Additional Reading: BCG's "New Lens for Strategy"

Last quarter, I attended the Boston Consulting Group’s “Day’s on the Job” event -- an afternoon where Anderson students could visit the firm’s Downtown LA office for a taste of a day in the life of a management consultant. Instead of briefcases and business suits, however, I was surprised to find consultants wearing ripped blue jeans, faded old t-shirts, and packing brown bag lunches.

Intrigued, I asked a staff member why everyone was dressed down. As it turned out, after the day’s DOJ programming, they were heading to a local park to plant trees as part of an environmentally-minded community event. I recall wondering how exactly BCG envisioned the role of social responsibility among their overall strategic goals. With the publication of ‘Total Societal Impact: A New Lens for Strategy’, I soon had my answer.

The main premise of BCG’s new research publication is that all else being equal, investors tend to reward top performers in ESG metrics with valuation multiples that are between 3% and 19% higher than average performers. As a result, BCG recommends that to maximize long-term profitability, firms should increasingly integrate environmentally responsible activities into their strategic missions.

Although ‘Total Societal Impact’ echoes many of the points we’ve already discussed in class pertaining to the correlation between ESG metrics and investment decisions, there were a few items that struck me:

1. BCG’s recommendations are based purely on pressure from stakeholders and the opportunistic goal of maximizing shareholder value, rather than the intrinsic motivation to be more environmentally friendly. As such, many of their recommended strategies have the potential to manifest as “greenwashing.” For example:

“Companies are under mounting pressure from a range of stakeholders to play a more active role in addressing social and environmental issues... Employees -- millennials, in particular -- not only want their employers to have a greater sense of purpose but also seek an active role in companies’ societal impact efforts.”
Also: “A strategy that considers societal impact can give a company access to new locations and markets, and to underserved customer segments in existing markets… Although these new markets may not be immediate money makers, entering them is often a preemptive or strategic move that leads to long-term, profitable growth opportunities.”

2. The publication mentions that SRI assets have hit $23 trillion, or 1/4th of all investments -- which is up from $18T only two years prior. This is due in part because of strides made towards the reliability of ESG data like we have discussed in class, and also because asset managers have increasingly recognized the correlation between these metrics and company valuation, thereby devoting an increasing portion of their portfolios towards them.

Overall, it will be interesting to see how strategies such as these manifest in the coming years, especially when recommended by firms like BCG that are trusted more in the context of driving profitability than they are for maximizing environmental benefit.
- Will these initiatives lead to a long-term decrease in harmful emissions, or an increase in greenwashing?
- As more firms jump on the environmentally-friendly bandwagon, will shareholders reward authenticity or marketing spend?
- As social responsibility becomes more commonplace and the accompanied “bump” in valuation recedes, will firms sustain their efforts or chase another profit-driven strategy?

Only time will tell...

Posted by Shahed Serajuddin