The Bottom Line on Sustainability
Does Sustainability Pay?
One perennial debate is whether taking sustainability seriously improves financial results. Convincing data are elusive, although most people assume a small, positive relationship. Fifty-seven percent of executives surveyed by the Economist Intelligence Unit responded that the benefits of pursuing sustainable practices outweigh the costs, although well over 80 percent expect any change to profits to be small.
Ed Potter, director of global workplace rights at Coca-Cola, a global leader in the beverage industry, notes that demonstrating the link for an entire company would involve important measurement issues. “I don’t think that anyone has established the connection in accounting terms,” he says. “Much of this is based on faith and a belief that there is a clear connection.”
Michael Prideaux, director for corporate and regulatory affairs at British American Tobacco (BAT), the world’s second-largest tobacco company, agrees that the link is difficult to demonstrate mathematically. “It is an implicit one: If a business is not seen to be sustainable, it is unlikely to be highly valued. I’m absolutely convinced that it is there, but can’t prove it. As far as costs are concerned, good behavior doesn’t cost much, and, on the environmental side, if you use less raw material, you can save money.”
One striking finding of the Economist Intelligence Unit survey is the connection between corporate sustainability and strong share price performance. Companies with the highest share-price growth over the previous three years paid more attention to sustainability issues, whereas those with the worst performance tended to devote less time to those issues. The link appears clear: The companies that rated their efforts most highly over the three-year period saw annual profit increases of 16 percent and share-price growth of 45 percent, whereas those that ranked themselves worst reported growth of 7 percent and 12 percent, respectively. In general, the high-performing companies put a much greater emphasis on social and environmental considerations at the board level, whereas the poorly performing firms were far more likely to have nobody in charge of sustainability issues.
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