ESG Culture Drives Long-Term Performance

 

“One of the really important questions about how sustainability impacts corporations is understanding…the impact of sustainability on corporate behavior, and as a result on corporate performance,” says Serafeim about the initial impetus for the research team.

‘High’ versus ‘low’ sustainability organizations

To get a clear ‘baseline’ the researchers created two groups of organzations for their study: 90 ‘High Sustainability’ companies “with a substantial number of environmental and social policies that have been adopted for a significant number of years (since the early to mid-1990s)” and a control group of 90 companies, comparable in size, type and sector, who had adopted none of these strategies — the ‘Low Sustainability’ companies.

Corporate culture of sustainability

The results presented in the white paper indicate that companies that have over the past 20 or more years cultivated a culture of sustainability are more likely to communicate and act in a manner that is focused on the long-term; that they provide financial incentives for managers that are based on environmental and social performance; and that the boards of these ‘High Sustainability’ companies are likely to adopt a governance structure in which the Board reviews the sustainability performance of the organization.

Outperforming the competition over the long term

The research team found that sustainable organizations outperform their competitors over the long term, particularly in three sectors: “The outperformance is stronger in sectors where the customers are individual consumers instead of companies; [where] companies compete on the basis of brands and reputations;and [sectors in which] products significantly depend upon extracting large amounts of natural resources,” according to the abstract of the white paper.“In these sectors…building a culture of sustainability is probably going to pay off more,” says Serafeim in this video interview.

References

This video interview was recorded in New York City on 13 December 2011 during the ESG USA 2011 Conference “Investing for a Sustainable Economy,” organized by the Responsible Investor in association with Bloomberg.

This article may be reproduced according to our terms of use with attribution (and link, if online) to www.tias.edu. To be cited as: “An ‘ESG’ corporate culture creates high performance in the long term”, George Serafeim, www.tias.edu, February 14, 2012.

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Audio transcript (mp3)
Low-res video (mp4)
Research Paper