For anyone who’s ever questioned the business value of sustainability, a new study published by Oxford University and Arabesque Partners (as reported in Forbes on Monday) should make for thought-provoking reading…
How sustainability drives financial outperformance
‘From the Stockholder to the Stakeholder’ (a full copy of which can be downloaded from Arabesque’s website) is a meta-study of more than 190 academic papers, industry reports, newspaper articles and books, and it provides some of the strongest evidence yet of the positive correlation between good sustainability practices and corporate performance. For example:
- 90% of studies show that sound ESG (Environmental, Social and Governance) standards lower the cost of capital
- 88% show that they also result in better operational performance
- 80% indicate that stock price performance is positively influenced by good sustainability practices
Short-termism is the enemy
The numbers above offer empirical proof of what most of us already know in our gut – that doing good is great for business – and their importance can’t be understated, especially in the context of four more very telling statistics quoted in the report:
- 80% of CEOs view sustainability as a means to gain competitive advantages relative to competitors, and yet…
- Only 33% of them think that business is making sufficient efforts to address global sustainability challenges; this is at least in part because…
- 79% of them feel under pressure to deliver financial results in two years or less, and…
- 86% say this is in contrast to their innate convictions
In other words, the vast majority of CEOs want to make business decisions over a longer time horizon and integrate sustainability more fully into their businesses, but feel hamstrung by markets’ narrow focus on maximizing short-term shareholder returns (an insight, by the way, that casts a very interesting light on Unilever’s abandonment of earnings guidance and quarterly reporting).
Sustainable growth: changing the frame
Therein (as the Bard once wrote) lies the rub and, as a growing number of influential business leaders are arguing with considerable passion and conviction (notably the likes of Richard Branson, Paul Polman and Arianna Huffington, under the auspices of The B Team), it’s precisely this narrow definition of value that needs to change if business is to succeed in building a better working world.
- From share value to shared value – leaders make it their business to be a force for good in the world, not just through philanthropy, but by delivering core products and services that tangibly contribute to the wellbeing of people and communities. They do so on the understanding that businesses with ideals of improving lives at their core are substantially outperforming the general market (by 120% according to Havas Media’s Meaningful Brand Index).
- From next quarter to next generation – what it means to be a successful business is judged by the capacity to create and sustain value over the long-term, including innovating new business models that decouple growth from environmental degradation. This is on the understanding that, among other things, there’s an estimated US$1tn in economic value to be unlocked by transition to a circular economy.
- From financial accounting to true accounting – businesses illustrate their capacity to create value in a way that reflects the commercial, social and environmental context within which they operate, i.e. fully accounting for their impact on (and stewardship of) not only financial but also human, social and natural capital. They do so on the understanding that a business gets the investors it deserves and that, if they want to attract long-term investors, then they need to offer a more systemic view in order to build trust and confidence in their ability to create and sustain value over the long-term.
Purposeful. Enduring. Real. These are the watchwords that, for me, define sustainable growth.