How can investment in EHS drive corporate success?

While the relationship between EHS Maturity and financial and operational performance varies widely among individual companies, EY research revealed various patterns when looking at correlation between geographic location, a company’s industry and their EHS maturity level.

Geographic variation

The pattern identified in the analysis suggests that while EHS practices hold importance across the globe, their potential impact on financial, social, and regulatory performance may be more prominent in more advanced economies. Companies in regions where the relationship between financial and EHS performance was the strongest tended to have the highest average level of EHS maturity.

Industry variation

Results are also found to vary by industry. In examining the relationship between the "E" of environmental, social, and governance (ESG) score and market capitalization within industry groupings, a notable trend emerges. Across the board, there is a consistent statistical finding that companies who increase their environmental score also tend to increase their market capitalization. However, the strength of this relationship varies among industries.

In higher EHS risk sectors, the potential financial consequences of poor EHS performance can be more pronounced. For instance, advanced manufacturing and mobility, where operations may involve significant environmental impact and workplace hazards, a lapse in EHS standards can lead to legal liabilities, accidents, and reputational damage. Consequently, investors and stakeholders may closely scrutinize EHS performance, making it a more influential factor in determining a company’s market capitalization. In contrast, lower EHS risk industries such as professional services may experience fewer immediate consequences for poor EHS performance, leading to a comparatively weaker or less obvious connection between EHS and financial outcomes.

Comparing average and high-EHS-performing companies

This statistical analysis confirmed the hypothesis that moving from average to high EHS performance can bring financial benefits like increased revenue and net income. It can also foster social advantages, with lower employee turnover rates, and a potential reduction in the risk of legal and reputational issues by minimizing the frequency of controversies.

Improvements were found across all three performance metrics:

These findings emphasize how EHS commitments can align with long-term financial and productivity growth, social responsibility and regulatory compliance, making them a strategic imperative for businesses aiming to excel across both financial and nonfinancial metrics.

The survey identified that high-EHS-ranking companies employ a specific set of the EHS practices to enhance maturity. These practices are more prevalent amongst top-EHS-performing companies than the rest of the surveyed firms. One common practice of leading companies is to link their businesses’ EHS performance to executive pay and use EHS metrics to reward excellence.

Many practices employed by high-ranking companies align with the seven principles of the EY EHS Maturity Model, providing empirical proof that high-ranking firms do adopt these practices in line with the model's levers.

1. Strategy and planning

High performing organizations create inclusive EHS strategies, considering viewpoints from all types of employees and their risks, including third parties and contractors. An EHS strategy should embrace continuous improvement, remaining flexible to accommodate emergent risks and issues.

2. People and engagement

High performing organizations consider the cultural dimensions of the EHS function and how they can effectively engage with people to build capability. This function is most effective when seen as a strategic enabler and value driver for the business and is empowered to act autonomously.

3. Governance and leadership

An effective EHS function needs attention, resources and support from the highest levels of leadership. Making EHS performance a very important factor in executive compensation is associated with an increase in the number of corporate practices and attributes associated with high performance.

4. Systems and structures

High performing organizations use EHS systems (such as management systems and digital tools) which are suited to the needs of end users and aligned with the EHS risk profile. Systems are adaptive and responsive. Organisational structures support engagement and knowledge flow.

5. Assurance and reporting

High performing organizations track, report and process information effectively. These organisations tracked far more EHS metrics and tended to tie them to the function’s excellence.

6. Risk and opportunity

High performing organizations had more crisis management dimensions and were particularly distinguished by their breadth of risk management assets.

7. Digital technology

Organizations have much to gain by acquiring dedicated EHS technology to increase the performance of EHS data collection, processing, and analysis.

Many EHS practices are choices leaders can make and do not necessarily require large-scale investments. The analysis identifies that the EHS function is an asset that is not used to its full potential  for achieving operational as well as financial excellence. The call to action is clear: EHS can be embraced as a strategic source of value to navigate an ever-evolving business landscape while contributing positively to society.