Corporate energy efficiency initiatives can cut operating costs but they can also make your middle market company more attractive to potential buyers and investors.
“There’s tremendous opportunity in sustainability,” State Street Global Advisors’ Chris McKnett said in a TED Talk late last year. “About 80 percent of global CEOs see sustainability as the route to growth and innovation and leading to competitive advantage in their industries, and 93 percent see ESG as important to the future of their business.”
So what’s ESG? It’s an acronym representing three specific factors – environment, social, and governance – that some investors are beginning to incorporate into their analysis of potential investment opportunities. In his presentation, McKnett presented evidence from Goldman Sachs that companies with strong ESG initiatives provide long-term performance advantages to those that don’t: “Companies that are considered leaders in ESG policies are also leading the pack in stock performance by an average of 25%.”
Now, not every investor has adopted these criteria into his or her portfolio analysis, but data proves ESG implementation is growing. According to the Forum for Sustainable and Responsible Investment, this type of investing had a growth rate of more than 22 percent from 2010 to 2012, and more than one out of every nine dollars with professional management in the U.S. is involved in sustainable and responsible investing.
Why Sustainability Matters To Private Business Owners Today
What does this trend have to do with private business owners in the middle market? Well, implementing sustainable strategies has many upsides, ranging from minimizing environmental liabilities to reducing turnover and absenteeism.
Because of these positive impacts, your business will also likely be more attractive to potential buyers and investors if you want to sell or grow your company one day with an infusion of capital.
If you’ve talked with a mergers and acquisitions advisor, you likely heard something along the lines of this: Buyers are acquiring your company for its future potential. Your corporate history is important, but investors will get their return in the future.
Your company’s buyers or investors are thinking about how they’re going to maximize the return on their investment. And if market players are more interested in companies with solid ESG profiles, then you’ve got a leg up on the other private businesses the buyer is evaluating if you’ve already incorporate ESG practices, which means you may be able to command an even higher price than you expected for your company.
Building Your Company’s Sustainability Programs
Where should you start building your company’s new sustainability efforts? Evaluate the following and identify areas for improvement.
- Environment
- Energy consumption
- Pollution/waste and recycling
- Carbon footprint
- Social
- Employee engagement
- Health and safety
- Supply chain management
- Labor and human rights
- Community relations
- Philanthropy
- Governance
- Accountability
- Public reporting and disclosure
The more ESG concepts you can incorporate into your management practices, the more valuable you will be to investors or buyers who factor ESG into their ROI (return on investment) calculations. If you look closely at this list, most of these simply make sense for any company to implement in today’s ESG-focused world.
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