Good Growth

Slides

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Which of the following areas are of interest to you?

How do I create and embed a shared sense of purpose throughout my company? How do I link ESG and impact to financial performance? How do I implement ESG initiatives effectively? B Corp certification – how do I turn the extra costs into investments? Approaching an exit – how do I leverage ESG to maximise valuation?

Notes

BGF Annual ESG Day – 26 June 2024

How to Achieve Good Growth

by Linking ESG to Financial Performance

Introduction

The costs of implementing ESG initiatives are often the biggest barrier to progress
But these costs can be turned into investments that can create a measurable improvement to financial performance
By making a few changes to how you implement ESG initiatives, you’ll be able to realise the expected impact – whilst growing sales, improving margins, and increasing shareholder value as a result
This is the essence of Good Growth
However, it is hard to achieve: as shown through a show of hands exercise, we all recognise the importance of ESG, but many struggle to implement initiatives effectively and achieve measurable financial improvements as a result

The Purpose Paradox

The experience of the audience aligns with research, showing that only 3% of companies are able to successfully link ESG with financial performance
Despite the universal belief in the importance of impact and the huge financial upside for those that implement successfully (see stat’s in the deck) – most companies fail to achieve Good Growth

My Work – Towards Better

This is the focus of my work: I help companies join the top 3%
I have worked with global brands like Starbucks through to impactful tech scale-ups like Rem3dy Health
I have been a Corporate Finance consultant at firms like Deloitte, and also a CFO at high-growth companies – so I understand the day-to-day realities you face, and the constant need to make the numbers work

Three Steps to Achieve Good Growth

(for more on this, see this LinkedIn post)

1. Shift Mindset from Costs to Investments

Treat ESG initiatives as investments rather than costs.
Key is to understand the additional business benefits beyond the impact itself
Consider things like: brand value, customer loyalty, stakeholder goodwill, employee engagement
These are intangible factors and difficult to quantify – but not impossible

2. Translate Intangibles to KPIs and Financials

Understand how the intangible benefits affect performance and relate to KPIs you are already tracking
We explored the example of how higher employee engagement can influence performance of a Sales team – and how that can be translated to the P&L
Use these metrics to track progress and set targets

3. Create Alignment with Clear Plans and Targets

Understanding which metrics are important allows you to set targets
You can then create detailed action plans – what are the steps needed to reach those targets?
Assign clear responsibilities – who needs to be doing what, and when, to implement the plan and achieve the targets?
This creates clarity and alignment across departments – essential for achieving Good Growth

ESG, Exits, and Valuation

I also have experience as an M&A adviser, and shared some insights as to how you can create upside from ESG ahead of an exit.

Importance of ESG in Valuation:

ESG performance can be leveraged to maximise a company’s valuation in the lead-up to an exit
Not only can it increase EBITDA, but can have a significant impact on EV multiples
ESG performance is entirely within your control – unlike many factors that influence EV multiples

ESG Score vs EV Multiple

A Deloitte study analysed hundred of companies across multiple sectors and found a strong correlation between ESG score and EV multiples (as shown in the slides)
Deloitte’s statistical analysis stripped-out the influence of other factors, and was able to isolate just the effect of ESG scores: each 10 point improvement = 1.8x uplift in EV multiple
The example in the slides showed how a 30-point increase in ESG score could double a company’s valuation

Reasons for an ESG Premium

ESG scores are an effective indicator of a company’s resilience and likelihood of sustained success
High ESG performance depends upon balancing the needs of all stakeholders; keeping your stakeholders happy means they have a vested interest in your continued success
Companies with strong ESG records are seen as lower risk and better long-term investments
Trade buyers and private equity firms are increasingly prioritising ESG in their acquisition strategies, and will pay a premium for a target that has strong ESG performance
And even more so when a company has established clear links between ESG performance and financial performance

Timing and Preparation:

Implementing ESG effectively and achieving Good Growth is not easy. It may take 6 months to get right
You then want to see the results reflected in your financials for 6-12 months before launching an exit process
So for best results, you should begin 12-18 months before going to market

(I will be posting further material on ESG & Exits soon – keep an eye on my LinkedIn!)