Nine Out of Ten Executives Report ESG Delivers ROI: Report

Increased ESG investment correlates with higher profits, according to new research from the Infosys Knowledge Institute, the thought leadership and research arm of digital services and consulting firm Infosys.

The report identified actions that companies should take now to achieve ESG goals and generate financial returns across sustainability initiatives.

The Infosys report, “ESG Redefined: From Compliance to Value Creation”, reveals that nearly all (90%) executives said their ESG spending led to moderate or significant financial returns, with most respondents (66%) experienced ESG returns within three years.

The report acknowledges that despite ESG’s clear link to profit growth, budgets are likely to be an obstacle in the current economy. This is worrisome, as companies need more financial resources and operating model changes to achieve ESG goals and sustain profit growth.

Mohit Joshi, President, Infosys, said, “There is nothing novel about the idea that you have to spend money to make money. However, although 90% of respondents in our study say ESG gives ROI, there is still a lag in applying strategy to ESG as it is done for other parts of their businesses. Companies must shift views to recognize ESG as a value creator to reap the financial benefits of ESG investments and to achieve maximum impact in creating a better, more sustainable world.”

The report found that a 10 percentage point increase in ESG spending correlates with a 1 percentage point increase in profit growth.

A company that currently spends 5% of its budget on ESG can expect a one percentage point profit increase if it aligns operating or capital budget to increase ESG spending portion to 15%.

Overlooking the ‘S’ and ‘G’

Many companies focus ESG efforts on the environmental segment with commitments to carbon neutrality, net zero, and reducing greenhouse gas emissions.

However, there are also opportunities to improve financial results through social and governance initiatives. Research data shows social initiatives like board diversity correlate to improved profitability.

ESG leadership strategy correlates with a 2 percentage point increase in profit and revenue growth.

Companies perform better financially when they demonstrate all the following: a chief diversity officer (CDO), chief sustainability officer (CSO), ESG committee on the board, and also when the CSO clears capital expenditures for ESG initiatives. However, only about a quarter (27%) of those surveyed say their company has all four components in place.

Infosys used an anonymous format to conduct an online survey of 2,500 business executives across industries across the US, UK, France, Germany, the Nordics, Australia, New Zealand, China, and India. To gain additional, qualitative insights, the researchers interviewed subject matter experts and business leaders.

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