Corporate SOS: Business Value of Sustainability

In 2012, there was a sea change in the evidence for sustainability’s business value, especially when it comes to the market value of the company.

Key Sea Change Takeaway: Sustainable companies perform better than other companies over the long-term. This is true whether you measure stock market or traditional P&L performance.

Clearly, the business case for a particular sustainability project depends very much on the project and the company. In particular, it’s easier to quantify the business value for many efficiency or waste reduction projects.

Yet other projects, with a lot of intangibles, are much harder to quantify:
• How do you quantify the benefits from reduced employee turnover or greater employee engagement due to a sustainable business?
• How do you capture the value of increased market reputation from being a sustainable business?

Eventually, all these intangibles work their way into market value, which is one of the most important corporate performance measures. At this highest level, the case for corporate sustainability is beginning to come together rapidly.

Take carbon disclosure for example. Many CEOs fear that corporate reputation will take a hit if they disclosed carbon emissions. But there was clear evidence this year that making voluntary disclosures actually increased shareholder returns!

Some of the best work this year was by Prof. Bob Eccles and his colleagues at the Harvard Business School (HBS). They studied a matched sample of 180 companies with high and low levels of sustainability maturity and concluded that sustainable companies outperform others over the long-term in market value and accounting performance.

Sustainability champion action items:
• Argue for more disclosure, because the changes it triggers signal good management practices to the market.
• Focus attention on market value, where reputation and other intangibles from sustainability cascade up. Use the HBS research as evidence.

The next time someone sounds skeptical on the business value of sustainability, you have some empirical evidence to help you. Of course, you will still need to build the specific business case project-by-project, but the general evidence is strong.