authorities trust corporate actors , they are more likely to award them the access , approvals , and licenses that afford fresh opportunities for growth . b ) Cost reductions : ESG can reduce costs substantially . Among other advantages , executing ESG effectively can help combat rising operating expenses ( such as rawmaterial costs and the true cost of water or carbon ), which McKinsey research has found can affect operating profits by as much as 60 %. c ) Reduced regulatory and legal interventions : A stronger external value proposition can enable companies to achieve greater strategic freedom , easing regulatory pressure . In fact , in case after case across sectors and geographies , we ’ ve seen that strength in ESG helps reduce companies ’ risk of adverse Government action . It can also engender Government support . d ) Employee productivity uplift : A strong ESG proposition can help companies attract and retain quality employees , enhance employee motivation by instilling a sense of purpose , and increase productivity overall . Employee satisfaction is positively correlated with shareholder returns . e ) Investment and asset optimisation : A strong ESG proposition can enhance investment returns by allocating capital to more promising and sustainable opportunities ( for example , renewables , waste reduction , and scrubbers ). It can also help companies avoid stranded investments that may not pay off because of longer-term environmental issues .
Sovereign ESG Data Framework – World Bank
The World Bank curates and maintains a wide range of ESG data for policymakers , financial market participants and academic researchers .
Environment The Environment pillar measures the sustainability of a country ’ s economic performance given its natural resource endowment , management , risk or resilience to climate change and other natural hazards . It pays particular attention to the internalisation of environmental externalities created by economic activity . It also accounts for sustainable energy access and food security , crucial factors for stable long-term economic growth .
Social The Social pillar quantifies the sustainability of a country ’ s economic performance concerning its efficacy in meeting the basic needs of its population , reducing poverty , managing social and equity issues and investing in human capital and productivity . This category also includes demographic criteria , pertinent to stable long-term economic growth .
Governance The Governance pillar describes the sustainability of a country ’ s economic performance in the context of its institutional capacity to support long-term stability , growth and poverty reduction . This category also accounts for the strength of a country ’ s political , financial and legal systems and capacity to address environmental and social risks .
Investors want to hear from companies about the value of sustainability – Mckinsey
While major investors believe that ESG is important , they need greater clarity about the ESG value proposition . Sustainability aspirations or metrics on a page , without context , are not sufficient to link initiatives to cash flow . That lack of clarity presents an opportunity for companies to make the ESG-to-value case more clearly .
Long-term-minded investors —“ intrinsic investors ”— have an outsize effect on stock performance over time . These investors recognise that ESG will affect value , but they always want to dig deeper . They seek out granular information about how specific ESG initiatives can be a source of growth and which risks are most material to a specific company and its broader industry , and the extent to which distinct ESG actions can mitigate those risks .
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