It is becoming increasingly essential for companies to understand and address the effects that externalities can have on their social license.1 The latest McKinsey Global Survey on environmental, social, and governance (ESG) issues asked more than 1,100 respondents in more than 90 countries how their organizations are rising to this challenge.2 More than nine in ten respondents say that ESG subjects are on their organization’s agenda. While environmental topics are recently the ones making headlines, just one-third of respondents rank environmental issues as their organization’s greatest ESG priority.
Survey respondents report that their organizations are not just paying lip service to ESG: many say their organizations are making meaningful ESG changes that have demonstrable benefits. More than two-thirds of respondents say their organizations have achieved broad impact from their ESG efforts in the past three years, and 43 percent report that their organizations have captured financial value from their ESG investments over that span—suggesting that the full effects of ESG are multivariable and may take time to fully capture. For example, one-third of respondents say their organizations’ work with ESG topics has a strong positive effect on their own commitment to the organization and, in turn, to overall employee retention, consistent with the notion that ESG can underpin both value and values.3
Survey respondents who report that their organizations have both created financial value and increased broader impact from ESG—the two conditions for what we call “ESG momentum”4—point to seven organizational traits.
First, their organizations approach ESG from a growth perspective. The organization’s priorities, respondents report, exceed merely conforming to industry standards or regulatory requirements and aim toward unlocking new opportunities.
Second, they report that their organizations strive to connect with external stakeholders and to be accountable to them.
Third, they identify specific stakeholder priorities for which their organizations are uniquely placed to excel; respondents say, further, that their organizations strive to make these priorities a core part of their business strategy.
Fourth, respondents say their organizations empower a specific executive in the C-suite to work with the CEO in defining and achieving ESG ambitions.
Fifth, their organizations build a central ESG team—which is not the same as building a large team. Respondents also say their organizations bring together talent from across the organization to help meet ESG goals.
Sixth, their organizations make considered efforts to embed purpose into multiple aspects of their business.
Seventh, their organizations tie ESG metrics to compensation, using KPIs to gauge progress on ESG objectives.
All told, survey respondents who identify their organizations as leading in ESG see their efforts as a means of both protecting and creating value.5
In the survey, 93 percent of respondents say at least one ESG dimension—an environmental, social, or governance topic—is on their organization’s agenda. While survey responses suggest that organizations broadly seem to recognize the importance of ESG overall, approaches and areas of focus vary by sector, industry, and region, consistent with differences in materiality.
Seven traits that respondents say organizations leading on ESG dimensions have in common
Our findings reveal seven traits of organizations that, respondents report, have developed clear ESG momentum. We compare responses from survey participants who say they work for leading, top-decile organizations against those who say they work for the lowest-decile organizations, as scored by self-reported ESG progress.6
Not all organizations identified by respondents as ESG leaders have all seven of these components in place. But survey responses suggest how consistently these traits are celebrated by those reporting more momentum and value realization and how critical it is for organizations to go beyond mere declarations of intent. Embedding ESG in an organization manifests in well-considered, focused ESG initiatives that are core to the business model. While embedding ESG is complex, the value that ESG efforts can protect—and create—can be compelling.7