Sustainability Strategy and Long-term Performance

Kimberly Gladman

At the NAEM conference in Fort Lauderdale last May, I spoke about recent academic research on the link between corporate responsibility—in particular, positive environmental policies—and stock price performance.   (For a review of the studies I talked about, see my paper, “Ten Things to Know about Responsible Investing.” )  I promised NAEM staff that I’d stay in touch and keep them updated when I heard of additional research that might be of interest to the membership.  A paper just out from Harvard Business School definitely fits the bill.

In “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” Professors Bob Eccles, Ioannis Ioannou and George Serafeim began by identifying companies that disclosed a set of environmental and social policies in 2003-2005.  They then conducted over 200 interviews with corporate executives to ascertain which companies had already begun to implement these policies internally in 1993.

Once they had a set of 90 early adopters, they created a matched sample of companies that had few sustainability policies, but were otherwise similar to the first group in terms of size, sector, growth stage and capital structure.  Comparing shareholder returns for the two groups, they found that the high-sustainability group outperformed its low-sustainability peers by an annualized 2.3 percent on an equal-weighted basis,between 1993 and 2011.

The authors also demonstrated, based on a statistical analysis of keywords in analyst calls, that high-sustainability companies are more likely to discuss long-term trends and non-financial matters with investors.  They study ownership and show that high-sustainability companies attract longer-term investors with more concentrated holdings.  They also show that high sustainability companies also are more likely to have a board oversight of sustainability, to incorporate sustainability metrics into executive compensation, and to disclose non-financial performance. (The full study can be found at

While the study’s performance numbers may be welcomed by corporate environment, health and safety (EHS) managers as evidence that sustainability pays, it would be interesting to know the relationship between a company’s survival rate and its sustainability activities. For example, does management of social and environmental issues acts as a kind of insurance policy, making a company more likely to be around long-term?

NAEM members would probably have valuable opinions on this question.  They would also be able to offer useful perspectives on one of the study’s key follow-up questions:  What ensures that companies stay the long-term course in terms of sustainability culture?  Why do some companies’ programs fall apart if a key manager leaves, while other firms seem to have environmental consciousness baked into their “DNA”? These questions are just part of the lively discussion this paper is provoking.

What do you think?


About Kimberly Gladman

Dr. Kimberly Gladman is the Director of Research and Risk Analytics at GMI, a leading provider of corporate governance, accounting, environmental and social research and ratings.

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