Insight

Values-based growth: Tools to measure the impact of ESG strategies

Cost benefit analysis (CBA) and economic impact analysis (EIA) can help companies measure and guide their ESG investments.

Erkan Erdem

Erkan Erdem

Principal, Economic & Valuation Services, KPMG US

+1 703-286-8188

Federico E. Garcia

Federico E. Garcia

Managing Director, Tax, Economic & Valuation Services, KPMG US

+1 703-286-8766

More and more companies are reporting their ESG activities—including 98 percent of the largest 100 U.S. firms, according to the KPMG Survey of Sustainability Reporting 2020.1 Effective ESG strategies not only can help solve societal problems, but also can help businesses drive value creation, such as by accelerating technological innovation.2 However, management often faces a steep challenge in determining which ESG projects and initiatives produce financial value for the firm as well as broader economic and social values.

To help companies assess the financial value of their ESG-related projects as well as the sustainability values (e.g., carbon reduction), companies can apply two techniques from the economist’s toolbox: cost-benefit analysis (CBA) and economic impact analysis (EIA). These techniques are widely used by regulators, but underused in business ESG strategies.

Together, these techniques help ESG program leaders and CFOs connect the dots between an ESG decision and social and financial benefits to guide planning, get stakeholder buy-in, and verify outcomes. In this paper, we describe how CBA and EIA are being used effectively by companies today to measure and guide their ESG investments.

Download the PDF to explore:

  • a 5-step framework for weighing complex trade-offs for ESG initiatives
  • multipliers, indirect impacts and induced impacts in accounting for the full economic contributions of ESG strategies 
  • the ESG calculus of transitioning to electric vehicle (EV) fleets
  • the importance of setting targets, determining accountability, comparing alternatives, communicating and refining ESG strategies.

 

1 Source: KPMG Survey of Sustainability Reporting 2020

2 Source: Gunnar Friede, Timo Busch, & Alexander Bassen, “ESG and financial performance: aggregated evidence from more than 2000 empirical studies,” Journal of Sustainable Finance and Investment, 2015