How much value is in ESG?

How much value is in ESG? An up-to-date look at the money behind the concept that continues to be a boardroom buzzword.

There’s no denying that ESG – environment, social and governance – sparks much debate. Discussions continue worldwide about how to incorporate the concept into corporate strategy or whether to bother with it at all. 

It begs the question: how much value is in ESG at present? Here’s a brief guide to explore this a little more.

ESG is a framework to evaluate a company’s impact and specific practices beyond financial performance. 

At its core, it’s a tool for investors to judge a company or compare companies. Companies incorporate ESG principles into their strategies to attract attention and capital from these investors and, increasingly, to appeal to consumers and regulators as well. 

The three pillars of ESG concern the impacts of a business in three key areas:

• Environmental – e.g. climate change policies, carbon emissions, renewable energy usage, waste management, and biodiversity preservation.
• Social – e.g. diversity and inclusion efforts, labour practices, customer satisfaction, and community engagement.
• Governance – e.g. transparency, ethical leadership, board structure, executive compensation, and shareholder rights.

Here are the main methods and the estimated value as of 2024

Here, the focus is on how ESG-related investments result in cost savings (e.g., energy efficiency) or revenue growth (e.g., appeal to eco-conscious consumers). Metrics such as return on investment (ROI), cost reductions, and profitability linked to ESG initiatives are commonly used to quantify financial impact.

The value

Financial returns on ESG investing are well-documented, although some criticise the need to wait longer for any pay-off. 

That said, A 2024 study by KPMG found that 74% of surveyed CEOs expect to see significant returns on sustainability investments within five years.

This valuation method focuses on how easy it is for companies with ESG-oriented policies to attract investors and the percentage of investors seeking sustainable portfolios. Market valuation methods include tracking stock performance against ESG indices (e.g., the MSCI ESG Leaders Index) or evaluating investor demand for ESG-compliant assets.

The value

Globally, the value of ESG assets is expected to reach between $35 million and $50 million by 2030. Here in Europe, the appetite remains high: Euronext CEO Stéphane Boujnah noted that European institutional investors remain heavily engaged with ESG initiatives, particularly those focused on biodiversity.

This focuses on how ESG practices are perceived to reduce risks such as regulatory fines, reputational damage, and supply chain disruptions. Risk assessment tools help quantify how much value ESG brings in terms of avoided costs or enhanced resilience.

The value

The value question works both ways regarding risk, especially when we consider that many jurisdictions are introducing new rules that require firms to follow ESG principles. 

On one hand, the rules can address the risk of not acting on ESG matters. On the other, the rules can bring new risks in the form of increased pressure to conform to standards. 

However, this is nothing that can’t be fixed with the right training in ESG, risk and governance.