Imagine that you are a sustainably-minded corporate business weathering the current economic crisis. You have some tough decisions to make. You can either cut costs by decreasing spending on renewable energy credits, recycled paper, and other sustainable aspects of your business, or you can layoff or limit the hours of many of your employees. If you are committed to sustainability, this is not an easy decision.
New analysis conducted by A.T. Kearney shows that many corporate companies committed to sustainability have not had to make those difficult decisions. Companies “staying the course” with sustainability are achieving above-average performance in the financial markets during the economic slowdown. Sustainability-focused companies are defined by either inclusion in the Dow Jones Sustainability Index or the Goldman Sachs SUSTAIN focus list.
In 16 out of 18 industries, the analysis says, “companies recognized as sustainability-focused outperformed their industry peers over both a three-month and six-month period.” The performance differential between sustainable companies and others was 10 percent in the three-month period and 15-percent in the six-month period. In terms of cash, the performance differential translates to $650 million in market capitalization per company.
The study outlines several key sustainability principles that are particularly helpful during an economic slowdown: focus on long-term health rather than short-term gains, strong corporate governance, sound risk management practices, and a history of investing in green innovations.
Long-term planning requires a five-year or longer outlook, according to the study, but accurate predictions can lead to sound and selective investments in “technologies, processes, and even people that may not bring an immediate return, but will position the business for sustained future success.
Strong governance is also an integral aspect of sustainable companies. An independent Board of Directors and high levels of transparency in all aspects of the corporation are key for success. Transparency is often manifested in an annual detailed corporate responsibility/sustainability report.
Risk management is part of daily life for all businesses and is closely linked with long-term predictions and planning. “Risk management,” the study says, “requires identifying areas of potential liability or weakness and crafting strategies to avoid disruptive events from occurring due to weak links in the supply chain, such as environmental changes due to geopolitical happenings.” Effective risk management policies often require a five to ten year outlook.
The study notes that many corporations, whether sustainable or not, have “invested” in green innovations, meaning they implemented initiatives that reduce resource use. Those companies who consistently invest in green innovations, however, are the biggest winners. They generally reap the biggest profits because they are pioneering innovative products that often dramatically alter their market for years to come.
