Maximising Growth, Profitability, and Sustainability: A Breakdown of McKinsey’s Research
Maximising Growth, Profitability, and Sustainability: A Breakdown of McKinsey’s Research
Written by: Paula Antalffy 4-5 minute read
In an era characterised by economic volatility and heightened environmental and social consciousness, businesses face mounting pressure to achieve sustainable growth.
McKinsey's latest research delves into the intertwined dynamics of revenue growth, profitability, and environmental, social, and corporate governance (ESG) priorities. This in-depth analysis not only uncovers critical insights into how prioritising ESG can help with growth and profitability but also offers actionable strategies for companies to excel in today's multifaceted business landscape.
Navigating the Growth Conundrum
Since the global financial crisis in 2007/2008, sustained and profitable growth has remained elusive for many companies. Many executives believe that achieving profitability has to come with forgoing social responsibility to some extent. However, McKinsey’s research, examining the ESG rating of over 2,200 public companies tells a different story.
Contrary to conventional belief, companies that actively integrate ESG priorities into their growth strategies demonstrate superior financial performance. McKinsey’s analysis reveled that ‘triple outperformers’ companies excelling in growth, profitability, sustainability, and ESG scores, achieve 2 percentage points higher annual Total Shareholder Returns (TSR) compared to their peers solely focused on financial metrics.
McKinsey's research highlights the importance of deliberately choosing growth in all facets of business strategy. Continuing to emphasise the significance of this strategy, in a way that encompasses the correct mindset, strategy, and capabilities, remains crucial. When a company can achieve profitable growth while also leading in sustainability practices, it invariably receives recognition and rewards from the market for such growth.
Unveiling the Triple Outperformers:
McKinsey's study scrutinised TSR, financial performance, and ESG ratings of 2,269 public companies, categorising them into "triple outperformers" and underperformers. Remarkably, triple outperformers not only outpaced their peers in growth and profitability but also surpassed them in shareholder returns.
Key statistics from the study include:
Triple outperformers delivered 2 percentage points of annual TSR above companies solely outperforming on financial metrics.
Triple outperformers achieved median revenue growth of 11 percent per year, outpacing profitable growth outperformers that lagged on ESG by 1.4 percentage points.
Triple outperformers exceeded profitable growth outperformers in median excess TSR by 2.5 percentage points, underscoring the correlation between sustainable growth and shareholder value.
Integration of ESG into Core Strategy
McKinsey’s research highlights that successful companies adopt a holistic approach. This is done by integrating ESG considerations directly into their core strategies. Rather than treating sustainability as an afterthought, these companies embed ESG objectives alongside growth and profitability targets.
For instance, a metals and mining company strategically divested from coal-based businesses and redirected investments towards green technologies, aligning growth with environmental stewardship.
Incorporating ESG metrics into every aspect of a company's future planning is essential. This marks a pivotal transition for businesses, moving beyond superficial actions towards a strategic shift that prioritises their broader impact on the planet, their communities, and people.
In addition to the tangible financial gains demonstrated by McKinsey's research, this strategic shift has proven to enhance employee productivity and retention. Furthermore, as the younger workforce, particularly Gen Z and Millennials, prioritise working for companies that align with their moral values, businesses can position themselves to attract a talented and motivated workforce by embracing such strategies.
Innovative ESG Offerings and Strategic M&A
Triple outperformers demonstrate a knack for innovation in ESG offerings, capitalising on emerging trends to drive value creation. McKinsey highlights the example of a transportation and logistics provider that leveraged the growing emphasis on carbon reduction by offering sustainable fuel and carbon reporting solutions, thereby boosting financial performance.
Another key area in which McKinsey highlights how business can quickly shift to a more ESG focused business model, is through the use of strategic mergers and acquisitions (M&A). This is a great way that businesses can capture profitable ESG growth opportunities with ease.
By incorporating a third-party business into their existing offerings, companies can leverage a distinct opportunity to infuse the sustainable practices of the new business into their own offerings. Through the adoption of an established framework, businesses can enhance the sustainability of their offerings without the need to develop a completely new model from scratch.
