Why ESG is good business

The Victorian Chamber of Commerce and Industry was proud to host international keynote speaker and ESG expert, Bea Boccalandro, at a special event that helped explain why ESG is good business. The following information is from Ms Boccalandro’s presentation. 

Prosocial Acts

ESG is driven by ‘prosocial’ behaviour, described as an act of contribution to someone else or to a cause.

“When we talk about ESG, we think it’s this construct that happens in boardrooms. It is to some extent, but it is fuelled by something much more primal, visceral and semiautomatic,” Ms Boccalandro says.

“Psychologists have collected ample data on prosocial acts. They know this from functional MRIs that we get rewarded with [hormones] oxytocin, dopamine, serotonin.

“There’s a study done in Harvard with undergraduates. When they do a prosocial act, they notice their T-cell response was stronger. So literally their immune system response was stronger.”

This can all stem from just five minutes of a prosocial act or a $5 contribution towards one.

“The prosocial acts are a little bit binary. The power in them is reorienting towards contribution. How much [contribution] is less important but they show that the happiness persists for days.”

Business impact

Ms Boccalandro says the main business benefits of ESG start with employee productivity, retention and recruitment.

“A prosocial act elevates work up to something more meaningful.

“When we feel our jobs matter, we perform better and we don’t even know we’re performing better. It feels effortless.

“Research on workers that did something prosocial [showed] an increase in their productivity by 171 per cent. They didn’t even feel it. But the effect is there.”

Data on the impact of ESG on sales is also conclusive, Ms Boccalandro says.

“A long-term study published in Harvard Business Review shows the companies that grew the most based on sales were strong in ESG. It surprised the researchers.”

The strength of the impact relies on ‘materiality’, or something that directly impacts on the business, like a recreational business contributing to environmental causes or a publishing company focusing on literacy initiatives.

“Materiality means that you’re focusing on something that your stakeholders care about and, more importantly, directly affects the success of the business,” Ms Boccalandro says.

“If you have this something, you on average are going to perform 6 per cent better than the market if you don’t do any ESG at all. If you obviously don’t even have ESG, you’re going to perform about 3 per cent worse than the market.

“So, there is a 9 per cent percentage point difference in returns if you have a material ESG versus no ESG.

“But even poorly done ESG is better than nothing. So let’s say that you do immaterial ESG. You’re still going to do better than the market – a little bit, not a full percentage point, but certainly a lot better, 3.5 per cent on average, than a company that does not do ESG.”

Evolution of ESG

Ms Boccalandro admits ESG is heavily criticised – a lot of which is “well-deserved”.

For example, ESG is susceptible to issues such as greenwashing. But the justified critique will help drive improvement, according to Ms Boccalandro.

“It’s really because ESG is young and we haven’t kind of standardised things and held people accountable to what they’re saying.

“It can and it will get better. And frankly, the critique is great because it’s making ESG evolve faster.

“We know, for example, that 10 years ago 25 per cent of consumers looked at a product’s environmental footprint before buying it, and now it’s 50 per cent.

“So this is not going to go away. It might change names, it will change form, it will get better. But ESG is here to stay.”

Ms Boccalandro has compiled a list of resources for businesses wanting to learn more about ESG.

Are you Victorian Chamber member? Watch the full keynote here.