The perceived importance of corporate environmental, social, and governance programs has soared in recent years, as executives, investors, and regulators have grown increasingly aware that such programs can mitigate corporate crises and build reputations. But no consensus has emerged to define whether and how such programs create shareholder value, how to measure that value, or how to benchmark financial performance from company to company.
This McKinsey survey1 asked CFOs, investment professionals, institutional investors, and corporate social responsibility professionals2 from around the world to identify whether and how environmental, social, and governance programs create value and how much value they create. The survey also examines which metrics are the best indicators of value and how they can be communicated most effectively.
The results indicate agreement that environmental, social, and governance programs do create shareholder value, though the current economic turmoil has increased the importance of governance programs and decreased that of environmental and social programs. Nonetheless, a significant proportion of respondents don’t fully consider these programs’ financial value when assessing the attractiveness of business projects or companies. Some think the value is too long-term or indirect to measure, and others just aren’t satisfied with the metrics available.
Moreover, there are notable differences between CFOs and professional investors in a few areas, including how much value these programs create, which specific environmental, social, and governance activities create value, and whether such programs are a proxy for good management.
Solid majorities of all respondents expect environmental, social, and governance programs to create more value in the next five years. That potential highlights the importance of developing better metrics and solving the understanding gap between CFOs and investors.
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