Transparent Reporting and Organisational Alignment
Effective communication and transparent reporting of ESG initiatives are paramount for gaining investor confidence and support. What’s more, as customers and employees become increasingly motivated by the positive impact businesses have on wider society - businesses need to begin focusing on how they can openly communicate their ESG initiatives and build trust.
Companies that align strategic priorities with organisational DNA foster a culture of sustainability and governance. Through clear responsibilities, performance metrics, and resource allocation, these companies can embed sustainable growth principles into their corporate fabric, driving long-term value creation.
An effective approach to integrating ESG metrics into a business is to establish key metrics across various areas. Whether it involves tracking carbon emissions, implementing regular assessments for worker health and safety, or monitoring management diversity statistics, companies can take proactive steps to hold themselves accountable. By publicly disclosing these statistics, businesses can initiate the process of fostering long-term, trusting relationships with both their team members and customers.
ESG Made Simple
Leaders looking to truly commit to ESG within their organisation, whether the motivation is to achieve greater growth or to build trust with your existing customer base, can feel intimidated by this immense task to begin with. Creating in-house structures, behind the scenes KPIs and ways to share the results of your efforts with your customers is a multifaceted process, which can take months of strategic meetings and development.
However, it doesn’t have to be. At myday, we are already working with some of the world’s best businesses to help empower leaders in acknowledging that their commitment to ESG must transcend mere slogans on office walls or websites.
Here are several key features driving the shift towards a more effective approach to ESG:
Insightful Pulse Surveys and Wellness Questionnaires: To ensure that ESG efforts aren’t going unnoticed, leaders can create customised surveys to assess key employee satisfaction metrics among their teams. Additionally, individuals have the option to share personal wellness data, such as sleep patterns, daily activity levels, and screen time, empowering them to gain insights into their habits and well-being.
Centralised Information Sharing and Benefits Access: myday serves as a single platform for sharing essential information to teams, including policy updates, health and safety regulations, available courses, and more. Additionally, the platform streamlines access to company benefits and support services, all conveniently located within a single tab in the application.
Easy KPI Monitoring: created to provide leaders with more insights into their employees' well-being, environmental footprint, and leadership framework, the app enables management to establish KPIs aligned with ESG metrics. These KPIs can be monitored regularly by management or shared with the board for enhanced transparency and accountability.
Rewarded Employee Engagement: myday makes it easier for each member of the team to help reach environmental goals. Through gamified daily activities, employees are motivated to complete small tasks each day that prioritise both planetary and personal well-being. By participating in wellness activities, engaging in peer support groups, sending kudos, and taking part in step challenges, users earn Planet Points with tangible monetary value. This translates to real-life donations towards meaningful causes.
Fostering Community: The myday app's community section is dedicated to uniting like-minded individuals with similar experiences. Intra- and inter-company groups create safe environments where individuals can connect over shared life experiences, whether it's parenting, caregiving, fitness, LGBTQ+ advocacy, or sharing advice on women's health. This feature enables users to celebrate each other by sending kudos and facilitates connections with experts, as well as ensure that the voices of often underrepresented communities are heard.
Comprehensive Content Library: myday boasts an extensive library comprising hundreds of resources categorised into four key areas: Feel, Eat, Connect, and Move. Users can also curate their own libraries and save resources relevant to their individual needs, fostering a personalised approach to well-being.
Conclusion:
McKinsey's research underscores the ever-connected relationship between growth, profitability, and sustainability. By actively integrating ESG priorities into growth strategies, companies can navigate today's challenging business landscape and unlock better financial performance. What’s more, by prioritising their workforce and fostering transparent relationships with clients, businesses can secure a sustainable future, attracting top talent and cultivating a loyal base of satisfied customers.
Today, leaders must embrace a long-term perspective around ESG and invest in sustainable and inclusive growth to deliver value to shareholders, clients, their team, and society at large.
Want to learn more about myday and how we can help elevate your wellness strategy to the next level? Book a call with our team today!
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