In a new survey by McKinsey, executives and investment professionals largely agree that environmental, social, and governance programs create short- and long-term value—though perceptions of how have changed over the past decade.
Pressure on companies to pay attention to environmental, social, and governance (ESG) issues continues to mount. Researchers, business groups, and nongovernmental organizations have variously warned of the risks—or emphasized the opportunities—that such issues present to company performance.1 Most executives and the investment professionals who scrutinize their companies seem to agree that ESG programs affect performance. In our latest McKinsey Global Survey on valuing ESG programs,2 83 percent of C-suite leaders and investment professionals say they expect that ESG programs will contribute more shareholder value in five years than today. They also indicate that they would be willing to pay about a 10 percent median premium to acquire a company with a positive record for ESG issues over one with a negative record. That’s true even of executives who say ESG programs have no effect on shareholder value.
Among respondents who say that such programs increase shareholder value, perceptions of how the programs do so have shifted since our survey on the subject in 2009.3 A majority of these business leaders and investment professionals now say that environmental, social, and governance programs individually create value over both the short term and the long term. Moreover, the perceived long-term value of environmental and social programs now rivals or exceeds the value attributed to governance programs.
What follows is a closer look at how perspectives have changed with respect to several topics, including the impact of ESG on shareholder value and financial performance, the reasons companies prioritize ESG programs, and the challenges and opportunities in ESG data and reporting.