There have been a number of studies looking at the relation between companies’ environmental, social, and corporate governance practices (ESG) and their financial performance. The vast majority of them find a direct link: companies that do good by the environment, their labor force, and communities, do well financially.
IFC recently looked at the performance of 656 companies in our portfolio and found that companies with good E&S performance tend to outperform clients with worse environmental and social performance by 210 basis point (BPS) on return on equity (ROE) and by 110 bps on return on assets (ROA.)
Clients with high E&S scores outperformed by 130 bps the MSCI Emerging Market Index—an index created to measure equity market performance in global emerging markets. Whereas a deterioration in E&S performance resulted in worse financial performance.
IFC also found that reporting really matters: firms with a well-established practice of reporting on more than half of SASB material sustainability indicators outperform firms with a weak reporting culture. This is in line with the findings by Harvard Business School that reporting on material issues is associated with increases in firm value.
In a recent client survey of IFC investment clients across the emerging markets:
|91%||believe that IFC’s Environment and Social requirements are helpful to their long-term business success|
|90%||believe that IFC’s Corporate Governance requirements are helpful to their long-term business success|