• Sustainability intelligence dashboards.

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More From Forbes

Esg reporting is already challenging: don’t let (lack of) tech make it harder.

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Karen Abramson is the CEO of Wolters Kluwer Corporate Performance & ESG .

Political debates, in the U.S. and globally, have slowed the acceleration of ESG reporting, but make no mistake: ESG reporting momentum is continuing to press forward. The IFRS International Sustainability Standards Board (ISSB) introduced its long-awaited international standards for corporate sustainability disclosure in 2023. The EU’s Corporate Sustainability Reporting Directive (CSRD) went into effect in 2024, when the U.S. Securities and Exchange Commission (SEC) also announced rules to standardize climate-related disclosures. While multiple states are challenging the SEC’s right to regulate climate disclosure, the progress of ESG reporting is not driven by standard setters and regulators alone.

The reality is that ESG reporting is a train that has already left the station. The Center for Audit Quality conducted a 2023 audit of S&P 500 companies, which found that the majority disclose ESG information in a stand-alone report, and 99% already disclose ESG metrics in some way . That is likely because their customers, shareholders, partners, current and potential employees, and other key stakeholders are demanding consistent, comparable ESG information.

However, the accuracy, breadth and depth of ESG data varies by company. A 2024 KPMG study found that while 83% of organizations believe they are ahead of their peers when it comes to ESG reporting, 47% still use spreadsheets to manage ESG data. This disconnect between perception and actual preparedness demonstrates the scale of the challenge ahead.

Meeting stakeholder and regulator demands for credible, investor-grade ESG data requires truly transformational technology that empowers CFOs and sustainability leaders to drive enterprise-wide collaboration, so they can collect, report, analyze and assure the accuracy of verifiable ESG data—with the same rigor that key stakeholders have come to expect from financial reporting.

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Best 5% interest savings accounts of 2024, simplifying the complexity of esg reporting.

We have seen significant growth in ESG reporting technology market in recent years—it is projected to soar to $4.3 billion by 2027 . And it is easy to understand why. Here are just a handful of ways that transformational technology can simplify the complexity of ESG reporting.

• It fosters enterprise-wide ESG collaboration by making it easier for teams to collect and share data in alignment with multiple reporting frameworks, including the CSRD, SASB , GRI , TCFD and others.

• It reduces the burden of manual, time-consuming ESG data collection tasks by centralizing and validating ESG data from hundreds of sources, enterprise-wide.

• It can directly support efforts to reduce emissions and costs by simplifying net-zero strategy setting and implementation across Scope 1, 2 and 3 GHG. This makes it easier for companies to decarbonize operations, lower energy consumption and drive cost efficiencies.

Transformational ESG reporting technology can empower users to perform comprehensive materiality assessments and identify and prioritize ESG programs that are important to their stakeholders. It can help organizations connect their ESG strategy to associated risks across their operations, while preparing for the next generation of regulatory requirements. It can simplify the process of understanding and telling their ESG story. And it can enable CFOs to show proof—which can be independently assured and verified—of how their sustainability strategy connects to material business risks and opportunities.

Building a credible ESG program requires auditable, accurate, investor-grade ESG data that meets the demands of regulators and financial institutions. But none of that can happen when the majority of ESG data is housed in disparate, disconnected ESG reporting systems—or spreadsheets.

Tips For Getting The Most From Your ESG Tech Investments

Now that the ESG reporting train has left the station, it’s past time for organizations that want to leverage ESG as a competitive advantage to get their ESG reporting technology on board. Here are four practical tips to get started.

• Roll up your sleeves to lead digital transformation for the long-term . Gartner says that leading digital transformation is the top focus area for CFOs for 2024. However, because doing so is disruptive and time consuming, it can be tempting to defer implementation solely to IT. Don’t make that mistake when it comes to ESG or financial tech. Gartner research indicates that in order for transformational tech investments to have more than a 50/50 shot of realizing the intended benefits, finance leaders must be involved from the onset and remain involved, over the long term.

• Get the right people at the table . While CFOs should ideally collaborate with CSO and CIO peers to select the best ESG tech solution to meet their needs, it’s also important to create a dedicated, cross-functional team to evaluate related opportunities and risk, and develop an ESG technology governance framework. This team can also help educate leaders and board members about the opportunities and ROI associated with ESG tech investments, which is an essential step to earning their long-term buy-in.

