Planet vs. Profit: Doing Well by Doing Good

This is Part 1 in a 3-Part Series.

Corporate Sustainability / Social Responsibility (CSR) and Environmental, Social and Corporate Governance (ESG) are terms that have caught a lot of tailwind in the past couple years.  Shareholders, corporate management, lobbyists and legislators have all feuded over the implications of sustainable practices in the business environment.   According to the Harvard School of Business these practices impact the financial health of a company and its ability to offer sustainable growth for the long term future, they support a company’s ability to be both environmentally and socially responsible, and they promote responsibility for good policy making regarding stakeholder engagement and employee retention (Eccles, Ioannou, & Serafeim, 2011).  Some believe, however, corporate sustainability policies create a damper on earnings, provide distractions amongst management when it comes to focusing on core competencies of the business, and have no economic foundation.  This notion of corporate sustainability has never been more prevalent amongst shareholders as it is today--and it has never been more wrong (2011).

Examining a sample of 180 companies comprised of “high” and “low” sustainability companies, Harvard found a substantial character difference between them. Most significantly, they found in high sustainability companies the board of directors is much more likely to have responsibility for sustainability, and top executive incentives are more likely linked to sustainability metrics (Eccles et al., 2011).  These companies also exhibit better organization of stakeholder engagement, tend to be more long-term oriented, display better measurement and disclosure of non-financial information, and even outperform their low sustainability counterparts (2011).   

 Perhaps the biggest misunderstanding of corporate sustainability is that it is irreconcilable with economic values. Many even believe such policies open a company up to weakness not felt by corporations that do not pursue similar initiatives (Henisz, Dorobantu, & Nartey, 2011; Eccles et al., 2011). This appears contrary to actual findings.  I believe the society we live in is perplexed by a culture in which it appears the fiscally conservative are environmentally liberal and the fiscally liberal are environmentally conservative.  This is ironic when you consider the root meaning of the word conservative.  It is derived from the word “conserve”, which heeds us to use resources sparingly and carefully—exactly what sustainability is all about. I believe the confusion, and the arguments they beget are partially to blame for society’s dissonance towards the topic, causing many to not acknowledge the values that can be achieved from the implementation of sustainable practices. Unfortunately, too often it appears that those with a vested interest in the issues are only interested in proving which theory is right, and which is wrong, leaving outsiders to miss the reality all together.  Corporate sustainability policies have strong implications beyond just abating climate change and pollution--they are also economically driven.  In fact, environmental conservatism is compatible with fiscal conservatism.  

 

References

Eccles, R., Ioannou, I., & Serafeim, G. (2011). The impact of corporate culture of sustainability on corporate behavior and performance.  Harvard Business School. Retrieved from  http://hbswk.hbs.edu/item/6865.html

Henisz, W. J., Dorobantu, S., & Nartey, L. (2011). Spinning Gold: The Financial Returns to External Stakeholder Engagement. The Wharton School, University of Pennsylvania. Retrieved from http://www-management.wharton.upenn.edu/henisz/hdn.pdf

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.