ESG Profitability: Can It Increase Your Sales?

Over 90% of companies have reportedly implemented or are developing an environmental, social, and governance (ESG) policy in the workplace (Morningstar, 2022).

Regulation, consumer appetite, and growing awareness about the planet have largely inspired this movement, but another crucial factor has also played a role: profit. 

A 2024 study by Wharton Business School found businesses that improved their environmental and social commitments saw sales grow by 9.2% the following year. 

A growing body of evidence connects successful ESG policies to improved business profits. But what does it take to actually make an ESG strategy profitable? Let’s find out. 

Want to reduce your business’s plastic footprint? Take action now by integrating plastic recovery into your ESG plan. All you have to do is book a free call with our in-house team, who will find you the perfect bespoke plan. 

What’s on this page?

01 | What is ESG — and what does it stand for?
02 | Can an ESG strategy improve profit margins?
03 | How does ESG improve company performance and profits?
04 | Which ESG initiatives drive high profits?
05 | How to make your ESG plan profitable 
06 | Summary

What is ESG — and what does it stand for?

ESG is an acronym that stands for environmental, social, and governance policy, three pillars that can help measure a business’s sustainability efforts and wider social commitments. 

Many assume ESG frameworks revolve around the environment, but they’re wrong. ESG is not just about positively impacting the planet; it’s also about looking after employees, being inclusive, and contributing to a better society. 

By focusing on all three areas, a company can better measure its positive outputs and help achieve long-term success. 

Can an ESG strategy improve profit margins?

A lot of organizations already recognize that a good ESG policy can greatly impact profit margins. That’s why countless companies from Microsoft to ASOS have unveiled ambitious ESG plans for the next few years. 

The numbers also appear to back this up. A 2022 study concluded that businesses that prioritized ESG saw revenues grow by an average of 9.7% over a period of three years. And 84% of those companies also said it helped them raise capital to some extent. 

Reports published by leading organizations like Forbes and McKinsey have similarly concluded that ESG provides additional value. The latter found in 2019 that a quarter of executives it surveyed believe ESG opened new growth opportunities, while 71% agreed it could enhance corporate reputation and brand equity. 

Given that ESG is becoming increasingly important in business, we can assume that the correlation to profits may continue.

On the other hand, a handful of studies claim to have identified some negative impacts on profit, claiming that a focus on corporate social responsibility would mean reallocating funds from shareholders. However, this evidence is outweighed by more up-to-date reports that overwhelmingly showcase positive findings. 

Are some sectors more impacted than others?

While the outlook for ESG within businesses is generally positive, it comes with certain nuances. Research suggests that some industries benefit more than others, and profit margins vary depending on location.

In 2022, Capital Monitor reported that 93% of IT companies and 92% of finance organizations that adopted ESG policies agreed it helped them raise capital.

However, heavy industry sectors like mining or steel manufacturers have a harder time adapting processes and embracing ESG than office-based sectors. That’s because heavy industry infrastructure is typically built to be permanent, and alternative practices that reduce emissions aren’t as developed.

How does ESG improve company performance and profits?

Several factors can influence the success of an ESG strategy. Here are the facts about how implementing ESG can help boost business profits. 

Consumer appeal

Consumers overwhelmingly want to support and shop from brands that align with their values, particularly regarding the environment. A 2022 study found that 72% of shoppers surveyed believe sustainability is somewhat or very important to their purchasing decisions.

One in four shoppers are happy to pay more for products that protect biodiversity, come in sustainable packaging, and come from suppliers that protect workers' rights and support ethical practices. This shows it’s not just the environment that’s important to shoppers. 

Prioritizing ESG considerations and communicating goals with consumers can help deliver top-line growth by allowing brands to connect and expand their customer base.

Consumers are often more likely to recommend brands they’re happy with to others, and you can also build new revenue lines by focusing on developing new products with sustainability in mind. 

Operational expenses

According to McKinsey, ESG can positively impact a company’s operating profits by up to 60%. Focusing on things like renewable energy and reducing water wastage will help cut down expenditures in the long run while helping to build efficiency and resilience across internal operations.

Regulatory compliance

Depending on the industry, most businesses must adhere to ESG regulations and disclose their emissions to regulating bodies. Governments have started to tighten their ESG expectations, meaning more pressure will be placed on businesses in the future.

The emergence of Extended Producer Responsibility (EPR) policies in some countries is also placing greater pressure on businesses to take ownership of their environmental impact. 

Aligning with ESG regulations ahead of time helps businesses futureproof their operations. This will make them well-positioned to adapt to market shifts while maximizing emerging financial opportunities.