• Familiarize yourself with the ESG tech landscape . Selecting the best ESG tech option can be overwhelming, particularly given the explosive growth within the sector. Fortunately, third-party analysts conduct independent research that can make it easier for senior execs to benchmark their ESG technology budgets, investment priorities and preferences. These reports also provide practical insights into how peer companies are leveraging ESG technologies to propel their ESG strategies forward.

• Begin building the integrated ESG reporting team of the future . Successful ESG reporting teams will be filled with strategic, forward-thinkers who can fully leverage ESG technology to identify trends, collaborate with multiple stakeholders and provide insights that inform better business and ESG performance. That’s why it is essential to adapt hiring profiles and career development plans, now, to build the technology implementation, data analysis and storytelling skill sets that will help drive the most ROI from your ESG tech investments.

In the world of financial and ESG reporting, the new normal is complex, perpetual change. Manual processes and legacy technologies simply are not up to the challenge. CFOs who are committed to driving the digital transformation of ESG must work quickly to familiarize themselves with the technology landscape, bring the right expertise to the ESG strategy-setting table, hire and train the integrated ESG teams of the future and be prepared to lead for the long haul.

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Confusion over ESG—and what it means in practice—continues unabated. Here’s the key question

There is more than the usual amount of confusion surrounding what companies are supposed to do besides pursue their financial interests and obey the law. A measure of the confusion is the explosion in terms describing what reformers would like to see. They would like to see the pursuit, not of “shareholder value,” but “enlightened shareholder value.” They advocate for “purpose-driven” companies, where “purpose” does not mean “making money.”

There are many other terms, the most prominent of which are “corporate social responsibility” or “CSR” and “Environmental, Social, Governance” or “ESG.” (“Sustainable” tends to get used a lot as well, but possibly because it is a rather long word that can’t be compressed into a three-letter acronym, it isn’t quite as common.) There is considerable conceptual confusion among these competing terms, which upon investigation does not seem entirely accidental.

Let’s take as an example “enlightened shareholder value.” This phrase was adopted with considerable fanfare in connection with reforms to the UK’s Companies Act in 2006. Presumably, it means something different from the plain “shareholder value” it replaced, but it is hard to pin down what this might be. The UK Companies Act requires directors to “promote the success of the company” for the benefit of their shareholders, but to take into account the long-term effects of their decisions, as well as the impact of those decisions on employees, suppliers, customers, “others,” the environment, the community, and the company’s reputation.

Practically and conceptually, this seems no different from the shareholder wealth maximization norm that it purports to amend. Any business corporation, whether claiming to pursue “enlightened” shareholder value or not, must work very hard to attract and retain the loyalty of non-shareholder constituencies—employees, customers, suppliers, relevant communities, lenders, and others—as doing so is essential to carry out a company’s profit-making activities. A good way of summarizing the situation is that the 2006 amendments to the Companies Act were a trick played on people who don’t understand (or like) business.

ESG’s weirdest aspect

A different kind of trick produced “ESG,” the most common phrase in use in the United States to describe governance that promotes social and environmental outcomes. This trick was designed to permit institutional investment managers to invest in ways that might arguably violate their fiduciary duty to maximize returns on their funds. Law professor John Coffee explains:

Conceptually, [lawyers] “rebranded” SRI [socially responsible] investing and converted it into ESG investing by asserting that consideration of the “governance factors” associated with public corporations would enable the fiduciary to identify superior investments and enhance risk-adjusted return…. This in turn enabled law firms to opine to their clients that ESG investing was fully compatible with the trustee’s fiduciary obligations.

This explains the weirdest aspect of ESG: how one criterion, “governance,” that has historically been focused on improving risk-adjusted shareholder returns, was incorporated into a conceptual unit that also contained social and environmental criteria focused on improving outcomes for non-shareholder constituencies. In this case, the trick was played on regulators and courts, but the outcome was the same: a conceptually confused phrase that could mean different things to different groups.

