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- Dec. 10, 2014 -

 
       
   

Supply Chain Graphic of the Week: High Sustainability Companies Outperform, Study Says

 

A Look at 20 Years of History Shows Companies that Invest in Sustainability Achieve Strong Payback in Stock Price, ROA

 
       
   

By SCDigest Editorial Staff

 
   

 

Do companies that are highly committed to sustainability (environmental, workplace, social, etc.) perform better fnancially than do those less inclined? Or do they actually perform worse, due to costs associated with sustainability that do not bring much return? Or maybe it doesn't really matter?

The answers to those questions would be good to know, right?

 

A new piece from George Serafeim, an associate professor of business administration at the Harvard Business, as recently published on think tanks The Brookings Institute web site, certainly sheds a lot of light on the topic.

 

To greatly summarize, Serafeim and some colleagues recently identified 90 pairs of similar companies, one of which could be considered as exhibiting "high sustainability," and the other "low sustainabilty, going all the way back to 1990.

 

They then tracked combined stock price gains from 1990 through 2010, as well as other financial metrics, as shown in the graphic below, where the red line reacks the high sustainability group and the blue line the low sustainability companies' market performance:

 

 

High Sustainability Companies Far Outperform Others in Stock Performance

 

 

 

 

On a risk-adjusted basis the outperformance was 4.8% annually.


The research found similar results for the measures of return-on-assets and return-on-equity. Moreover, this outperformance was more pronounced for companies that sell products to the end consumer (i.e., business-to-customer [B2C] companies), compete on the basis of brand and reputation, and make substantial use of natural resources.

 

We'll note there could perhaps be some other explanations for the increased valuation over time for high sustainability companies. For example, perhaps high profit firms have more latitude to pursue sustainability agendas, making high sustainability a result not a cause of outsized stock valuations.


Still, this is very excellent research that has been supported by other such studies as well, as Serafeim observes in his article.

 

Full story here: Research Shows Companies with High Levels of Sustainability Gain Major Stock Price Advantage

 

 

Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback section below.

 
   
 
   
 

Recent Feedback

Efforts towards sustainability has many fronts such as product, people (staff, dealers & partners), price, market positioning, etc., so a study that addresses the sustainability programs in these areas will be a valuable addition to the study.


Jose Lukose
Supply chain Distributions Manager
OSN
Dec, 18 2014
 


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