It can also unlock access to more funding and government support, helping them gain a competitive edge. 

Challenges of implementing an ESG strategy

There are many benefits, but we also need to consider the other side of the argument. Implementing ESG can sometimes come with risks and challenges that stand in the way of progress.

Getting it wrong

Adopting ESG policies may negatively impact profits if done for the wrong reasons. Implementing ESG policies with the sole intention of making more profit or to jump past regulatory hurdles, runs the risk of getting called out as greenwashing — the term that describes companies that deceptively make sustainability claims.

This can have a massive impact on a brand’s reputation, leading to customer boycotts and a slump in overall profits. Regulators are also increasingly implementing fines worth millions to organizations guilty of greenwashing, impacting investor confidence and long-term finances. 

Playing the long game

ESG requires training, implementation, and marketing investments. So, it’s also worth noting that adopting ESG strategies may negatively impact profits while you adjust to new processes. Implementing ESG strategies slowly can help weather the storm and prepare stakeholders, consumers, and employees for significant changes.

Anti-ESG challenges

The emergence of an “anti-ESG movement” in countries like the United States was designed to deter people from focusing on ESG topics.

Often made up of people with right-wing ties who feel threatened by change, these players ultimately try to delay the inevitable growth of the ESG market, often for their own gain. For example, Texas has tried to bring in a slew of anti-ESG legislation and attempted to blacklist BlackRock and other financial firms for allegedly “boycotting” the fossil fuel industry by speaking about the value of ESG.

Despite this, the growing awareness about the importance of ESG is getting louder, drowning out the responses of a few ESG critics. Reuters recently reported that steady investor demand in Europe shows the anti-ESG movement isn’t having much of a widespread impact. 

Which ESG initiatives drive high profits?

Businesses can adopt various ESG processes, from working toward a circular economy and measuring greenhouse gas emissions to appointing diversity, equality, and inclusion (DEI) coordinators and supporting an ethical supply chain. 

The impact of each policy will vary depending on the industry, and it’s also important to have a good ESG marketing strategy in place to share your efforts. Here are some tried and tested initiatives that appear to be clear profit drivers:

• Reducing carbon emissions: An NYU Stern School of Business report found 59 studies that confirmed that adopting a low-carbon strategy enhanced financial performance. For instance, by developing strategies that champion renewable energy, businesses can significantly reduce the costs associated with soaring energy prices. 
• Embracing a circular economy: Accenture reported that a circular economy would contribute $4.5 trillion of global economic growth once adopted. Businesses that embrace circular economy models, such as reducing waste and utilizing recycled materials, can lower product costs, build resilience into their practices, and appeal to conscious consumers willing to pay more for high-quality, sustainable products. 
• Advocate for a better world: A Harvard Business Review study found that companies with the most significant profit growth adopted an advocacy-based business model and took clear stances on socioeconomic and environmental topics. Impact-driven brands also have around 79% customer loyalty, on average, meaning those who commit to causes can see benefits to their profits. An obvious example is Patagonia, an outdoor clothing retailer seen as the ‘OG’ environmental advocate, committed to ethical supply chains. 

How to make your ESG plan profitable 

As mentioned, your ESG plan's success depends on many factors. Here are some tips on how to ensure its profitability. 

• Give it time: Brands that embrace ESG can’t expect to see the fruits of their labor overnight. Crafting an ESG strategy takes time, investment, and policy changes. To track and measure results, allow your ESG processes to play out so you can better monitor profit growth. 
• Focus on results: NYU found that businesses that focused on performance-based ESG measures fared better financially than companies that merely focused on disclosure (26%). Basically, you can’t just talk the talk; you have to show that your policies are working and document the positive results of your ESG strategies. 
• Cover all your bases: A 2023 Infosyss report found that an average of 90% of execs agree that adopting ESG initiatives is linked to positive returns. However, the same report found that those who neglect the ‘S’ and ‘G’ aspects of ESG can actually hurt profits. It’s therefore important to adopt a multi-pronged approach that covers all your bases when implementing an ESG policy. 

Summary

The proof is in the profits, which appear to be growing for many businesses that embrace ESG. Beyond sales, it also enhances the perception of your brand’s mission and values, allowing you to connect with customers that matter. 

The reality is that ESG is no longer a ‘nice to have’; it’s a crucial feature of any successful business strategy and a driver of profit and sales. 

Businesses that adopt a proactive approach and integrate it into their business framework will have a huge advantage — and there’s no better time to get started. 

Want to reduce your business’s plastic footprint? Take action now by integrating plastic recovery into your ESG plan. All you have to do is book a free call with our in-house team, who will find you the perfect bespoke plan.