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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In an article based on the findings of a number of surveys and data collected (2), Robert G. Eccles and George Serafeim (Harvard Business School) argue that companies should actively integrate sustainability into their financial reporting and, more specifically, in their quarterly earnings.

The surveys are showing a sharply increased interest in sustainability by both company executives and investors and, at the same time, a lack of meaningful, effective communication between the two on companies’ sustainability strategies and practices.

Turn two stories into one or risk having your company being labeled as engaging in greenwashing

According to Eccles and Serafeim, corporate executives are, without a doubt, missing an opportunity to discuss, through earnings calls, their companies’ sustainability approach and initiatives with investors. Companies should, as Eccles and Serafeim aptly put it, “turn two stories into one” and talk about their most important environmen­tal, social and corporate governance (ESG) issues in quarterly earnings calls, not least because:

• Integrating sustainability into financial performance reporting and, above all, quarterly calls – demonstrating how the two, sustainability and business performance, are in fact interconnected – shows that a company not only has a sustainability strategy in place but, more importantly, implements a sustainable strategy: a strategy that “enables a company to create value for its sharehold­ers, while at the same time contributing to a sustainable society”.

• Quarterly earnings calls – which include Q&A – provide an invaluable, concrete opportunity for engagement, dialogue, sharing of information and receiving feedback from key investors on a company’s  sustainability and business performance. This is in contrast to the various reports produced by a company (such as an annual or sustainability report), where communication is one-way.

As Eccles and Serafeim conclude, “a sustainable strategy needs to be discussed in the usual quarterly calls”. If this does not happen, a company “should simply accept the fact that it has a sustainability strategy, not a sustainable strategy” and at worse that it is “greenwashing”.

References:

This article was compiled using an article by Robert G. Eccles and George Serafeim (Harvard Business School) in the Journal of Applied Corporate Finance. 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 link below:

(1) http://www.hbs.edu/faculty/Publication%20Files/JACF%20A%20Tale%20of%20Two%20Stories_f511f187-3656-4aa5-9a83-52988d5b5570.pdf

(2)  All the sources referred to by Robert G. Eccles and George Serafeim in their article can be seen at the link above. Two important sources are  a) Accenture and UN Global Compact, “A New Era of Sustainability CEO Study 2010,” June 2012.  b) MIT Sloan Management Review in collaboration with The Boston Consulting Group, “The Innovation Bottom Line,” Winter 2013.

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