There is no inherent contradiction between having a strong ESG record and strong business performance. On the contrary, being in the vanguard of sustainability can unlock the doors to new growth opportunities.
Strengthened Market Access. Companies at the forefront of improving their ESG standards will be in a stronger competitive position as major trading partners impose tougher conditions on the content of goods and services they import and how these are produced. First movers will also secure a “license to play” over the long term in these markets.
As the EU’s carbon border tax system goes into effect, for example, producers in carbon-intensive industries such as steel, cement, chemical, paper, glass, and energy will enjoy a big cost advantage if they lead their rivals in lowering their CO2 footprints and developing the systems to document and accurately report those emissions throughout their supply chains. The same holds true for manufacturers of everything from consumer appliances to pharmaceuticals as the new EU rules expand to other product categories. Likewise, companies that can demonstrate that their supply chains are free of human rights violations will have an edge as trading partners introduce more stringent social-sustainability standards.
Several top emerging market companies are taking actions that could help in key export markets. Thailand’s Siam Cement is a good example. The building-materials giant is investing heavily to develop cement, polymers, and other products that are more eco-friendly.
Greater Access to Investment and Lower Capital Costs. A strong, verifiable sustainability record can help companies gain access to new funding sources. Equity investors have been flocking to such companies, not only to meet their own ESG commitments, but also because these have been sound investments. While most of this money is still invested in developed-market equities, assets managed by ESG-focused mutual funds and exchange-traded funds targeting emerging markets increased more dramatically—by around 80%—from 2018 through 2021. Many ESG funds have consistently bested broader stock indexes.
Higher Consumer Acceptance. Numerous studies indicate that companies with solid reputations for sustainability have a clear advantage in the competition for young consumers and talent. This edge is becoming increasingly critical in emerging markets, given their younger populations.
Research by Boston Consulting Group’s Center for Customer Insight has found that consumers in emerging markets express significantly greater sensitivity to sustainability than those in developed markets—perhaps because they have more firsthand experience with the adverse consequences of climate change. Of emerging market consumers we surveyed, 77% said they care about the sustainability of the snacks they consume, for example, compared with 53% in developed markets. More than 80% indicated they care about the sustainability of leisure travel, PCs, apparel, outside dining, home care, and their electricity provider. In most categories, the portion of those expressing such concern was 15 to 25 percentage points higher than that of consumers surveyed in developed markets.
Increased Appeal to Talent. Strong reputations for sustainability also give companies an edge in the war for young talent. Studies by BCG and other firms have found that around 70% of Gen-Zers (people born in the mid-to late 1990s) say it’s important to work for organizations that focus on ESG. Nearly 20% of those surveyed listed ESG as among the top five factors influencing their decision to join or remain with their current employer.
New Business Models. The transition from fossil fuels to renewable energy is creating opportunities for new entrants to make their mark with disruptive business models and for incumbents to change the dynamics in their industries. Among the business ventures that have sprung from Siam Cement’s climate initiatives is the Zero Burn project in Lampang. It encourages farmers to transform agricultural waste into alternative fuels that the company then uses for making eco-friendly cement.
Attributed to Boston Consulting Group Sustainability Report
