A recent McKinsey Survey shows that the perceived importance of corporate environmental, social, and governance programs has soared in recent years, as executives, investors, and regulators have grown increasingly aware that such programs can mitigate corporate crises and build reputations. However, no consensus has emerged to define whether and how such programs create shareholder value, how to measure that value, or how to benchmark financial performance from company to company.
The McKinsey survey asked CFOs, investment professionals, institutional investors, and corporate social responsibility professionals from around the world to identify whether and how environmental, social, and governance programs create value and how much value they create.
Results show that, among respondents who have an opinion, 67% of CFOs and 75% of investment professionals agree that environmental, social, and governance activities do create value for their shareholders in normal economic times. By wide margins, CFOs, investment professionals, and corporate social responsibility professionals agree that maintaining a good corporate reputation or brand equity is the most important way these programs create value.
Respondents to this survey are split over whether putting a financial value on social programs would reduce the reputational benefits to companies: slightly more believe stakeholders view financial value creation as important than believe it’s a distraction.
Investment professionals generally agree that the global economic turmoil has increased the importance of governance programs and decreased the importance of environmental programs to creating shareholder value. Respondents do, however, largely agree that environmental and social programs will create value over the long term, and that governance programs create value in both the short and long terms.
Some 67% of CFOs, investment professionals, and corporate social responsibility professionals also believe that the shareholder value created by environmental and governance programs will increase in the next five years relative to their contributions before the crisis. Expectations of social programs are more modest; half of respondents say these programs will contribute more value.
Most respondents cite attracting, motivating, and retaining talented employees as one way that environmental, social, and governance programs improve a company’s financial performance, but few respondents think communications could be improved by reporting data in this area.
Some future perspectives
• A clear first step would be to develop metrics that focus on integrating the financial effects of environmental, social, and governance programs with the rest of the company’s finances.
• A few companies see environmental, social, and governance programs as an opportunity to create new revenue streams. Given investors’ demand for financial data, companies could benefit from explicitly including these programs and their revenue streams in planning and reporting.
• Corporate social responsibility professionals can help their own companies and their investors fully value their environmental, social, and governance programs by understanding how various stakeholders see them and by learning to communicate their value.
McKinsey’s survey included responses from 238 CFOs, investment professionals, and finance executives from the full range of industries and regions and it was conducted along with a simultaneous survey of 127 corporate social responsibility professionals and socially responsible institutional investors.