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