ESG as a value driver: Why sustainable businesses are better businesses

By Emma Flin, Investment Director, and Julie Sieger, Sustainability Director

We know that sustainable business models lead to better companies and, in turn, better performance. How? We have been investing in sectors which provide a fundamental social good for over 20 years. The principles of ESG have always been integral to Sovereign and our approach to responsible investing.

A well-executed ESG strategy has the potential to create significant value for businesses large and small, a fact that has been extensively researched in recent years. Companies that successfully integrate ESG into their overall business strategy typically perform better, gain a competitive advantage and ultimately become more attractive to investors such as ourselves. Indeed, the impact of ESG on financial performance is integral to our thinking. We have frequently found that companies with a robust ESG programme:

• have a stronger focus on driving efficiencies – e.g. through sustainable procurement – which can lead to cost savings and increased revenue
• have a better reputation with customers, employees - e.g. lower attrition rates – and other stakeholders, leading to more resilient performance, and
• are more aware of, and therefore better able to proactively mitigate, business risks, such as through a robust approach to cybersecurity.

Whilst some companies have an ESG roadmap at the time of our investment, they often lack internal resources which are required to proactively focus on ESG on an ongoing basis. With the scope of ESG being so vast – from carbon foot printing and health and safety to charitable giving and diversity and inclusion – having the right plan in place is key. This has certainly been our experience and is why we created and fund the Sovereign Sustainability Network for our management teams to help them develop and execute ESG strategies. The financial benefits that follow from this approach mean this investment is quickly self-funding.

Ultimately we believe that ESG drives value in a much broader context. Alongside performance, risk mitigation and reputational issues, it is simply the right thing to do. From the largest multinational corporation to the ordinary citizen, each of us has a responsibility to help create a sustainable and equitable future for all of society.

For more information about the work Sovereign is doing to support the ESG efforts of our portfolio companies, please contact Emma Flin.