A new study by KPMG has determined that sustainability is a key driver of positive financial performance for businesses, although it suggested that business leaders need to better understand the level to which sustainability influences the bottom line.
KPMG‘s report, Is sustainability good for financial performance?, examined the relationship between sustainability investments and financial returns. The research analysed 60 sustainability metrics and their impact on gross profit margin across 2,500 businesses in 18 industries and 60+ countries.
According to the findings, some 21 sustainability indicators were strongly linked to financial performance, in areas such as lowering CO2 emissions; implementing land environmental impact reduction and e-waste reduction initiatives; having business ethics policies in place; and having a higher share of women executives.
“Sustainability strategies can only be sustainable if they drive growth by giving firms a competitive advantage,” KPMG’s Erkan Erdem commented on LinkedIn. “Moreover, sustainability practitioners report that measurement is a key challenge to secure resources and achieve cross-organisational alignment.”
Invest in impactful areas
According to KPMG, the results of the study offer guidance for companies to invest in impactful areas, while also exploring why some sustainability investments might show zero or negative relationships with profit margins, considering factors like selective disclosure of metrics and investment costs.
The research also reveals that sustainability investments may impact profit margins differently across companies, highlighting the complexity of measuring their financial impact.
Evolving business landscape
“Our study provides a comprehensive analysis of the financial returns to sustainability, offering valuable insights for business leaders,” Erdem added.
“Our findings are statistical relationships based on data from thousands of companies, but each company should carefully consider sustainability investments within the broader context of its overall business strategy and assess how each investment impacts its financial metrics through data collection and measurement. As the business landscape continues to evolve, sustainability will undoubtedly play a crucial role in shaping financial outcomes.”
You can read the full report here.