This deliberate confusion is not helpful. To be more precise in our terminology, it is necessary to consider what makes a decision made to advance a social or environmental goal different from a decision made to advance a profit-making goal, which only incidentally has positive environmental or social outcomes. A company can give employees a raise, but is that an investment to secure a more egalitarian society, or a necessity imposed by labor markets to prevent the best employees from leaving and working elsewhere?

In theory, almost any social objective can be justified as being in the long-term interests of a corporation. Businesses will best prosper on a planet that is not impoverished by a climate crisis, as well as in stable communities with lower levels of inequality, a vibrant middle class, and a respect for fundamental human rights.

‘How long term?’

The key question is: “How long term?” Not every activity taken to advance a social welfare objective is, in practice, justifiable as commensurate with shareholder value, “enlightened” or otherwise. In the long run, we are all dead, and this is also true of companies that must balance the return expected by certain long-term investments against the possibility that the company will no longer be around to enjoy the fruits of today’s sacrifices.

The discount rate applied to most corporate investments, itself partly a function of the corporation’s weighted average cost of capital, means that cash flows generated more than ten years or so in the future often have a small present value. This in turn means that when the net present value of an extremely long-term investment is evaluated, it is frequently less than the returns on alternative, shorter-term investments.

For example, in a recent paper, the finance scholar, Roberto Tallarita, shows that the discount rates used by investors “massively underestimate the social value of climate mitigation.” We might decry this fact, but that would probably be a mistake. Making investments in ways that generate the highest return for a firm (net of opportunity costs) is the essential mechanism that produces the wealth that makes modern life possible and generates the resources we require to deal with social problems. In any event, a corporation that consistently fails to make investments with the best risk-adjusted return will eventually go out of business.

In practice, deliberately ambiguous terms like “enlightened shareholder value” and “ESG” are rhetorical devices used to disguise the necessity for hard choices, in particular about the relevant time horizon and discount rate for corporate investments.

Excerpted from  Hard Lessons in Corporate Governance   © 2024 Cambridge University Press and Bryce Tingle

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Green governance strategies for Belt and Road renewable energy projects: insights from risk analysis and ESG theory

• Published: 03 June 2024

Cite this article

• Xiaolin Sun 1 ,
• Benhong Peng 1 ,
• Ehsan Elahi 2   na1 &
• Anxia Wan 1   na1  

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The Belt and Road renewable energy initiative entails substantial risks, with the ultimate success or failure of the project contingent upon the effective management of environmental challenges. In this study, we established a comprehensive framework for evaluating green governance within the Belt and Road renewable energy project, drawing upon ESG (Environmental, Social, Governance) principles within the context of solar power plant ventures. Our investigation involved an amalgamation of risk matrix analysis and Bayesian network modeling to identify critical risk factors influencing the environmental governance of energy projects. We conducted an empirical analysis using the Hoa Hoi solar power plant project in Vietnam as a case study. Our findings underscored that environmental and corporate governance risks pose the most significant barriers to achieving effective green governance in this energy project. Key risk factors encompassed geological structural instability, elevated levels of social unemployment, and the prevalence of extreme weather events or disasters, coupled with suboptimal pollution management from power generation. In response to these insights, we propose green governance strategies to serve as an effective reference for government policymakers and energy market investors, as well as to promote the green development of the Belt and Road Initiative.

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Acknowledgements

This work was financially supported by National Social Science Foundation Project (21BGJ046); the Taishan Young Scholar Program (No. tsqn202103070), the Taishan Scholar Foundation of Shandong Province, China (CN).

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Ehsan Elahi and Anxia Wan have equally contributed to this work.

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School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing, 210044, People’s Republic of China

Xiaolin Sun, Benhong Peng & Anxia Wan

School of Economics, Shandong University of Technology, Zibo, 255000, China

Ehsan Elahi

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Xiaolin Sun: conceptualization, visualization, writing—original draft, writing—review & editing; Benhong Peng: visualization, supervision, validation, writing—review & editing; Ehsan Elahi: methodology, data curation, software, writing—review & editing; Anxia Wan: validation, writing—review & editing.

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Correspondence to Benhong Peng or Anxia Wan .

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Sun, X., Peng, B., Elahi, E. et al. Green governance strategies for Belt and Road renewable energy projects: insights from risk analysis and ESG theory. Environ Dev Sustain (2024). https://doi.org/10.1007/s10668-024-05090-7

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