Study ties sustainability to stock performance

Report also reveals supply chain as a blind spot for companies’ sustainability plans

Companies paying closer attention to embracing environmentally and socially responsible practices enjoyed higher stock-share growth over the past three years compared to do companies didn’t, according to survey results released this month by The Economist Intelligence Unit (EIU).

“Causality is difficult to establish but the link appears clear,” says the report titled “Doing good: Business and the sustainability challenge,” drawing from a survey of 1,254 business executives from around the globe. “The companies that rated their efforts most highly over this time period saw annual profit increases of 16 percent and share price growth of 45 percent, whereas those that ranked themselves worst reported growth of 7 percent and 12 percent respectively. In general, these high-performing companies put a much greater emphasis on social and environmental considerations at board level, while the poorly performing firms are far more likely to have nobody in charge of sustainability issues.”

(These findings may not come as a surprise to those who have read “Green to Gold”, in which author Andrew Winston shared similar conclusions.)

Additionally, just over half of the executives surveyed said that “the benefits of pursuing sustainable practices outweigh the costs, although well over eight out of ten expect any change to profits to be small.”

The greatest cost reduction, according to the execs: lower energy expenditures, though sustainable practices can also open up new markets and boost a company’s reputation.

When asked which actions they’d implemented in the past five years to address sustainability, the top response at 55 percent was “set policies to reduce energy consumption.”

Next on the list, at 51 percent, was “Taken steps to improve governance in relation to your organization’s environmental and social performance” at 51 percent, then “Revised and tightened controls to support ethical business dealings/avoid allegations of corruption” at 40 percent.

Supply chain as the weakest link

According to the report, the supply chain remains a sustainability blind spot for most organizations. Only 29 percent of respondents said they had a sustainability plan in covering the entire organization and its supply chain. Further, only 35 percent said they considered it important to take action in regard to addressing suppliers’ sustainability practices.

That trend may change, though, as more big-name companies such as HP, Dell, IBM, Motorola, and Wal-Mart draw attention to the business case for keeping the supply chain clean.

“Doing good: Business and the sustainability challenge” can be downloaded for free EIU Web site.

Ted Samson is a senior analyst at InfoWorld and author of the Sustainable IT blog. Subscribe to his free weekly Green Tech newsletter.