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Harvard Business School study: Companies implementing sustainability policies outperform those who fail to do so

Robert G. Eccles, Ioannis Ioannou and George Serafeim carried out a study exploring the impact of corporate sustainability on a company’s organizational procedures and performance, using a sample of 180 US companies divided in two groups: 90 companies identified as ‘High Sustainability’ companies, implementing environmental and social policies and initiatives over a number of years, and 90 companies identified as ‘Low Sustainability’, implementing no such policies or initiatives.

‘High Sustainability’ companies outperform ‘Low Sustainability’ ones

  • According to the study, ‘High Sustainability’ firms ‘are able to attract better human capital, establish more reliable supply chains, avoid conflicts and costly controversies with nearby communities (i.e., maintain their license to operate), and engage in more product and process innovations in order to be competitive under the constraints that the integration of social and environmental issues places on the organization’.
  • Stock market performance: The study is quite clear on how ‘High Sustainability’ firms outperform ‘Low Sustainability’ ones: ‘Investing $1 in the beginning of 1993 in a value-weighted (equal-weighted) portfolio of High Sustainability firms would have grown to $22.6 ($14.3) by the end of 2010. In contrast, investing $1 in the beginning of 1993 in a value-weighted (equal-weighted) portfolio of control firms would have only grown to $15.4 ($11.7) by the end of 2010.’
  • High Sustainability firms generate significantly higher stock returns, suggesting that indeed the integration of such issues into a company’s business model and strategy may be a source of competitive advantage for a company in the long-run. A more engaged workforce, a more secure license to operate, a more loyal and satisfied customer base, better relationships with stakeholders, greater transparency, a more collaborative community, and a better ability to innovate may all be contributing factors to this potentially persistent superior performance in the long-term.’

 

References:

1) http://www.hbs.edu/faculty/Publication%20Files/SSRN-id1964011_6791edac-7daa-4603-a220-4a0c6c7a3f7a.pdf

2) http://www.fbrh.eu/en/csr-sustainability-facts-and-research

 

Note by the editor: This article was compiled using published information by the Harvard Business School which is located at the link below. For the sake of readability, we did not use brackets or ellipses but made sure that the extra or missing words did not change the article’s meaning. If you would like to quote these written sources from the original please revert to the original link: http://www.hbs.edu/faculty/Pages/item.aspx?num=47307

 

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