Why sustainability now means profitability

Companies that are outperforming in sustainability are also outperforming financially, too – by 21%. 

At the end of last year, #Accenture and the World Economic Forum analysed the sustainability index of over 4,000 companies in a report entitled 'Shaping the Sustainable Organisation' and found that the EBIDTA margin of these more sustainable organisations was 21% higher than those paying less attention to their sustainability priorities. EBITDA stands for Earnings Before Interest, Taxes, Deductions and Amortization, in other words, it measures financial profitability before deductions are made. 

Total shareholder return was also 8.2% for the top quartile of the more sustainability-orientated companies compared to 4.2% for those in the bottom quartile (see both images, below, copyright Accenture).

Could better financial metrics be a much-needed wake-up call?

I believe that most organisations do continue to urgently make sustainability the top strategic goal - especially in light of today's sobering IPCC report - but if that wake-up call wasn’t enough, then maybe the prospect of better financial metrics will propel more companies into action. 

I delved into Accenture’s report a few weeks ago, looking at their sustainability DNA matrix, but in light of the IPCC news today, which calls our need for urgent action into even sharper relief, I wanted to focus on the financials.

Accenture finds that strong sustainability principles boosts financial performance

The report, written by @Ellyn Shook, @Peter Lacey and members of the WEF Management Board and WEF Foundation, emphasises that even the companies leading the way in sustainability practices still need to do much more in terms of addressing the full spectrum of possibilities and focus areas – what Accenture calls an organisation’s ‘Sustainability DNA’. Nevertheless, it is really clear that “having a strong sustainability principles does more than help organizations deliver social and environmental impact – it also boosts financial performance, too.” 

Link between sustainability and financial scores

Here’s some of the granular detail of the report and how Accenture conducted their analysis. The full report is here, and below is a summary of page 19 of the report:

·       Almost 4,000 companies were graded according to market-facing evidence of ESG-supporting practices in 146 areas;

·       Econometric analysis found a positive relationship between the sustainability index scores and financial and non-financial performance measures at the company level;

·       Organizations in the top quartile of the SOI showed significantly stronger performance on multiple financial performance indicators compared with lower-scoring peers;

·       The EBITDA margin of top- quartile companies was 19.6% (on average per annum in the period 2017–2020), compared with 16.2% for those in the bottom quartile;

·       The sustainability performance of the top quartile companies is 21% higher compared with the bottom quartile.

Sustainability doesn't stop at 'environment'

In other words, a stronger ‘sustainability DNA’ is positively associated with the ability of leadership to deliver financial value and sustainable and equitable impact. Out of interest, I have included Accenture’s Sustainability DNA, below, showing the areas that the leading businesses are focussing on, and which is driving better financial performance. I think this DNA matrix is a highly useful 360 framework that demonstrates the many and varied aspects of sustainability that a company should be focussing on, upending any idea that sustainability stops at ‘environment’. And it is this holistic view, I believe, that is making those companies outperform the rest – a joined-up approach, tackling everything from workplace inclusivity to tech without harmful side effects.  

Later this week I will look at the qualities of those leaders that are heading up these out-performing companies, and the skills, traits and characteristics they are demonstrating and which are helping their organisations become champions of change.

By Romilly Golding.

I am a senior copywriter, qualified in GRI reporting, and I am passionate about helping companies get on their sustainability journey. I enable organisations to clarify messages about their sustainability practices to build brand credibility and enhance stakeholder engagement. Get in touch via LinkedIn if you need a writer that can quickly understand your business objectives and communicate clearly and creatively about them.