Amid Heightened ESG Scrutiny, Showing Sustainability ROI is Critical--But Some US Companies Are Struggling

NEW YORK, Dec. 5, 2024 /PRNewswire/ -- Corporate America is under growing scrutiny over its sustainability initiatives, facing more shareholder proposals from anti-ESG groups, state-level anti-ESG legislation, and rising pressure from stakeholders concerned about corporate environmental impact. The pressure shows no signs of abating going into 2025.

This landscape reinforces the importance of companies being able to prove the financial value of their sustainability initiatives. Yet many executives have doubts about their firm's ability to do so: Indeed, a new survey of roundtable participants by The Conference Board reveals that about 40% of executives say their company's assessment of sustainability investments is either underperforming or uncertain.

The study, produced with Weil, Gotshal & Manges LLP, also explores why executives want to measure and communicate their company's sustainability ROI—with a top reason being the ability to address ESG backlash.

Additional findings include:

1—Measuring the ROI of Sustainability

Executives are far more skeptical about their company's ability to measure the return on sustainability investments vs. traditional investments.

Q: How confident are you in your ability to measure the ROI of traditional and sustainability investments?

• Sustainability investments: 41% of executives say their company's measurement of the return on sustainability investments is either underperforming or uncertain.
• Traditional investments: 17% express similar concerns about measuring traditional financial ROI.

"Companies have robust systems for evaluating the financial returns of investments. However, a similar level of maturity is not always present for sustainability investments. Closing this gap is essential for long-term value creation, and doing so requires stronger collaboration between finance and sustainability teams—starting with aligning the ROI of sustainability with the CFO's traditional financial metrics," said Anuj Saush, coauthor of the report and Leader of The Conference Board EU ESG Center.

Half of executives believe measuring sustainability's ROI can mitigate ESG backlash—which will likely stay in the national spotlight for US companies in 2025. 

Q: Why are you interested in the ROI of sustainability?

• Helps address backlash: 49% say they are interested in measuring the ROI of sustainability because it helps address ESG backlash.
• Strengthens their sustainability story: 76%
• Helps integrate sustainability into the business: 69%

When presenting sustainability initiatives and investments for approval, executives say the most important consideration is its ability to improve operational performance.

Q: What key factors are most important when presenting sustainability initiatives and investments for approval?

• Improved operational performance: 72% say that improving operational performance is a key factor when presenting sustainability initiatives and investment for approval.
• Increased market share: 50%
• Business continuity and resilience: 44%

"When measuring sustainability ROI, companies often focus on tangible benefits—such as operational performance and market share growth—while giving less attention to intangible advantages like employee recruitment, retention, and engagement. To fully capture the impact of their sustainability efforts, organizations should evaluate the full spectrum of benefits," said Nathalie Risse, coauthor of the report and former Sustainability Researcher at The Conference Board.

2—Communicating the ROI of Sustainability

Just 30% of surveyed executives say their company is effectively communicating the results and ROI of its sustainability initiatives.

Q: How effectively does your company communicate its sustainability performance and ROI to stakeholders?

• Very or somewhat effective: 30% of executives say their company communicates its sustainability results and ROI in a very or somewhat effective manner.
• Ineffectively: 22%
• Unsure: 48%

Executives say the top reason—by far—for communicating sustainability ROI is to ensure internal alignment and financial support.

Q: What are the most important reasons for communicating the ROI of sustainability initiatives?

• Securing internal alignment and financial support: 82% say that securing internal alignment and financial support are important reasons for communicating the ROI of sustainability.
• Building stakeholder trust: 43%
• Meeting investor expectations: 39%

"Companies that communicate effectively will unlock financial value and gain stronger internal support. To make progress, they should consider tailoring sustainability communications to their different audiences, ensuring accurate reporting, and aligning messaging with evolving business goals, stakeholder priorities, and regulations," said Rebecca Grapsas, Partner and co-leader of the ESG & Sustainability practice at Weil, Gotshal & Manges LLP.

Note: Insights come from a series of Chatham House Rules meetings on the ROI of sustainability. Findings are based on polls of ESG executives that attended such meetings, with up to 45 respondents.  

About The Conference Board

The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org

About Weil, Gotshal & Manges LLP

Founded in 1931, Weil, Gotshal & Manges LLP has provided legal services to the largest public companies, private equity firms and financial institutions for more than 90 years. Widely recognized by those covering the legal profession, Weil's lawyers regularly advise clients globally on their most complex litigation, corporate, restructuring, and tax, executive compensation and benefits matters. With approximately 1,200 lawyers in offices on three continents, Weil has been a pioneer in establishing a geographic footprint that has allowed the Firm to partner with clients wherever they do business. www.weil.com

SOURCE The Conference Board