New Study Finds Correlation Between Financial and Sustainability Performance

Is there a financial return on sustainability? Can a company improve its financial performance by increasing its focus on the environment, its employees and suppliers, and the communities in which it operates? Will producing comprehensive sustainability reports enhance these returns?

The answer to all of these questions is “yes,” according to a study released last week by the Centre for Sustainability and Excellence (CSE), a sustainability consulting and educational organization.

To complete the study, researchers looked at 642 sustainability reports published last year by private companies and other organizations in the U.S. and Canada. From this group, they examined financial results for the 50 companies with the highest environmental, social and governance (ESG) scores, and found that 73 percent of these companies recorded higher revenues in 2017 compared to 2016—indicating a “strong correlation between financial performance and sustainability performance.”

To determine which companies had the highest ESG rankings, CSE relied on ESG scores developed by CSRHub, a sustainability benchmarking firm. CSRHub aggregates information on corporate sustainability performance from several different data sources and scores performance in four areas:

  • Community: Community development and philanthropy; product; human rights and supply chain
  • Employees: Compensation and benefits; diversity and labor rights; training; health and safety
  • Environment: Energy and climate change; environmental policy and reporting; resource management
  • Governance: Corporate board; leadership ethics; transparency and reporting

This is the third annual study from CSE examining corporate sustainability reports and the second that used this exact methodology. Last year’s report produced similar results, with two-thirds of companies with the highest ESG rankings showing better financial performance by revenue than companies with lower rankings during the period of 2014 to 2016.

Countless studies have been performed and reports written that support the business case for sustainability. What’s unique about CSE’s approach is that it’s the first to identify the possible links between having a sustainability strategy, goals and reports to the financial performance of companies and organizations.

“The unique element of our methodology is that we identify strong correlations between CSRHub top-rated companies that publish a sustainability report and their financial performance,” Nikos Avlonas, CSE’s founder and president, told TriplePundit.

Such consistent results should help dispel the notion that sustainability will be a burden on business by increasing communications and operations costs. In fact, Avlonas believes the opposite is true.

“Our research shows that increased attention to a sustainability strategy with comprehensive sustainability reporting influences profitability positively,” he told Forbes. “Transparency and comprehensive sustainability goals are great business enablers and support the success of corporate strategies. Stakeholders, including investors, shareholders and clients, see more opportunities and have more trust in these companies.”

Other findings in the report provide deeper insights into the correlation between top ESG performers and comprehensive sustainability reporting. For example, a third (32 percent) of the top 50 companies seek external assurance for their reports, a process that enhances the report’s credibility by having the reporting methodology validated by a third party. External assurance among the top ESG performers was about 6 percent higher than the average for all companies in the research.

Some 36 percent also integrate the United Nations Sustainable Development Goals (SDGs) into their reporting, which is 22 percent higher than the average and double the number from last year’s report. Some 44 percent report to CDP, which is 20 percent higher than the average in the research.

The Global Reporting Initiative (GRI) is clearly the reporting framework of choice, with 67 percent of the top 50 companies producing reports to this international standard.

You can download a summary of the report from the CSE website, which also includes an analysis of how artificial intelligence and blockchain technology will impact sustainability strategies and reporting in the future.

Image credit: RawPixel via Unsplash

Jim Witkin is a writer based in Silicon Valley and London focused on business, technology and the environment. His work has been featured in the New York Times and Guardian newspapers. He holds an MBA in Sustainable Management from the Presidio Graduate School. Contact him at jameswitkin@gmail.com