According to research by consulting firm A.T. Kearny, compiled in their “Green” Winners Report, “companies committed to corporate sustainability practices are achieving above average performance in the financial markets during this slowdown.” The key is that the commitment to sustainability be authentic.
In cases where it is integrated into a company to deal with human and natural resources in a sustainable manner and sell products that have low environmental impact, those companies are outperforming their industry piers in the financial markets by as much as 15%. According to the report, “in 16 of the 18 industries examined, companies recognized as sustainability-focused outperformed their industry peers over both a three and six-month period, and were well protected from value erosion.” Not insignificant in these difficult economic times.
These companies share certain traits, which investors have rewarded, according to the research:
A Focus on long-term health rather than short term gains. These companies don’t just focus on maximizing quarterly returns, but look at strategies of at least 5 years that take into account changing regulatory, demographic and environmental conditions. They are also prone to invest in increased efficiency, reducing their operating costs and their environmental impact. The returns on such thinking may not be immediate, but the right investors will see the long-term value of such a strategy.
Strong Corporate Governance. Companies that have implemented ethics, transparency and oversight policies that extend to their supply chain earn the respect and trust of investors. As the report explains, “For one leading media company, strong corporate governance has been fundamental to its business success. The company adopted principles from the United Nations Global Compact— a strategic policy initiative through which businesses align with universally accepted principles in human rights, labor, environment and anti-corruption. The Compact is embedded into daily business practices and is applied to supplier codes of conduct, company policies, and compliance procedures for confidential reporting and auditing, among other areas.”
Sound Risk Management Practices. This is part of taking a long-term strategic view; identifying potential risks and liabilities down the road and addressing them preemptively. Identifying potential risks, whether economic, environmental or political, can also help a company identify future needs and opportunities to meet them.
A History of Investing in Green Innovations. “Green innovations—such as reducing waste and emissions, using alternate energy sources, and producing natural products—have become something of a “me too” cause in recent years. Yet companies with a history in green innovations have reaped the most benefits.” This is in part true because those companies tend to stay on the cutting edge of new technology and integrate that into their products and processes, saving money and fostering innovation. The report uses as an example an auto company that looks to make each subsequent model more energy efficient than prior models.
Sustainability focused companies in media and automobiles did particularly well, exceeding the industry average by 20% and 28%, respectively. Retail products and financial services that integrated sustainable strategy beat their competitors by 17% and insurance companies did 15% better than the average.
The bottom line? A company shouldn’t scrap its sustainability initiatives during difficult economic times. If anything, it should increase and better integrate them to see a competitive edge and to exceed market expectations.