Learn how measuring ESG performance helped a company in the food industry prevent child labor while increasing its gross margin.
We spoke to Jérémie Joos, Co-head of the ESG Center of Excellence of KPMG France, about the importance of integrating ESG considerations into business decisions to generate positive, long-term impact.
The below interview has been edited for length and clarity.
1) How can sustainability contribute to business performance?
Companies should view ESG reporting as more than just a risk and cost consideration. When our clients transform it into an opportunity, ESG and business become intertwined, leading to a positive impact. Of course, this means adopting a rigorous and science-based methodology, which also helps prevent greenwashing.
Allow me to share the example of one of our clients operating in the food industry.
About a year ago, they made the decision to increase the salary of their suppliers to prevent child labor. Initially, the board was opposed to this move, stating that it would deplete the company's working capital. From a financial perspective, this concern was valid, as it represented a substantial cost for the company.
After a year, we assessed the financial results and looked at the actual cost of this initiative. Our calculations revealed that it increased their gross margin, on top of preventing child labor. A skilled workforce also resulted in suppliers delivering high-quality raw materials on time. For food companies, the quality and timely delivery of raw materials are critical for optimal performance. Otherwise, they resort to the more expensive spot market. Therefore, this initiative against child labor had a positive impact on the company's free cash flow.
This example illustrates how ESG factors can directly influence the gross margin and overall company performance, including profit and loss, assets, and reputation. The integration of ESG and business does generate positive value and impact.
2) How would you define a “Forever Company”?
I like the idea of a Forever Company for two reasons. First, I believe that companies that do not align with ESG principles will cease to exist within the next 15 years. Second, business executives and governing boards have to adopt a long-term mindset.
ESG considerations should be integrated into all strategic and financial processes, becoming a shared decision-making criterion. Together, they create value for a company. This is what defines a Forever Company.
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