A new report has just been published which makes a compelling business case for sustainability.
It’s based on analysis of 190 papers and significant sources and is written by Gordon Clark of the University of Oxford, Andreas Feiner of Arabesque Asset Management Ltd, and Michael Viehs of the University of Oxford.
According to the email Bob sent me, the report “examines the relationship between sustainability and corporate operational performance, sustainability and the cost of capital (both equity and debt), and sustainability and stock prices. In all three cases, the paper summarizes findings from the literature in terms of the usual three dimensions of sustainability: environmental, social, and governance.”
In brief, the report writers conclude that:
• Companies with strong sustainability scores show better operational performance and are less risky
• Investment strategies that incorporate ESG issues outperform comparable non-ESG strategies
• Active ownership creates value for companies and investors.
Now, one might argue that academics and research folk who get paid to promote sustainability (as I do) are bound to make the business case for what they do. That’s true, but our world is full of minor conflicts of interest. Ultimately academics and research outfits will live or die by the quality of their work over time.
This report is no panacea for persuading the deeply sceptical CEO, who will make the point above, no doubt. Sometimes only generational change will deliver paradigm shifts. But the report is well written, easy to read and even for a non-finance industry layperson like myself, makes memorable points.
We’ve moving on from Orlitzky et al (2003)
, a huge meta study that showed: “that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off”.
Now studies, such as this new one, are becoming more confident, and more evidence based as researchers have more time (in that year on year data is available) to back up their assertions.
Here’s the eight quick takeaways from the new report mentioned above:
1. Sustainability is one of the most significant trends in financial markets for decades.
2. This report represents the most comprehensive knowledge base on sustainability to date. It is based on more than 190 academic studies, industry reports, newspaper articles, and books.
3. 90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies.
4. 88% of the research shows that solid ESG practices result in better operational performance of firms.
5. 80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices.
6. Based on the economic impact, it is in the best interest of investors and corporate managers to incorporate sustainability considerations into their decision making processes.
7. Active ownership allows investors to influence corporate behavior and benefit from improvements in sustainable business practices.
8. The future of sustainable investing is likely to be active ownership by multiple stakeholder groups including investors and consumers.
Three focused, detailed and practical sustainable business events for your diary
Upcoming Innovation Forum events in 2014:
Collaborate effectively with suppliers and NGOs, understand policy and enforcement trends
28th-29th October, 2014, London. More details here
With: Unilever, Lord Mandelson, Greenpeace, Nestle, Wilmar, TFT, ADM, Mondelez, M&S and many others
An exclusive two-day executive training workshop, certified by the CSR Training Institute
30-31 October, 2014, London. More details here
With direct experience from: Arcelor Mittal, BP, Anglo American, Rexam, Golden Star, BHP Billiton, Shell, and many others
How to get beyond policy, manage risk and build relationships
10 November, 2014, London. More details here
With: John Lewis, ABB, Ericsson, Novartis, PUMA, the Economist, De Beers, Anglo American, Bechtel, Amnesty, Oxfam and many others.