ESG Adoption Can Be Sales Driver for Some Companies

In a perfect world, companies would adopt ESG in the essence of doing the right thing and proving altruism. However, that’s not always the case. There are financial reasons for corporate-level embrace of ESG and those include the potential reward of higher top-line growth.

That implies there could be positive implications for shares of firms residing in exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG). Among ESG ETFs, QQMG has made a name for itself because it tracks a derivative of the Nasdaq-100 Index (NDX). Meaning, the fund is home to an array of storied large- and mega-cap growth stocks.

Many of those companies already have established ESG track records. Additionally, that signals they’ve been rewarded by customers and will continue to be going forward.

ESG Can Boost Revenues, According to Wharton Study

New research, co-authored by Jean-Marie Meier, a visiting professor of finance at the Wharton School, confirms that there are relationships between sales growth and a company’s ESG efforts. Specifically, consumers tend to focus on corporate environmental and social moves when making purchasing decisions and less on governance issues.

Meier’s study indicates there are positive ties between a firm’s environmental and social efforts and localized sales. Additionally, negative E&S events can prompt consumers to take their business elsewhere, potentially triggering declining sales for the offending company.

“Drawing on data from Nielsen Retail Scanner spanning 2008 to 2016, the study found a strong positive relation between a company’s Environmental and Social (E&S) rating and the sales performance of its products in local markets. For every one-standard-deviation increase in a company’s E&S rating, there was a 9.2% surge in sales for the average product sold within the same U.S. county the following year,” wrote Seb Murray for Knowledge at Wharton.

An interesting point regarding consumers’ focus on environmental and social issues – and one that’s relevant to multiple QQMG member firms – is that consumers who prioritize those issues tend to be more affluent, according to Meier’s study. A potential takeaway from that is companies that are sound environmental and social stewards stand to earn new and repeat business from well-heeled customers, potentially driving sales higher over the long term.

“Ultimately, the study underscores a consumer shift towards aligning values with purchasing decisions. As shoppers increasingly vote with their wallets, Meier concluded that companies stand to benefit from prioritizing ESG initiatives,” concluded Murray.

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